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How is the credit computed?
If a claimant is eligible for the credit based on both manufacturing and agricultural activities, the credit must be computed separately for each activity.
The credit is computed as follows:
Production Gross receipts1
Less: Cost of goods sold2
Less: Direct Costs3
Less: Indirect Cost4 multiplied by production gross receipts factor5
= Qualified production activities income6
Multiplied by manufacturing property factor7 or agriculture property factor8
= Eligible qualified production activities income9
Multiplied by credit rate in effect for the taxable year10
= Total credit
- For the manufacturing credit, production gross receipts are the receipts from the lease, rental, license, sale, exchange, or other disposition of qualified production property.
For the agriculture credit,
2019 Wisconsin Act 167 amended the definition of production gross receipts for taxable years beginning on or after January 1, 2019 to include the sum of gross receipts from the lease, rental, license, sale, exchange, or other disposition of qualified production property and insurance proceeds received as a result of the destruction of, or damage to, crops to the extent the proceeds are included in federal adjusted gross income for the taxable year.
Footnote7 and footnote8 describe what is qualified production property.
- Cost of goods sold are the production costs associated with the production gross receipts.
- Direct costs are the costs associated with the production gross receipts and include all the claimant's ordinary and necessary expenses paid or incurred during the taxable year to carry on a trade or business that are deductible as business expenses under the Internal Revenue Code and identified as direct costs in the claimant's managerial or cost accounting records.
- Indirect costs include all the claimant's ordinary and necessary expenses paid or incurred during the taxable year to carry on a trade or business that are deductible as business expenses under the Internal Revenue Code, other than cost of goods sold and direct costs, and identified as indirect costs in the claimant's managerial or cost accounting records.
- The production gross receipts factor is a fraction consisting of the production gross receipts (numerator) divided by the gross income from all sources except those specifically excluded under the Internal Revenue Code or excluded under Wisconsin law (denominator). Items included in the denominator include: gross sales, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital and business assets, gross income from pass-through entities, and all other gross receipts that are included in income before apportionment.
- Qualified production activities income is the amount of the claimant's production gross receipts for the taxable year that exceeds the sum of the cost of goods sold that are allocable to the receipts, the direct costs allocable to the receipts, and the indirect costs, with the result multiplied by the production gross receipts factor.
Qualified production activities income does not include any of the following:
- Income from film production
- Income from producing, transmitting, or distributing electricity, natural gas, or potable water
- Income from constructing real property
- Income from engineering or architectural services performed with respect to constructing real property
- Income from the sale of food and beverages prepared by the claimant at a retail establishment
- Income from the lease, rental, license, sale, exchange, or other disposition of land
- The manufacturing property factor is the average value of the claimant's real and personal property assessed under sec.
70.995, Wis. Stats., that is owned or rented and used in Wisconsin by the claimant to manufacture qualified production property (numerator), divided by the average value of all the claimant's real and personal property owned or rented during the taxable year and used by the claimant to manufacture qualified production property (denominator).
Note: In the 2024 taxable year the manufacturing property factor will become the average value of the claimant's land and depreciable property used in Wisconsin (numerator), and the average value of all the claimant's land and depreciable property (denominator).
Qualified production property is tangible personal property manufactured in whole or in part by the claimant on property that is assessed as manufacturing property under sec.
70.995, Wis. Stats.
Note: In the 2024 taxable year, qualified production property will include tangible personal property manufactured in whole or in part by the claimant on property that is located in this state and assessed as manufacturing under sec.
70.995(5n), Wis. Stats.
Any establishment starting manufacturing in 2024 that was not previously assessed must submit a written request to the nearest
Manufacturing & Utility Bureau District Office on or before July 1 of the year for which classification is desired.
See the
Guide to Wisconsin Manufacturing Property Assessment for information on how to request classification.
The property owned by the claimant is valued at its original cost and property rented by the claimant is valued at an amount equal to the annual rent paid by the claimant, less any annual rental received by the claimant for sub-rentals, multiplied by 8.
The average value of the property is determined by averaging the values at the beginning and ending of the taxable year.
- The agriculture property factor is the average value of the claimant's real property and improvements assessed under sec.
70.32(2)(a)4., Wis. Stats., that is owned or rented and used in Wisconsin by the claimant during the taxable year to produce, grow, or extract qualified production property (numerator) divided by the average value of all the claimant's real property and improvements owned or rented during the taxable year and used by the claimant to produce, grow, or extract qualified production property (denominator).
Qualified production property is tangible personal property produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under sec.
70.32(2)(a)4., Wis. Stats.
The property owned by the claimant is valued at its original cost and property rented by the claimant is valued at an amount equal to the annual rental paid by the claimant, less any annual rental received by the claimant from sub-rentals, multiplied by 8.
The average value of the property is determined by averaging the values at the beginning and ending of the taxable year.
- The amount of the eligible qualified production activities income that a corporate claimant may claim in computing the credit is the lesser of the following:
- The eligible qualified production activities income determined using the computation above
- Income apportioned to this state under sec.
71.25(5), (6), and
(6m), or
- Income determined to be taxable under sec.
71.255(2)
- For non-corporate claimants, the credit computed and any credits carried over from prior taxable years may only offset the tax imposed upon the business operations that were used to compute the credit.
- For shareholders of a tax−option (S) corporation, the credit may only offset the tax imposed on the shareholder's prorated share of the tax−option (S) corporation's income.
- For partners of a partnership, the credit may only offset the tax imposed on the partner's distributive share of partnership income.
- The manufacturing and agriculture credit rate is 7.5%.
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How is the qualified production activities income limited for corporations?
For a corporation, the eligible qualified production activities income is the lesser of:
- Eligible qualified production activities income,
- Income apportioned to Wisconsin, or
- Income taxable to Wisconsin as determined by Wisconsin's combined reporting law, if the corporation is a member of a Wisconsin combined group
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How is the credit limited for non-corporate claimants?
For non-corporate claimants, the credit is limited as follows:
- For non-corporate claimants, the credit computed and any credits carried over from prior taxable years may only offset the tax imposed upon the business operations that were used to compute the credit.
- For shareholders of a tax−option (S) corporation, the credit may only offset the tax imposed on the shareholder's prorated share of the tax−option (S) corporation's income.
- For partners of a partnership, the credit may only offset the tax imposed on the partner's distributive share of partnership income.
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In determining the amounts on Lines 1, 7 and 8, do we use the gross receipts determined under federal law?
The gross receipts are based on the IRC in effect for Wisconsin.
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Line 8 of Schedule MA-A and MA-M requires the inclusion of all gross receipts. What does the term all gross receipts mean?
Gross receipts means all gross income of the business from whatever source, except for those items specifically excluded under the Internal Revenue Code as adopted by Wisconsin and otherwise excluded under Wisconsin law. This includes gross sales, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital assets and business assets, gross income from pass-through entities, and all other gross receipts that are included in income, before apportionment.
Note: For
individuals, do not include gross receipts or income from sources not related to the business. For example, do not include your spouse's wages earned from an employer, and do not include rental income from an apartment building reported on Schedule E.
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When a sole proprietor pays their spouse wages, the wage expense reduces the amount of the credit. Can the sole proprietor use the credit to offset income tax resulting from the spouse's wage income since the wages were income from the business operations?
No. The wages are not income from business operations. They are an expense as the result of the business operations. If the wages are not included in the gross receipts from the business, they are not income from business operations.