Compliance Journal April 2024
Special Focus Summary of Recently Enacted State Legislation The 2023–2024 Wisconsin legislative session concluded recently, with WBA’s state lobbying efforts achieving many of its goals. It was a busy and productive session which saw passage of WBA supported legislation such as the financial institutions modernization bill, an update to Wisconsin’s Uniform Trust Code, and creation of a tool to help combat elder financial abuse. This was also a historic session, during which an unprecedented state tax exemption was created for banks on interest income for certain commercial and ag purpose loans. The above legislation, along with several other recently enacted state legislative items relevant to banks are summarized in this article. While some of the new laws affect banks directly, others may have no direct impact, but are included to provide an overall awareness of what occurred this session within the financial services industry as a whole. For more comprehensive information on each law, please review the applicable Act, for which a link is included at the end of each summary. Note that all Acts are effective as of the day after publication, unless indicated otherwise. Commercial Loan Tax Exclusion A momentous moment occurred this session with passage of a commercial loan tax exclusion (tax exemption) for the banking industry. The tax exemption passed as part of the 2023–2025 state budget, and includes clarifications incorporated through a tax clean-up bill, and an emergency rule issued by the Wisconsin Department of Revenue (DOR). The result of these three components is the realization of a long-standing WBA advocacy priority in creation of an income tax-exemption for covered commercial loans. Each component is summarized below. Wisconsin Budget Governor Tony Evers signed 2023 Wisconsin Act 19 in July of 2023 which passed the 2023–2025 state budget. Included within the budget is the historic tax exemption discussed above, which provides an income tax exclusion on income earned from commercial loans for business or agricultural purposes of $5 million or less where the borrower resides, or is located, in the state of Wisconsin (covered commercial loan). Specifically, the budget creates section 71.05(1)(i) and section 71.26(i) which provides an exclusion from individual income taxes and an exclusion from corporation income, respectively. The change is effective for taxable years beginning after December 31, 2022. For purposes of the exclusion, income includes interest, fees, and penalties, derived from a covered commercial loan. 2023 Wisconsin Act 19: https://docs.legis.wisconsin.gov/2023/related/acts/19.pdf Tax Clean-up Bill Following signing of the budget, a legislative fix was proposed to clarify the new tax exemption. This fix was incorporated into 2023 Wisconsin Act 146, a tax clean-up bill. The fix creates new section 71.365(4m)(d)1.bd. which provides that “for taxable years beginning after December 31, 2022, the income exclusion under s. 71.05(1)(i) shall be allowed.” The purpose for this fix is to clarify that the commercial and agricultural loan income tax exemption also applies to Subchapter S banks where the state income tax is paid at the entity or franchise level rather than the individual shareholder level. 2023 Wisconsin Act 146: https://docs.legis.wisconsin.gov/2023/related/acts/146.pdf