Compliance Journal August 2023
Special Focus WBA wishes to thank Jessica Schwantes, CPA and partner with Wipfli LLP for providing this article. Wipfli is a WBA Bronze Associate Member. For more information about the 2023-2025 Wisconsin State Budget be sure to review last month’s WBA Compliance Journal which may be found on the Compliance Resources page of the WBA website at: https://www.wisbank.com/resources/compliance/
Huge Tax Savings for Banks On July 5, 2023, Governor Evers signed into law Section 71.05(1)(i) and 71.26(i) of the Wisconsin tax code with the 2023-2025 State Budget. These two sections provide significant tax savings for banks that provide business and agricultural loans to Wisconsin businesses. The estimated tax saving is $34 million in 2023 and $37 million in 2024. The reason Section 71.05(1)(i) and Section 71.26(i) basically read the exact same is because one section is for the exclusion from individual income taxes and the other is from corporation income. The law states that effective for taxable years beginning after December 31, 2022, income of a financial institution as defined in s. 69.30(1)(b), including interest, fees, and penalties, derived from a commercial loan of $5 million dollars or less provided to a person residing or located in Wisconsin and used primarily for a business or agricultural purposes is exempt from tax. The exclusion is effective for this year already. It applies to C-Corporations, S-Corporations, and S-Corporations that elect to be taxed as a C-Corporation for Wisconsin purposes. The interest, fees, and penalties earned on business and agricultural loans of $5 million or less to Wisconsin customers should be removed from your monthly state tax calculation. We are waiting for additional guidance from the Wisconsin Department of Revenue. The current understanding is that it applies to business and agricultural loans that have a commercial loan agreement where the original principal is $5 million or less. It does not matter if the loan was issued prior to the effective date of the law of 01/01/2023. The intent of the $5 million threshold was not to create multiple smaller loans to achieve the exemption. We are expecting the additional guidance to clarify how aggregation of related transactions will occur. The loan needs to be to a Wisconsin customer. It does not need to be a Wisconsin incorporated business or have the collateral located in Wisconsin. The customer needs to be located in Wisconsin and the use of the loan is primarily for business or agricultural purposes. Many banks have already done the analysis to see how it impacts them. The new law may eliminate all of a bank’s Wisconsin taxable income. The thing to consider with this fact pattern is whether or not a bank should record a deferred tax asset for the net operating loss carryforward that is created. A bank will have 20 years to use a Wisconsin net operating loss carryforward. Banks should consult their tax advisor to discuss the implication for the bank or contact me, Jessica Schwantes at: JSchwantes@wipfli.com or at 608-270-2931. Again, WBA wishes to thank Jessica Schwantes, CPA and partner with Wipfli LLP for providing this article. Wipfli is a WBA Bronze Associate Member.