By Tom Still
MADISON – More than 30 years ago, then-Gov. Pat Lucey and the Wisconsin Legislature agreed to exempt manufacturing equipment and machinery from property taxes. It was a bipartisan decision that has given Wisconsin industry an enduring edge, even when hard times and foreign competition threatened.
Today, Wisconsin policymakers are helping another business sector – technology – gain a competitive toehold by reducing state taxes that discourage home-grown innovation. If the pattern continues, the bipartisan work taking place in the first decade of the 21st century will help propel the state economy for years to come.
A little-noticed legislative hearing last week illustrated the trend. State Rep. Steve Wieckert, R-Appleton, has introduced Assembly Bill 623, which would give businesses a sales tax break for electricity used in research and development. In other words, if Kimberly Clark spent $1.5 million per year on electricity to power its Wisconsin research facilities – and that’s a pretty good estimate – it would not pay $75,000 in sales taxes it would otherwise owe the state Department of Revenue.
That may seem like a relatively small item to a multi-billion-dollar company, but every bump in the bottom line helps when it comes to corporate decisions on where to locate research facilities. That is especially true for a company such as Kimberly Clark, which has deep Wisconsin roots but is headquartered in Texas and has significant production facilities in Georgia. If there’s a reasonable way to give Wisconsin an edge over Georgia or Texas, it’s worth doing because it could mean retaining or adding high-wage jobs. That’s why Gov. Jim Doyle appears to support Wieckert’s bill.
Increasingly, policymakers from both parties are pursuing tax changes – big and small – that could spur Wisconsin’s high-tech environment. Early this year, Wisconsin Act 255 took effect. That law created tax incentives for angel investors and venture capitalists who invest in “qualified” Wisconsin tech companies, and the results so far are encouraging. Investors are using the credits to ease the risk of investing in early-stage companies that could generate tomorrow’s jobs.
In the last state budget, Doyle approved a change in how earnings of certain tech companies are taxed. Effective for tax years starting in 2005, revenue from the licensing of computer software and services will be treated as Wisconsin revenue only if the purchaser of the software or services uses them in Wisconsin. This change equalizes the tax treatment of affected tech companies compared to traditional manufacturing companies.
Had the Wisconsin rules not been changed, Wisconsin-based tech companies would have continued to be doubly taxed on each sale – by Wisconsin, which has treated out-of-state sales as Wisconsin sales, and by the destination state. By moving to “destination state” sourcing rules, Wisconsin can shift some tax burden to out-of-state and foreign sources without losing state revenue.
At last week’s meeting of the Wisconsin Technology Council in La Crosse, Commerce Secretary Mary Burke talked about incentives contained in Doyle’s latest “Grow Wisconsin” plan. They include proposals to expand Act 255 credits, matching start-up money for the Biomedical Technology Alliance in southeast Wisconsin, $30 million in bonding to help create more business incubators, and extending “destination state” tax sourcing rules to sales by biotechnology companies.
During the same meeting, state Sen. Ted Kanavas, R-Brookfield, described his “Invest Wisconsin” plan. That initiative includes tax credits to promote innovation in manufacturing and agriculture, and tax credits to help extend broadband Internet service to under-served areas around Wisconsin.
Republicans and Democrats alike are working to warm Wisconsin’s tax climate for innovative companies. Indeed, recent surveys indicate the business tax climate in Wisconsin is improving and may even be among the nation’s top third. While a great deal of work remains to be done, a foundation for a healthier economy is being laid today.