Not understanding your tax liability can cost you
Surprisingly, farm taxes became a talking point during this fall’s election. If you don’t already, you should know what the gubernatorial candidates were discussing. Here’s a recap on what you need to know about the Wisconsin Manufacturing and Agriculture Tax Credit and Personal Property Tax Exemption.
Wisconsin MAC Credit
The MAC is a subtraction from taxes owed. MAC is a credit subtracted from the tax on farm income. It is calculated on farm income only and subtracted from the farm portion of the Wisconsin income tax. It does not reduce the Wisconsin income tax on non-farm income. The income that it is applied to must be generated on farms located in Wisconsin. Presently the tax credit is 7.5 percent. The top tax rate on income in the state is 7.65 percent. Agricultural producers pay very little, if any Wisconsin income tax on farm income. If the credit cannot be used in the current year it can be carried forward 15 years.
For example, if a farm had $500,000 in taxable farm income, they would pay 0.15 percent tax or $750. (7.65% - 7.5% = 0.15%) If they did not have the 7.5% reduction the taxes paid would be $38,250 ($500,000 * 7.65%.) However, if an individual had $200,000 in taxable farm income and additional $300,000 in non-farm taxable income the 7.5 percent reduction only applies to the farm income portion. In this case the tax on the farm income is $300 and the tax on the non-farm income is $22,950 for a total of $23,250.
By only applying the tax credit to farm income it prevents individuals from using farms as tax loop holes to reduce taxes from other income sources. This allows the credit to benefit the intended industry: agriculture.
MAC shows that the state is serious about keeping farming prevalent in Wisconsin. There are approximately 68,500 farms in Wisconsin, covering 14.3 million acres. About 12 percent of Wisconsin’s workforce is employed because of agriculture and every job supports another 1.46 additional jobs in the state.
This credit is a huge benefit to our agricultural community. It reduces the tax burden on farmers, leaving more income to invest back into the business. This credit is very beneficial to farms of all sizes.
If you have primarily farm income and are paying Wisconsin income tax, ask your tax preparer about the MAC. If your tax preparer does not know about the MAC it is time to look for a tax professional that specializes in farm taxes.
Personal Property Tax Exemption
A personal property tax is a tax paid on the value of an item. Many states apply a personal property tax to vehicles. Individuals must pay a tax based on the vehicle’s value every year. A personal property tax applied to manufacturing means a manufacturer must pay a tax on the value of all equipment each year. For example, manufacturers pay personal property tax on the machinery they use in manufacturing like presses, forklifts, weld equipment and even computers.
Personal property tax used to be applied to agriculture also. My 91-year-old dad remembers the 1940s and early 1950s when there was a personal property tax on livestock, cows and pigs. However, he does not recall there ever being a personal property tax on farm machinery.
In September 2017, Governor Walker signed into law the most significant reduction in Wisconsin’s personal property tax in nearly 40 years. By my dad’s recollection, that would be closer to almost 70 years when the personal property taxes on business inventories and farmers’ livestock were repealed. Under 2017’s Wisconsin Act 59, effective with property assessed as of January 1, 2018, machinery, tools and patterns (personal property) will be exempt from the personal property tax.
Wisconsin Act 59 does not impact the taxes paid by farmers since agriculture has enjoyed these exemptions for many years. However, it will reduce the tax burden on processors of agriculture outputs like farm machinery, cheese plants, feed mills, shavings processors, etc.
Knowing tax law is important. Knowing your elected officials’ positions on farm tax law is equally important. I encourage farmers to ask questions to be sure they understand these critical implications to your bottom line.
Maedke is an enrolled agent tax advisor at Maedex Tax and Farm Accounting, LLC, in Fond du Lac. This article originally appeared in the Wisconsin Farm Bureau's Rural Route publication.