Imagine purchasing a new lawn tractor as a homeowner. Upon buying it, you’d expect to pay the state sales tax according to the price — or value — of that purchase.
Now imagine that you had to pay an additional tax on that tractor every single year until you got rid of it. That sounds a little excessive, doesn’t it?
Luckily, Wisconsin eliminated the tax on homeowners’ personal property a long time ago. So this won’t happen the next time you purchase a John Deere.
Some businesses are even privileged enough to be exempt from the personal-property tax. Yet, there are numerous industries that are stuck paying the tax simply because they were not special enough to get one of the more than 50 exemptions to the law that are on the books.
I know what you are thinking. There must be solid and logical reasoning behind each exemption, right? Think again. Under the law, youth baseball associations are exempt from paying personal-property taxes on their equipment, but youth soccer associations are required to pay it. Try to explain that one.
As it turns out, the construction industry is in the same boat as youth soccer. Much of the equipment used to literally build Wisconsin’s economy is subject to the personal-property tax, and it can get quite expensive.
How expensive? Picture a brand-new piece of equipment worth $200,000. If a contractor purchased it in 2015, it would have been subject to the state’s 5.5 percent sales tax — adding another $11,000 to the final bill.
That is not enough for the government, however. The contractor was also subject to personal-property taxes that year based on a formula set by the Department of Revenue. At the average property tax rate of $19.91 per $1,000 of value, the contractor would owe another $3,683 in personal property taxes just for 2015.
Over the next 10 years, as it is depreciated at a preset amount, the contractor would have to pay an additional $17,385 in personal property taxes — on just one piece of equipment. In total, the contractor would be on the hook for more than $32,000 in taxes from 2015 to 2025, which is an effective tax rate of more than 16 percent on the original purchase.
The taxes do not stop there, though. In the 11th year of owning a piece of equipment, the government determines the value to be 13.9 percent of the original purchase price. That means, as long as the contractor owns the equipment, it will be taxed in some way, shape or form. Even if the actual value drops to zero, the personal property tax never will.
With such high costs, this can be an enormous deterrent to buying new equipment and expanding a business. Plus, that is on just one piece of equipment.
It is not unusual for contractors to have millions of dollars worth of equipment on their books. If the personal-property tax was eliminated, it could open up tens of thousands of dollars a year that a contractor could use to create new jobs, purchase new equipment and reinvest in the company and Wisconsin’s economy.
The good news for the construction industry is that legislators are starting to listen on this topic. Before the last session started, the Senate and Assembly convened a Symposium Series on the Personal Property Tax. After hearing from a wide range of experts, most of the legislators called for the tax to be eliminated.
State Sen. Duey Stroebel, chairman of the symposium, argued not only that the tax has a “swiss cheese” structure, but that Wisconsin must act to remain an able competitor of other Midwest states.
“Every state neighboring Wisconsin either has no personal property tax or is in the process of phasing it out,” Stroebel said in a news release after the symposium. “Wisconsin needs to be competitive if we want economic and job growth. We can take an important step in that direction by repealing the antiquated and job-killing personal property tax.”
I suggest other legislators listen to Stroebel on this topic. Contractors and business owners alike across the state will say “thank you.”