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Not taking advantage of the latest exemption to personal-property taxes? You should be

On Jan. 1, 2018, the Wisconsin Legislature eliminated the personal-property tax on machinery, tools and patterns.

Your construction company can already take advantage of this tax cut, especially if you do heavy and highway work. However, the state of Wisconsin has not provided much application guidance, and there are reports of local municipalities still taxing exempted personal property. Fortunately, there is a dispute-resolution process to regain unlawfully collected taxes.

Wisconsin is one of the few states that still taxes personal property. Over the past century, elected officials have exempted certain types of property from the personal-property tax, including agriculture equipment, animals, and supplies (1923, 1937, and 1941); manufacturing equipment (1974); and computer equipment (1999 and 2003). As a result, more than 95 percent of Wisconsin personal property is exempt, leaving a vestigial tail of a tax. The consensus from taxpayers, tax collectors, and elected officials is that the Wisconsin personal-property tax is not applied uniformly or fairly, and is complicated to pay and cumbersome to collect. However, it still generates more than $200 million annually for local governments.

During the 2017-19 state budget, the most significant exemption since 1999 was adopted for non-manufacturing machinery, tools, and patterns. This new exemption saves personal property taxpayers $75 million each year, while taking steps to ensure local municipalities aren’t harmed by the lost revenue. In addition, this reform saves administrative time for both taxpayers and tax collectors. Construction companies should evaluate whether their property is required to be included elsewhere on property-tax returns or is an otherwise exempt item.

The Wisconsin Department of Revenue has not provided much guidance, or even a list of qualified property, to assist taxpayers and tax collectors – thereby leaving them to make their own interpretation of what is taxable and what is exempt. DOR officials under former Gov. Scott Walker blamed the method the legislators used to establish this most recent exemption. Tools, machinery, and patterns were reported on Schedule C of the Statement of Personal Property Assessment. The Wisconsin Legislature saw that Schedule C collected $75 million a year, exempted that amount, and backfilled the lost revenues to local municipalities. So, from the DOR’s point of view, everything exempted under this tax cut was previously listed on Schedule C. If an item of personal property was not otherwise exempt and was not previously listed on Schedule C, then it would not be exempt.

The problem arises for businesses that were not as careful as they should have been to differentiate which sorts of personal property went on Schedule C (Machinery, Tools & Patterns) or Schedule D (Furniture & Fixtures). The statutory definition of machinery appears clear, and is backed up by a Jan. 3, 2019, attorney general opinion: Generally, if a piece of equipment or machinery is plugged in, fueled by gas, or mechanically powered, it is now exempt. Now that there is an exemption for machinery, your business clients should re-evaluate their classifications of personal-property assets and move them to Schedule C or D, as necessary.

There have been reports of conflicting treatment by municipalities in assessing the personal-property tax. A claim for unlawful tax is the avenue for disputing a municipality’s assessment of your client’s personal property that you or your client believe is exempt by law from taxation.

If you own machinery that has not been exempted by your municipality, you can appeal the assessment by filing a claim against the municipality for unlawful tax. The proper venue, however, is not the local Board of Review, which typically deals with matters of subjective valuation. Rather, to claim a refund for an unlawful assessment, a taxpayer must first pay the tax, then file a signed, written claim for refund served with the clerk of the municipality, stating that the tax was unlawful because the personal property is tax exempt. If the municipality approves the claim, payment must be made within 90 days. If the municipality disallows the claim, the taxpayer may commence an action in circuit court to recover the amount of the claim not allowed within 90 days.

John Schulze is director of government and legal affairs at the Associated Builders and Contractors of Wisconsin.

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