Manufacturing and Agriculture Credit

General Questions:

  1. What is the manufacturing and agriculture credit?
  2. What happened to the Wisconsin qualified production activities credit?
  3. Who is eligible to claim the credit?
  4. Who may not claim the credit?
  5. What is the rate of credit?
  6. Is there a maximum amount of credit that may be claimed?
  7. How is the credit computed?
  8. How is the qualified production activities income limited for corporations?
  9. How is the credit limited for non-corporate claimants?
  10. What income producing activities do not qualify for the credit?
  11. Does income received from producing and installing real property qualify for the credit?
  12. Is the credit refundable or nonrefundable?
  13. Is the credit includable in taxable income?
  14. Can the credit be shared with other members of a Wisconsin combined group?
  15. When must the credit be claimed?
  16. Where can I find this credit in the Wisconsin Statutes?
  17. When is a tax-option (S) corporation with a fiscal year beginning October 1, 2012 and ending on September 30, 2013 eligible to claim the manufacturing and agriculture credit?
  18. I was subject to LIFO recapture (or similar change in accounting method) and as a result my cost of goods sold increased. How does this affect the computation of the manufacturing and agriculture credit?
  19. Can the manufacturing and agriculture credit offset Wisconsin alternative minimum tax?
  20. What are examples of direct costs?
  21. What are examples of indirect costs?
  22. If I elect to use a 52-53 week tax year beginning on December 29, 2012 and ending on December 28, 2013, am I eligible to claim the credit in 2013?

Schedule MA Questions:

  1. What form is used to claim the credit?
  2. Am I required to submit documentation with my tax return?
  3. Do I use my property tax bills to determine the average value of real property on lines 12 and 13 of Schedule MA?
  4. The amount of depreciation expense for federal and Wisconsin franchise/income tax purposes is different. Is the federal or Wisconsin depreciation expense used when computing the credit?
  5. The Wisconsin Statutes indicate that direct and indirect costs include all of the claimant's ordinary and necessary expenses paid or incurred during the taxable year in carrying on the trade or business that are deductible under section 162 of the Internal Revenue Code. Depreciation is an expense under section 167 of the IRC. Is depreciation included as a direct or indirect cost when computing the credit?
  6. Line 8 of Schedule MA requires the inclusion of all gross receipts. What does the term all gross receipts mean?

Manufacturing Property Assessment Questions:

  1. How do I know if my property is assessed as manufacturing?
  2. Am I required to determine if my property is assessed as manufacturing on a yearly basis?
  3. When are the applications for manufacturing assessments due?
  4. Am I required to be engaged in manufacturing operations on January 1, 2013 in order to request manufacturing classification by the deadline of March 1, 2013?
  5. If I do not request manufacturing certification by March 1, can I request certification later in the year?
  6. My business moved to Wisconsin and began manufacturing products on April 1, 2013. Can I request manufacturing certification for the 2013 calendar year?
  7. My business began manufacturing operations in Wisconsin on July 5, 2013 and at the same time applied for manufacturing status. May I claim the manufacturing and agriculture credit?
  8. I requested manufacturing certification prior to March 1, 2013 and was informed on July 15, 2013 that my request was denied. A timely appeal was filed, and on February 3, 2014, I was granted manufacturing status for the 2013 calendar year. May I file an amended franchise/income tax return to claim the manufacturing and agriculture credit in 2013?
  9. Company A acquires Company B, an existing business qualified as a manufacturer in Wisconsin, on February 15, 2013. Since they did not have property on January 1, 2013, no property tax returns are required for Company A. Company B files its Form M-P on March 1, 2013. Company A requests manufacturing classification prior to March 1, 2013. Does Company A qualify for the Manufacturing & Agricultural Credit for 2013?
  10. Is property that is exempt from property taxes included in the numerator of the manufacturing property factor for purposes of computing the manufacturing and agriculture credit?

Manufacturing Questions:

  1. A manufacturer generates income from the sale and installation of cabinets. What standard should be used to determine whether the cabinets should be treated as real property (sales and use tax laws, property tax laws, common law, etc…)?
  2. A manufacturer generates income from the following activities: sales of machinery and equipment, installation of that machinery and equipment, and maintenance/service contracts related to the machinery and equipment. Would all income of the manufacturer be considered qualified production activities income?
  3. Are guaranteed payments to partners considered a direct expense when calculating the manufacturing and agriculture credit?

Agricultural Property Assessment Questions:

  1. How do I know if my property is assessed as agricultural?
  2. Am I required to determine if my property is assessed as agricultural on a yearly basis?

Agricultural Questions:

  1. Can a person who rents his or her farmland to another person claim the credit?
  2. Are price protection crop insurance proceeds included as production gross receipts?
  3. Are crop damage insurance proceeds included as production gross receipts?
  4. Are farm subsidy payments (such as milk income loss contract payments, direct/counter-cyclical payments, etc…) included as production gross receipts?
  5. Are commodity credit corporation loans included as production gross receipts?
  6. Is farm income that is allocated from a cooperative to its members on a federal Form 1099-PATR included in production gross receipts?
  7. Are guaranteed payments to partners considered a direct expense when calculating the manufacturing and agriculture credit?
  8. A married couple both have farming related businesses; however, each files their own federal Schedule F. The husband is a crop farmer with a loss and the wife owns a greenhouse operating at a profit. When preparing the Schedule MA for the agriculture credit, do we need to "net" their production gross receipts and costs for the credit?
  9. Does the gain from the sale of purchased or raised breeding animals qualify as production gross receipts?

General Questions:

  1. What is the manufacturing and agriculture credit?

    The manufacturing and agriculture credit is available to claimants that derive qualified production activities income from property located in Wisconsin that is assessed as either manufacturing or agricultural.

  2. What happened to the Wisconsin qualified production activities credit?

    The qualified production activities credit was renamed the manufacturing and agriculture credit as a result of 2011 Act 232.

  3. Who is eligible to claim the credit?

    An individual, estate, trust, partnership, limited liability company (LLC), or corporation can compute the credit if the claimant owns or rents and uses in Wisconsin, real property and improvements assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats., or owns or rents and uses in Wisconsin, real and personal property assessed under s. 70.995, Wis. Stats.

  4. Who may not claim the credit?

    Insurance companies cannot claim the credit. Partnerships, LLCs treated as partnerships, and tax-option (S) corporations cannot claim the credit; however, the eligibility for claiming the credit and the computation of the credit is based on the amount of qualified production activities income generated by the pass-through entity. The credit computed by those entities can pass through to the partners, members, or shareholders. Additionally, trusts and estates may pass the credit through to their beneficiaries based on the income allocable to each.

  5. What is the rate of credit?

    The credit is a percentage of eligible qualified production activities income. The credit is calculated by multiplying eligible qualified production activities income by one of the following percentages:

    • For taxable years beginning after December 31, 2012, and before January 1, 2014, 1.875 percent
    • For taxable years beginning after December 31, 2013, and before January 1, 2015, 3.75 percent
    • For taxable years beginning after December 31, 2014, and before January 1, 2016, 5.526 percent
    • For taxable years beginning after December 31, 2015, 7.5 percent
  6. Is there a maximum amount of credit that may be claimed?

    There is no maximum dollar limit; however, the maximum amount of credit that may be claimed is up to the gross tax computed from the business operations that were used to claim the credit on the corporate franchise or income tax return.

  7. How is the credit computed?

    If a claimant is eligible for the credit based on both manufacturing and agricultural activities, the credit must be computed separately for each activity.

    The credit is computed as follows:

    Production Gross receipts1
    Less: Cost of goods sold2
    Direct Costs3
    Indirect Costs4 multiplied by production gross receipts factor5
    = Qualified production activities income6
    Multiplied by manufacturing property factor 7 or agriculture property factor8
    = Eligible qualified production activities income9
    Multiplied by credit rate in effect for the taxable year10
    = Total credit

    1 Production gross receipts are the receipts from the lease, rental, license, sale, exchange, or other disposition of qualified production property. Footnotes 7 and 8 describe what is qualified production property.
    2 Cost of goods sold are the production costs associated with the production gross receipts.
    3 Direct costs are the costs associated with the production gross receipts and include all the claimant's ordinary and necessary expenses paid or incurred during the taxable year to carry on a trade or business that are deductible under section 162 of the Internal Revenue Code and identified as direct costs in the claimant's managerial or cost accounting records.
    4 Indirect costs are the costs associated with the production gross receipts and include all the claimant's ordinary and necessary expenses paid or incurred during the taxable year to carry on a trade or business that are deductible under section 162 of the Internal Revenue Code, other than cost of goods sold and direct costs, and identified as indirect costs in the claimant's managerial or cost accounting records.
    5 The production gross receipts factor is a fraction consisting of the production gross receipts (numerator) divided by the gross income from all sources except those specifically excluded under the Internal Revenue Code or excluded under Wisconsin law (denominator). Items included in the denominator include: gross sales, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital and business assets, gross income from pass-through entities, and all other gross receipts that are included in income before apportionment.
    6 Qualified production activities income is the amount of the claimants production gross receipts for the taxable year that exceeds the sum of the cost of goods sold that are allocable to the receipts, the direct costs allocable to the receipts, and the indirect costs, with the result multiplied by the production gross receipts factor.

    Qualified production activities income does not include any of the following:

    1. Income from film production
    2. Income from producing, transmitting, or distributing electricity, natural gas, or potable water
    3. Income from constructing real property
    4. Income from engineering or architectural services performed with respect to constructing real property
    5. Income from the sale of food and beverages prepared by the claimant at a retail establishment
    6. Income from the lease, rental, license, sale, exchange, or other disposition of land
    7 The manufacturing property factor is the average value of the claimant's real and personal property assessed under s. 70.995, Wis. Stats., that is owned or rented and used in Wisconsin by the claimant to manufacture qualified production property (numerator), divided by the average value of all the claimant's real and personal property owned or rented during the taxable year and used by the claimant to manufacture qualified production property (denominator).

    Qualified production property is tangible personal property manufactured in whole or in part by the claimant on property that is assessed as manufacturing property under s. 70.995, Wis. Stats.

    The property owned by the claimant is valued at its original cost and property rented by the claimant is valued at an amount equal to the annual rent paid by the claimant, less any annual rental received by the claimant for sub-rentals, multiplied by 8.

    The average value of the property is determined by averaging the values at the beginning and ending of the taxable year.
    8 The agriculture property factor is the average value of the claimant's real property and improvements assessed under s. 70.32(2)(a)4., Wis. Stats., that is owned or rented and used in Wisconsin by the claimant during the taxable year to produce, grow, or extract qualified production property (numerator) divided by the average value of all the claimant's real property and improvements owned or rented during the taxable year and used by the claimant to produce, grow, or extract qualified production property (denominator).

    Qualified production property is tangible personal property produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats.

    The property owned by the claimant is valued at its original cost and property rented by the claimant is valued at an amount equal to the annual rental paid by the claimant, less any annual rental received by the claimant from sub-rentals, multiplied by 8.

    The average value of the property is determined by averaging the values at the beginning and ending of the taxable year.
    9
    • The amount of the eligible qualified production activities income that a corporate claimant may claim in computing the credit is the lesser of the following:
      1. The eligible qualified production activities income determined using the computation above
      2. Income apportioned to this state under s. 71.25(5)(6), and (6m), or
      3. Income determined to be taxable under s. 71.255(2)
    • For non-corporate claimants, the credit computed and any credits carried over from prior taxable years may only offset the tax imposed upon the business operations that were used to compute the credit.
    • For shareholders of a tax−option (S) corporation, the credit may only offset the tax imposed on the shareholder's prorated share of the tax−option (S) corporation's income.
    • For partners of a partnership, the credit may only offset the tax imposed on the partner's distributive share of partnership income.
    10 The manufacturing and agriculture credit rate is as follows:

    1.875% for taxable years beginning on or after January 1, 2013 and before January 1, 2014.
    3.75% for taxable years beginning on or after January 1, 2014 and before January 1, 2015.
    5.526% for taxable years beginning on or after January 1, 2015 and before January 1, 2016.
    7.5% for taxable years beginning on or after January 1, 2016.

  8. How is the qualified production activities income limited for corporations?

    For a corporation, the eligible qualified production activities income is the lesser of:

    • Eligible qualified production activities income,
    • Income apportioned to Wisconsin, or
    • Income taxable to Wisconsin as determined by Wisconsin's combined reporting law, if the corporation is a member of a Wisconsin combined group
  9. How is the credit limited for non-corporate claimants?

    For non-corporate claimants, the credit is limited as follows:

    • For non-corporate claimants, the credit computed and any credits carried over from prior taxable years may only offset the tax imposed upon the business operations that were used to compute the credit.
    • For shareholders of a tax−option (S) corporation, the credit may only offset the tax imposed on the shareholder's prorated share of the tax−option (S) corporation's income.
    • For partners of a partnership, the credit may only offset the tax imposed on the partner's distributive share of partnership income.
  10. What income producing activities do not qualify for the credit?

    The following activities do not qualify as qualified production activities income for purposes of the manufacturing and agriculture credit:

    • Income from film production
    • Income from producing, transmitting, or distributing electricity, natural gas, or potable water
    • Income from constructing real property (except that income from producing real property can qualify for the credit. See example in number 11)
    • Income from engineering or architectural services performed with respect to constructing real property
    • Income from the sale of food and beverages prepared by the claimant at a retail establishment
    • Income from the lease, rental, license, sale, exchange, or other disposition of land
  11. Does income received from producing and installing real property qualify for the credit?

    Income received from producing/manufacturing materials or products on property that is assessed as manufacturing property qualifies for the manufacturing and agriculture credit; however, income received from constructing real property does not qualify for the credit.

    In order to qualify for the manufacturing and agriculture credit, a claimant must derive qualified production activities income from the sale, lease, rental, license, exchange, or other disposition of tangible personal property that is located in Wisconsin and assessed as manufacturing or agricultural. However, qualified production activities income does not include income from any of the following activities: film production; producing, transmitting, or distributing electricity, natural gas, or portable water; constructing real property, engineering or architectural services performed with respect to constructing real property; food and beverages prepared by the claimant at a retail establishment; and income from the lease, rental, license, sale, exchange, or other disposition of land.

    In situations where a claimant receives gross receipts from manufacturing the property and installing the manufactured product as real property, the claimant must maintain adequate records in order to allocate the receipts between the manufacturing and installation of the property. In addition, the pricing used to determine the value of the product manufactured must be the fair market value that unrelated third party would pay for the same material.

    For a detailed example, see the tax release in Wisconsin Tax Bulletin #179: revenue.wi.gov/ise/wtb/index.html

  12. Is the credit refundable or nonrefundable?

    The credit is nonrefundable so any amount not used to offset the current Wisconsin income or franchise tax liability may be carried forward for 15 years.

  13. Is the credit includable in taxable income?

    The amount of credit computed (not claimed) is income and must be reported as income on the claimant's Wisconsin franchise or income tax return for the taxable year immediately after the taxable year in which the credit is computed. This is true even if you cannot use the full amount of the credit computed this year to offset tax liability for this year and must carry over part or all of it to future years.

  14. Can the credit be shared with other members of a Wisconsin combined group?

    The credit may not be shared with other members of the combined group.

  15. When must the credit be claimed?

    The credit must be claimed within four years of the unextended due date of the tax return.

  16. Where can I find this credit in the Wisconsin Statutes?

    The credit is in the following sections of Chapter 71—Income and Franchise Taxes for State and Local Revenues:

    Section 71.07(5n), Wis. Stats., at https://docs.legis.wisconsin.gov/document/statutes/71.07(5n)
    Section 71.28(5n), Wis. Stats., at https://docs.legis.wisconsin.gov/document/statutes/71.28(5n)

  17. When is a tax-option (S) corporation with a fiscal year beginning October 1, 2012 and ending on September 30, 2013 eligible to claim the manufacturing and agriculture credit?

    The manufacturing and agriculture credit is available for taxable years beginning on or after January 1, 2013.  A tax-option (S) corporation cannot claim the credit, but the eligibility for and the amount of the credit is determined by the tax-option (S) corporation's business operations and taxable year. The tax-option (S) corporation's 2012 taxable year begins on October 1, 2012 so it would not be able to compute the credit until its fiscal year beginning October 1, 2013.

  18. I was subject to LIFO recapture (or similar change in accounting method) and as a result my cost of goods sold increased. How does this affect the computation of the manufacturing and agriculture credit?

    A change in accounting method made for federal income tax purposes must also be made for Wisconsin franchise/income tax purposes if the method is authorized under the internal revenue code. An increase in the cost of goods sold as a result of an accounting change for federal income purposes will also result in an increase in the cost of goods sold for Wisconsin franchise/income tax purposes, and the increased cost of goods sold amount will be used in computing the qualified production activities income portion of the manufacturing and agriculture credit.

  19. Can the manufacturing and agriculture credit offset Wisconsin alternative minimum tax?

    Yes.  2013 Act 145 changed the order of computation for the manufacturing and agriculture credit retroactive to taxable years beginning on or after January 1, 2013. The credit can now be claimed after the alternative minimum tax.   If the manufacturing and agriculture credit was claimed on an individual income tax return that was filed prior to the law change, and the claimant was subject to Wisconsin alternative minimum tax, the claimant should file a 2013 Wisconsin Form 1X (amended return) in order to reflect the law change.

    For information on how to claim the credit based on the law change for 2013, refer to the following article: http://www.revenue.wi.gov/taxpro/news/2014/140325b.html.

  20. What are examples of direct costs?

    Direct costs include all of the ordinary and necessary expenses paid or incurred during the taxable year in carrying on the trade or business that are deductible under sec. 162 of the IRC and identified as direct costs in your managerial or cost accounting records. This includes depreciation expense computed under the IRC in effect for Wisconsin that are classified as direct costs. Although depreciation is detailed under sec. 167, IRC, depreciation is considered an ordinary and necessary business expense under sec. 162, IRC, and is therefore included as a cost of generating production gross receipts.

    There are no specific examples of direct costs provided in the statutes because not every business operation will account for direct and indirect costs in the same manner. Because of this variability, the determination of direct costs relies, in part, on the taxpayer's accounting records.

    In general, direct costs are those costs that directly benefit one specific project or good that is being produced. Examples of direct costs may include: production employee wages, supplies consumed directly in the production process, and costs of consultants used in producing the finished product.

  21. What are examples of indirect costs?

    Indirect costs include all ordinary and necessary expenses paid or incurred during the taxable year in carrying on the trade or business that are deductible under sec. 162, IRC, other than cost of goods sold and direct costs, and identified as indirect costs in your managerial or cost accounting records. This includes depreciation expenses computed under the IRC in effect for Wisconsin that are classified as indirect costs. Although depreciation is detailed under sec. 167, IRC, depreciation is considered an ordinary and necessary business expense under sec. 162, IRC, and is therefore included as a cost of generating production gross receipts.

    Similar to direct costs, there are no specific examples of indirect costs provided in the statutes because not every business operation will account for direct and indirect costs in the same manner. Because of this variability, the determination of indirect costs relies, in part, on the taxpayer's accounting records.

    In general, indirect costs are costs that benefit more than one specific project or good that is being produced and cannot be easily traced to a single project or good being produced. Examples of indirect costs may include: building rent, legal expenses, business insurance, advertising expenses, accounting and administrative salaries, office supplies, and certain utilities.

  22. If I elect to use a 52-53 week tax year beginning on December 29, 2012 and ending on December 28, 2013, am I eligible to claim the credit in 2013?

    Yes. The taxable year of a claimant that keeps its accounting records on the basis of a 52−53 week period ends on the last day of the month closest to the end of the 52−53 week period and begins on the first day of the calendar month beginning nearest the first day of the 52-53 week taxable year. A taxable year beginning December 29, 2012 is deemed to begin on January 1, 2013, so a taxpayer would be eligible to claim the manufacturing and agriculture credit for 2013 because the credit is available for taxable years that begin on or after December 31, 2012.

Schedule MA Questions:

  1. What form is used to claim the credit?

    Wisconsin Schedule MA— Wisconsin Manufacturing and Agriculture Credit, will be used to claim the credit. revenue.wi.gov/html/taxforms13.html

  2. Am I required to submit documentation with my tax return?

    For claimants not receiving the credit passed through from a partnership, tax-option (S) corporation, limited liability company, estate, or trust: The only documentation you are required to submit with your tax return is Wisconsin Schedule MA—Wisconsin Manufacturing and Agriculture Credit.

    For claimants receiving the credit passed through from a partnership, tax-option (S) corporation, limited liability company, estate, or trust: You are required to submit Wisconsin Schedule MA—Wisconsin Manufacturing and Agriculture Credit, and a copy of the Wisconsin Schedule 3K-1, Schedule 5K-1, and/or Schedule 2K-1.

  3. Do I use my property tax bills to determine the average value of real property on lines 12 and 13 of Schedule MA?

    No. The property value is based on the original cost of the property provided on a real estate closing statement, purchase invoices, or similar document.

  4. The amount of depreciation expense for federal and Wisconsin franchise/income tax purposes is different. Is the federal or Wisconsin depreciation expense used when computing the credit?

    The depreciation expense to use in computing the credit is the amount of depreciation allowed under the Internal Revenue Code in effect for Wisconsin, so the Wisconsin amount is used.

  5. The Wisconsin Statutes indicate that direct and indirect costs include all of the claimant's ordinary and necessary expenses paid or incurred during the taxable year in carrying on the trade or business that are deductible under section 162 of the Internal Revenue Code. Depreciation is an expense under section 167 of the IRC. Is depreciation included as a direct or indirect cost when computing the credit?

    Yes, depreciation is included as either a direct or indirect cost when computing the credit. Although depreciation is detailed under sec. 167, IRC, depreciation is considered an ordinary and necessary business expense under sec. 162, IRC, and is therefore included as a cost of generating production gross receipts.

  6. Line 8 of Schedule MA requires the inclusion of all gross receipts. What does the term all gross receipts mean?

    Gross receipts means all gross income of the business from whatever source, except for those items specifically excluded under the Internal Revenue Code as adopted by Wisconsin and otherwise excluded under Wisconsin law. This includes gross sales, gross dividends, gross interest income, gross rents, gross royalties, the gross sales price from the disposition of capital assets and business assets, gross income from pass-through entities, and all other gross receipts that are included in income, before apportionment.

    Note: For individuals, do not include gross receipts or income from sources not related to the business. For example, do not include your spouse's wages earned from an employer, and do not include rental income from an apartment building reported on Schedule E.

Manufacturing Property Assessment Questions:

  1. How do I know if my property is assessed as manufacturing?

    To find out if your property is assessed as manufacturing, visit the department's online manufacturing assessment role lookup at: https://ww2.revenue.wi.gov/RETRWebRolls/application.

    For questions, contact the regional office located on page 2 of the following document: revenue.wi.gov/forms/manuf/pa-750R.pdf or contact for the Department of Revenue's Manufacturing Bureau can be found at: revenue.wi.gov/contact/slfbmta.html.

  2. Am I required to determine if my property is assessed as manufacturing on a yearly basis?

    Yes. Property assessments can change on a yearly basis so a claimant must first verify that the property where the qualified production activities income is generated is assessed as manufacturing.

  3. When are the applications for manufacturing assessments due?

    Applications to request manufacturing certification must be made by March 1 of the current calendar year in order to be certified for the current calendar year.

  4. Am I required to be engaged in manufacturing operations on January 1, 2013 in order to request manufacturing classification by the deadline of March 1, 2013?

    Yes. Manufacturing property tax classifications are performed on an assessment year basis. The assessment date is January 1st. If the taxpayer is not engaged in "manufacturing" on January 1st, DOR will not assess the taxpayer as a manufacturer. Before the next January 1st, DOR may verify manufacturing status, but the assessment as manufacturing property would not occur until January 1 of the next assessment year.

  5. If I do not request manufacturing certification by March 1, can I request certification later in the year?

    No, there are no exceptions and no extensions allowed. All certification requests must be made by March 1. Applicants that miss the March 1 deadline will have to wait and request certification by March 1 of the following year.

  6. My business moved to Wisconsin and began manufacturing products on April 1, 2013. Can I request manufacturing certification for the 2013 calendar year?

    No. The manufacturing certification request was required to be completed by March 1, 2013.

  7. My business began manufacturing operations in Wisconsin on July 5, 2013 and at the same time applied for manufacturing status. May I claim the manufacturing and agriculture credit?

    No. The certification request was not made by March 1, 2013 so the credit cannot be claimed in 2013.

  8. I requested manufacturing certification prior to March 1, 2013 and was informed on July 15, 2013 that my request was denied. A timely appeal was filed, and on February 3, 2014, I was granted manufacturing status for the 2013 calendar year. May I file an amended franchise/income tax return to claim the manufacturing and agriculture credit in 2013?

    Yes. As long as the certification request is made prior to March 1, 2013, the final determination allowing manufacturing status applies to the calendar year in which the certification request was made.

  9. Company A acquires Company B, an existing business qualified as a manufacturer in Wisconsin, on February 15, 2013. Since they did not have property on January 1, 2013, no property tax returns are required for Company A. Company B files its Form M-P on March 1, 2013. Company A requests manufacturing classification prior to March 1, 2013. Does Company A qualify for the Manufacturing & Agricultural Credit for 2013?

    Company A may qualify for the manufacturing and agriculture credit for 2013 but only for the production gross receipts that are derived from the sale of tangible personal property that was produced on former Company B's property that is properly assessed as manufacturing.

    If the qualifying manufacturing property at Company B's location does not change, Company A (the new owner) does not have to apply for a new manufacturing classification at the location of Company B. DOR classifies manufacturing property by location, not by company. DOR does not combine business operations when making manufacturing assessment determinations. For example, if Company A is in City A, and Company B in City B, and the activities in both locations remained the same after the acquisition, Company A's property in City A would not be classified as manufacturing for property tax purposes in 2013. Company A's newly acquired property in City B (formerly Company B's property) would continue to be assessed as manufacturing under the new name of Company A (if they operated as Company A). In other words, by purchasing a manufacturer, Company A became a manufacturer, but only with respect to its property in City B.

  10. Is property that is exempt from property taxes included in the numerator of the manufacturing property factor for purposes of computing the manufacturing and agriculture credit?

    Yes. The manufacturing property factor under secs. 71.07(5n)(a)5.a. and 71.28(5n)(a)5.a., Wis. Stats., is defined as a fraction, the numerator of which is the average value of the claimant's real and personal property assessed under sec. 70.995, Wis. Stats., owned or rented and used in this state by the claimant during the taxable year to manufacture qualified production property, and the denominator of which is the average value of all the claimant's real and personal property owned or rented during the taxable year and used by the claimant to manufacture qualified production property. Real and personal property assessed under sec. 70.995, Wis. Stats., means property that has been classified as manufacturing property under sec. 70.995, Wis. Stats., regardless of whether or not a property tax exemption applies.  As a result, inventory and any other real and personal property of a business that is classified as manufacturing in Wisconsin under sec. 70.995, Wis. Stats., is included in the numerator of the manufacturing property factor.

Manufacturing Questions:

  1. A manufacturer generates income from the sale and installation of cabinets. What standard should be used to determine whether the cabinets should be treated as real property (sales and use tax laws, property tax laws, common law, etc…)?

    The appropriate statute to use when determining whether property should be treated as real property is sec. 70.03, Wis. Stats. (2011-12), which provides that: "Real property", "real estate" and "land", when used in chs. 70 to 76, 78 and 79, include not only the land itself but all buildings and improvements thereon, and all fixtures and rights and privileges appertaining thereto, except that for the purpose of time−share property, as defined in s. 707.02 (32), real property does not include recurrent exclusive use and occupancy on a periodic basis or other rights, including, but not limited to, membership rights, vacation services and club memberships.

  2. A manufacturer generates income from the following activities: sales of machinery and equipment, installation of that machinery and equipment, and maintenance/service contracts related to the machinery and equipment. Would all income of the manufacturer be considered qualified production activities income?

    No. The non-includable items listed in sec. 71.28(5n)(a)8., Wis. Stats. (2011-12), is not an all-inclusive list. In order to compute the manufacturing and agriculture credit, the claimant must produce gross receipts from the lease, rental, license, sale, exchange, or other disposition of tangible personal property that is manufactured in whole or in part by the claimant on property that is assessed as manufacturing property under s. 70.995, Wis. Stats. While the receipts from the sale of machinery and equipment produced by the manufacturer qualify as production gross receipts, the installation and service charges do not qualify as production gross receipts because they do not fall within the definition of qualified production property. The receipts from the installation and service charges are not tangible personal property, and while they may be associated with tangible personal property that is assessed as manufacturing, there is no provision in the Wisconsin Statutes that allows for income effectively connected with qualified production property to qualify for the manufacturing and agriculture credit.

  3. Are guaranteed payments to partners considered a direct expense when calculating the manufacturing and agriculture credit?

    If the guaranteed payments represent payments to a partner for services that are directly connected with producing the manufacturing production gross receipts, they would be allowed as a direct expense in computing the credit. However, if the guaranteed payments are paid for a reason not directly related to the manufacturing production gross receipts, they would not be included as a direct expense.

Agricultural Property Assessment Questions:

  1. How do I know if my property is assessed as agricultural?

    To find out if your property is assessed as agricultural and for more information, find the local assessor assigned to the county and municipality you reside at: revenue.wi.gov/training/assess/assrlist.pdf.

    Further information regarding agricultural property assessments is available from The Agriculture Assessment Guide for Wisconsin Property Owners at: revenue.wi.gov/pubs/slf/pb061.pdf.

  2. Am I required to determine if my property is assessed as agricultural on a yearly basis?

    Yes. Property assessments can change on a yearly basis so a claimant must first verify that the property where the qualified production activities income is generated is assessed as agricultural.

Agricultural Questions:

  1. Can a person who rents his or her farmland to another person claim the credit?

    No, only the person renting the farmland is eligible to claim the credit. One of the requirements to claim the credit is that qualified production activities income is generated from property that is assessed as either manufacturing or agricultural. Since the person renting and farming the land is the one generating the qualified production activities income, only the renter is eligible to claim the credit.

  2. Are price protection crop insurance proceeds included as production gross receipts?

    No. Price protection crop insurance is meant to guarantee a certain level of crop revenue when crop prices and/or yields are low. Because the revenue was not directly received from the lease, rental, license, sale, exchange, or other disposition of tangible personal property that is produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats., the income is not considered qualified production activities income and may not be used to compute the credit.

  3. Are crop damage insurance proceeds included as production gross receipts?

    Crop insurance proceeds that prevent plant or other damage are not qualified production gross receipts so they may not be used in the computation of the credit.  A qualified production gross receipt is a receipt from the lease, rental, license, sale, exchange, or other disposition of tangible personal property that is produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats.  Crop insurance proceeds are meant to compensate for the loss of crops due to severe weather conditions or other abnormalities, and because the proceeds were not from producing, growing, or extracting tangible personal property, they are not considered qualified production activities income.

  4. Are farm subsidy payments (such as milk income loss contract payments, direct/counter-cyclical payments, etc…) included as production gross receipts?

    No. A federal farm subsidy payment that is meant to compensate a farmer when the price of a commodity drops below a predetermined level is not considered production gross receipts for purposes of computing the Wisconsin manufacturing and agriculture credit. In order to be included as production gross receipts, income must be received from the lease, rental, license, sale, exchange, or other disposition of tangible personal property that is produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats. The farm subsidy payments are meant to compensate when the prices for milk fall below a certain level; they are not from sale of the product itself, which is a requirement in the calculation of the credit.

  5. Are commodity credit corporation loans included as production gross receipts?

    No. Commodity credit corporation loans would not be considered production gross receipts because they are not derived from the sale of tangible personal property. The manufacturing and agriculture credit requires a claimant to produce gross receipts from the lease, rental, license, sale, exchange, or other disposition of tangible personal property that is produced, grown, or extracted in whole or in part by the claimant on or from property assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats. The loans are being used as collateral until the crops are actually sold, but do not reflect the actual proceeds from the sale of the crops. The taxpayer is only allowed to compute the production gross receipts based on the actual amounts received from the sale of crops.

  6. Is farm income that is allocated from a cooperative to its members on a federal Form 1099-PATR included in production gross receipts?

    If the income allocated to the farmer from a cooperative on federal Form 1099 is derived from production gross receipts in Wisconsin (the lease, rental, license, sale, exchange, or other disposition of qualified production property), that portion of the income can be included on line 1 of Wisconsin Schedule MA as production gross receipts. If only part of the income from federal Form 1099-PATR is related to producing, growing, or extracting tangible personal property on agricultural property, an allocation will need to be made.

  7. Are guaranteed payments to partners considered a direct expense when calculating the manufacturing and agriculture credit?

    If the guaranteed payments represent payments to a partner for services that are directly connected with producing the agricultural production gross receipts, they would be allowed as a direct expense in computing the credit. However, if the guaranteed payments are paid for a reason not directly related to the agricultural production gross receipts, they would not be included as a direct expense.

  8. A married couple both have farming related businesses; however, each files their own federal Schedule F. The husband is a crop farmer with a loss and the wife owns a greenhouse operating at a profit. When preparing the Schedule MA for the agriculture credit, do we need to "net" their production gross receipts and costs for the credit?

    No. Each claimant would fill out their own Schedule MA and claim the credit based on the respective receipts and expenses. The married couple are operating separate businesses and reporting the net profit/loss on separate federal Schedules F, so each is entitled to the credit based on their own business operations.

  9. Does the gain from the sale of purchased or raised breeding animals qualify as production gross receipts?

    If the animals were raised by the claimant on property that is assessed as agricultural property under s. 70.32(2)(a)4., Wis. Stats., then the sale of the animals would qualify as production gross receipts. If the claimant does not raise the animal, then the claimant has not sold qualified production property.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Corporation Franchise/Income Tax Assistance
PO Box 8906
Madison, WI 53708-8906
Phone: (608) 266-2772
Fax: (608) 267-0834
Email additional questions to DORFranchise@revenue.wi.gov

April 22, 2014