Manufacturer's Sales Tax Credit

  1. Since the manufacturer's sales tax credit was replaced with a sales and use tax exemption beginning January 1, 2006, what happens to my unused manufacturer's sales tax credits from taxable years that began before January 1, 2006?
  2. Can I use the credit to offset my entire Wisconsin tax liability?
  3. I am a shareholder in a tax-option (S) corporation. What types of income can I include when computing the tax imposed on the business operations of the tax-option (S) corporation?
  4. I am being audited for my taxable year beginning July 1, 2004, and ending June 30, 2005. I miscalculated the manufacturer's sales tax credit for that taxable year. May I claim credit for the additional amount of manufacturer's sales tax credit discovered during the audit?
  5. How do these rules apply to manufacturer's sales tax credits computed by a partnership, limited liability company (LLC) treated as a partnership, or tax-option (S) corporation for taxable years beginning on or after January 1, 1998?
  6. How do these rules apply to manufacturer's sales tax credits computed by a tax-option (S) corporation for taxable years beginning before January 1, 1998, that are still available under the 20-year carryforward period?

  1. Since the manufacturer's sales tax credit was replaced with a sales and use tax exemption beginning January 1, 2006, what happens to my unused manufacturer's sales tax credits from taxable years that began before January 1, 2006?

    If you have $25,000 or less of unused credits as of January 1, 2006, you may use up to 50% of the credit in each of your taxable years beginning in 2006 and 2007. You may use any remaining credits in future taxable years within the 20-year carryforward period.

    If you have more than $25,000 of unused credits as of January 1, 2006, you may deduct in each of your next two taxable years beginning after December 31, 2005, 50% of the amount of unused credit that you had added back to income at the time that you first claimed the credit. You may take these deductions even if you otherwise have no Wisconsin income due to business losses or carryforwards.

    If you have more than $25,000 of unused manufacturer's sales tax credits as of January 1, 2006, you may not elect to claim any of those amounts as a credit. However, if you became certified by the Wisconsin Economic Development Corporation as eligible for a manufacturing investment credit, you may claim the manufacturing investment credit. For more information on the manufacturing investment credit, visit the Economic Development Corporation's website at inwisconsin.com.

  1. Can I use the credit to offset my entire Wisconsin tax liability?

    Corporations may offset the credit from their own manufacturing operations against their entire Wisconsin franchise or income tax liability. Sole proprietors may offset the credit only against tax on the income from the business operations in which the fuel and electricity were consumed. If you have an unused manufacturer's sales tax credit from more than one sole proprietorship or if you have an unused credit that was passed through from an estate, trust, partnership, limited liability company treated as a partnership, or tax-option (S) corporation, you must compute the allowable credit from each entity separately. You may not offset credits from a business that operated at a loss against the income from another business that operated at a profit. See Wisconsin Schedule MS and its instructions to compute your allowable credit.

    Note: You may not offset the credit against the economic development surcharge. Tax-option (S) corporations may not offset the credit against the built-in gains tax.

  2. I am a shareholder in a tax-option (S) corporation. What types of income can I include when computing the tax imposed on the business operations of the tax-option (S) corporation?

For purposes of computing the tax imposed on the business operations of the tax-option (S) corporation, the income is limited to your pro rata share of the corporation's net income or loss which is taxable by Wisconsin. This includes your pro rata share of the corporation's ordinary income or loss, interest and dividend income, capital gains or losses, and other separately stated items of corporate income or expense passed through to you.

You may not include the following types of payments you received from the tax-option (S) corporation:

  1. I am being audited for my taxable year beginning July 1, 2004, and ending June 30, 2005. I miscalculated the manufacturer's sales tax credit for that taxable year. May I claim credit for the additional amount of manufacturer's sales tax credit discovered during the audit?

You many claim an offset for the credit against the franchise or income tax owed in the same period in which the sales tax was paid.

  1. How do these rules apply to manufacturer's sales tax credits computed by a partnership, limited liability company (LLC) treated as a partnership, or tax-option (S) corporation for taxable years beginning on or after January 1, 1998?

A partnership or LLC treated as a partnership was required to pass through to its partners or members the credits for sales and use tax paid by the entity on fuel and electricity used in manufacturing. The partners or members could offset the credits only against the tax on the partner's or member's distributive share of the partnership or LLC income. Therefore, each partner or member must separately determine whether his, her, or its unused credit is $25,000 or less or more than $25,000 and apply the appropriate rules.

A tax-option (S) corporation had the option of claiming the credits computed for taxable years beginning on or after January 1, 1998, at the corporation level or passing the credits through to its shareholders. The shareholders could offset the credits only against the tax on the shareholder's pro rata share of the tax-option (S) corporation's income. The tax-option (S) corporation and each of its shareholders must separately determine whether his, her, or its unused credit is $25,000 or less or more than $25,000 and apply the appropriate rules.

See Wisconsin Schedule MS and its instructions to compute the allowable credit for each partner, member, or shareholder.

  1. How do these rules apply to manufacturer's sales tax credits computed by a tax-option (S) corporation for taxable years beginning before January 1, 1998, that are still available under the 20-year carryforward period?

The treatment of a tax-option (S) corporation's unused credits from taxable years beginning before January 1, 1998, that are still available under the 20-year carryforward period is determined at the corporation level.

If the tax-option (S) corporation has $25,000 or less of unused credits from these years, the unused credits may only be used by the corporation to offset its franchise tax measured by certain federal, state, and municipal bond interest. These credits cannot be passed through to the corporation's shareholders.

If the tax-option (S) corporation has more than $25,000 of unused credits, the corporation may claim a deduction only to the extent that the credits had previously been included in the corporation's income. Since tax-option (S) corporations were not required to report credits as income until the year in which the credits were actually used, it is unlikely that tax-option (S) corporations would qualify for the deduction.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
PO Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2772
Fax: (608) 267-1030
Email Additional Questions

Last updated January 23, 2014