Economic Development Surcharge

  1. What is the economic development surcharge?
  2. Who is subject to the economic development surcharge?
  3. What are the economic development surcharge rates?
  4. I am a partner in a partnership. Under the partnership agreement, I receive guaranteed payments for performing services for the partnership. These payments are not based on the income of the partnership. As a result of receiving the guaranteed payments, am I subject to the economic development surcharge on my individual income tax return?
  1. What is the economic development surcharge?

    The Legislature passed the economic development surcharge for taxable years beginning on or after January 1, 2000. This new economic development surcharge replaces the economic development surcharge that applied to taxable years ending after April 1, 1991, and ending before April 1, 1999. Businesses, including certain individuals with Wisconsin self-employment income, are subject to this surcharge on their Wisconsin tax returns.

    The economic development surcharge applies to farm and nonfarm businesses that have $4 million or more of gross receipts. The minimum economic development surcharge is $25 and the maximum is $9,800.

    For more information about the economic development surcharge, see Wisconsin Publication 400. Individuals, estates, and trusts also see Schedule EDS.

  2. Who is subject to the economic development surcharge?

    The economic development surcharge applies to corporations and insurance companies, estates and trusts, exempt organizations, individuals, partnerships, and tax-option (S) corporations that meet the following requirements.

    Corporations and insurance companies that --

    • are required to file a Wisconsin franchise or income tax return, Form 4, 4I, or 5,
    • are engaged in business in Wisconsin, and
    • have at least $4 million of gross receipts from all activities.
    • for combined groups, the economic development surcharge is determined for each company individually based on its own gross receipts from all activities and its share of the gross tax computed on the combined return.

    Estates and trusts that --

    • are required to file a Wisconsin income tax return, Form 2,
    • have farming activities and/or non-farm trade or business activities, including income as a statutory employee, in Wisconsin, and
    • have at least $4 million of gross receipts from farming activities and/or non-farm trade or business activities for federal income tax purposes.

    Exempt organizations that --

    • are required to file a Wisconsin franchise or income tax return, Form 4T,
    • are engaged in unrelated trade or business activities in Wisconsin, and
      • are taxable as corporations and have at least $4 million of gross receipts from all unrelated trade or business activities or
      • are taxable as trusts and have at least $4 million of gross receipts from all unrelated trade or business activities for federal income tax purposes.

    Individuals that --

    • are required to file a Wisconsin income tax return, Form 1 or Form 1NPR,
    • have farming activities and/or non-farm trade or business activities, including income as a statutory employee, in Wisconsin, and
    • have at least $4 million of gross receipts from farming activities and/or non-farm trade or business activities for federal income tax purposes.

    Note: The economic development surcharge applies to each individual, regardless of marital property law and regardless of whether married individuals file joint or separate Wisconsin income tax returns.

    Partnerships, including limited liability companies (LLCs) that are treated as partnerships, must file Form 3 and pay the economic development surcharge if they --

    • must file a Wisconsin partnership return, Form 3, and do business in Wisconsin
    • derive income from business transacted, property located, or services performed in Wisconsin, and
    • have $4 million of gross receipts from farming and/or other trade or business activities for federal income tax purposes.

    For more information see the Instructions for Wisconsin Form 3

    Tax-option (S) corporations that --

    • are required to file a Wisconsin franchise or income tax return, Form 5S,
    • are engaged in business in Wisconsin, and
    • have at least $4 million of gross receipts from all activities.
  3. What are the economic development surcharge rates?

    The rates for the economic development surcharge are as follows

    • Corporations (except tax-option (S) corporations), insurance companies, and exempt organizations taxable as corporations: The greater of $25 or 3% of Wisconsin gross tax liability, but not more than $9,800.

    • Individuals, estates, trusts, and exempt organizations taxable as trusts: The greater of $25 or 0.2% of net business income as allocated or apportioned to Wisconsin, but not more than $9,800. For taxpayers engaged only in farming, the economic development surcharge is $25.

    • Partnerships: The greater of $25 or 0.2% of the partnership's net business income as allocated or apportioned to Wisconsin, but not more than $9,800. For partnerships engaged only in farming, the economic development surcharge is $25.

    • Tax-option (S) corporations: The greater of $25 or 0.2% of Wisconsin net income as allocated or apportioned to Wisconsin, but not more than $9,800.
  4. I am a partner in a partnership. Under the partnership agreement, I receive guaranteed payments for performing services for the partnership. These payments are not based on the income of the partnership. As a result of receiving the guaranteed payments, am I subject to the economic development surcharge on my individual income tax return?

    No, you are not subject to the economic development surcharge on the guaranteed payments you received from the partnership. The guaranteed payments are added to the partnership's income and are subject to the economic development surcharge at the partnership level.

    Note: If the economic development surcharge owed by a partnership is delinquent, its partners are jointly and severally liable for the unpaid amount.

FOR MORE INFORMATION PLEASE CONTACT:

WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
PO Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2486
Fax: (608) 267-1030
Email Additional Questions

Last updated January 8, 2013