Manufacturing Investment Credit Is Available for 2008

The manufacturer's sales tax credit is no longer available for taxable years beginning after December 31, 2005. However, some taxpayers with unused manufacturer's sales tax credit carryforwards are eligible for the Manufacturing Investment Credit, which is available for taxable years beginning on or after January 1, 2008.

This article summarizes the tax benefits available to taxpayers who have unused manufacturer's sales tax credits from taxable years beginning before January 1, 2006. Note that businesses eligible for the Manufacturing Investment Credit must submit their applications to the Wisconsin Department of Commerce no later than September 30, 2008.

Carryforward Available for Taxpayers With $25,000 or Less in Unused Credit
If a taxpayer has $25,000 or less in unused manufacturer's sales tax credit, the unused credit may be claimed, but for each of the first two taxable years beginning after December 31, 2005, it is limited to 50 percent of its amount as of the beginning of the first such taxable year. If the credit cannot be used during this period, it may be carried forward for the remainder of its 20-year carryforward period until used.

For manufacturer's sales tax credits passed through a tax-option (S) corporation, partnership, or other type of pass-through entity, the $25,000 threshold is determined at the shareholder, partner, member, or beneficiary level. Any manufacturer's sales tax credit carryforwards used at the shareholder, partner, member, or beneficiary level cannot also be used in the computation of the Manufacturing Investment Credit.

Deduction for Taxpayers With Over $25,000 in Unused Credit
If a taxpayer has over $25,000 in unused manufacturer's sales tax credit, for each of the first two taxable years beginning after December 31, 2005, the taxpayer may deduct 50 percent of the unused credit that was added back to income in prior years. This deduction may be claimed even if the taxpayer has a net loss or loss carryforward. For pass-through entities, the $25,000 threshold for purposes of this deduction is determined at the shareholder, partner, member, or beneficiary level.

The purpose of this deduction is to reverse the effect of including the manufacturer's sales tax credit in income in prior years when the taxpayer was unable to receive the benefit of the credit. This deduction has no effect on a taxpayer's eligibility for, or computation of, the Manufacturing Investment Credit.

Manufacturing Investment Credit
Taxpayers with over $25,000 in unused manufacturer's sales tax credit and who meet certain criteria are also eligible for the Manufacturing Investment Credit.

Pass-through entities may apply for the Manufacturing Investment Credit and pass it on to their shareholders, partners, members, or beneficiaries. Tax-option (S) corporations whose manufacturer's sales tax credit carryforwards were generated in taxable years beginning before January 1, 1998 may also apply for the Manufacturing Investment Credit and pass it on to their shareholders, even though they were not able to pass the manufacturer's sales tax credit on to their shareholders when they first computed the credit.

The Manufacturing Investment Credit is equal to the amount of unused manufacturer's sales tax credit amortized over a 15-year period.

The Wisconsin Department of Commerce certifies companies eligible for the Manufacturing Investment Credit. The general criteria for eligibility are:

Companies eligible for the Manufacturing Investment Credit must file an application with the Department of Commerce no later than September 30, 2008.
For more information on the application process, see the Department of Commerce's web site at commerce.wi.gov/BD/BD-MIC.html.

Note: In the Manufacturing Investment Credit application form, pass-through entities should enter the amount of unused manufacturer's sales tax credit at the entity level, not the amount from Wisconsin Schedule MS. This is because Schedule MS is completed at the shareholder, partner, member, or beneficiary level. In order to apply for the Manufacturing Investment Credit, the pass-through entity may need to obtain information from its shareholders, members, partners, or beneficiaries regarding the amount of their remaining credit carryforward from the pass-through entity.

Taxpayers and businesses who receive a Manufacturing Investment Credit will use Wisconsin Schedule MI to claim the credit on their 2008 Wisconsin income or franchise tax return. The amount of Manufacturing Investment Credit computed in each taxable year must be included in Wisconsin income.

Last updated July 7, 2008