• Wisconsin: Legislature Authorizes the Transfer of Economic Development Tax Credits
  • March 12, 2014 | Authors: David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • The Wisconsin legislature has unanimously passed a bill (S.B. 449) which allows companies that receive economic development tax credits (“Recipient”) to transfer them to another company (“Transferee”) if the Recipient meets certain eligibility requirements.

    A manifest problem with providing tax credit incentives to start-up companies is that start-up companies usually are not able to take advantage of the tax credit for several years. Most start-up companies do not earn a profit in the first several years of operation and do not generate taxable income. However, taxable income is necessary in order to receive the benefit of these tax credits. As a solution, the Wisconsin legislature has decided to permit such tax credits to be transferred to a Transferee to allow the Recipient to receive a more immediate benefit from receiving such tax credits.

    Eligibility to transfer tax credits

    The Wisconsin Economic Development Corporation (WEDC) may approve the transfer of the economic development tax credits to a Transferee if the Recipient meets at least one of the following conditions:

    1. The Recipient is headquartered, or intends to be headquartered, in Wisconsin and employs at least 51 percent of its employees in Wisconsin;
    2. The Recipient intends to expand its operations in Wisconsin and will increase the number of full-time employees employed in Wisconsin by a number equal to at least 10 percent of its full-time employees in Wisconsin; or
    3. The Recipient intends to expand its operations in Wisconsin and make a significant capital investment in property located in Wisconsin as determined by the WEDC.

    Consideration for transfer of tax credits

    The tax credits may only be transferred by the Recipient to the Transferee in exchange for some consideration, other than money, and such consideration must be connected to the eligible activity for which the tax credits were initially awarded to the Recipient.

    Revocation of tax credits

    If the WEDC revokes the Recipient’s certification for tax credits and such Recipient has previously transferred those tax credits to a Transferee, then the Recipient is liable for the full value of the tax credit claimed by the Transferee and the Transferee may not claim any tax credits that were not claimed prior to the revocation.

    Limitation on amount of transferred tax credits

    The bill allows for the transfer of up to $15 million in tax credits over three years. After the expiration of such initial three-year period, if the WEDC determines that the continuation of the tax credit transfer program will promote significant economic development in Wisconsin, then the WEDC may continue to authorize the transfer of tax credits for up to an additional three years and may authorize the transfer of up to an additional $15 million in tax credits.