Wisconsin’s Machinery & Equipment Tax Exemptions: A Framework for Analysis Prepared for the...
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![Page 1: Wisconsin’s Machinery & Equipment Tax Exemptions: A Framework for Analysis Prepared for the Wisconsin Department of Revenue.](https://reader036.fdocuments.in/reader036/viewer/2022082713/5697bfc11a28abf838ca4391/html5/thumbnails/1.jpg)
Wisconsin’s Machinery & EquipmentWisconsin’s Machinery & EquipmentTax Exemptions: Tax Exemptions:
A Framework for AnalysisA Framework for Analysis
Prepared for the Wisconsin Department of RevenuePrepared for the Wisconsin Department of Revenue
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AgendaAgenda
M&E ExemptionsM&E Exemptions
Project ComponentsProject Components
New EstimatesNew Estimates
FrameworkFramework
RecommendationsRecommendations
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Background: M&E Background: M&E ExemptionsExemptions
PoliciesPolicies– Property tax exemptionProperty tax exemption– Sales tax exemptionSales tax exemption
GoalsGoals– Interstate competitivenessInterstate competitiveness– Incentive for manufacturing growth & Incentive for manufacturing growth &
retentionretention
![Page 4: Wisconsin’s Machinery & Equipment Tax Exemptions: A Framework for Analysis Prepared for the Wisconsin Department of Revenue.](https://reader036.fdocuments.in/reader036/viewer/2022082713/5697bfc11a28abf838ca4391/html5/thumbnails/4.jpg)
Project ComponentsProject Components
Derive Value of M&E ExemptionsDerive Value of M&E Exemptions– Statutorily requiredStatutorily required– 10% imputation10% imputation
Conduct Policy and Practice ReviewConduct Policy and Practice Review– LiteratureLiterature– Survey of state practicesSurvey of state practices
Develop Framework for AnalysisDevelop Framework for Analysis– Apply to M&E exemptionsApply to M&E exemptions
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Deriving New Estimates Deriving New Estimates MethodMethod
– Stratified random samplingStratified random sampling 475 manufacturing firms (4.5%)475 manufacturing firms (4.5%) Weighted by total personal property value Weighted by total personal property value
(46.2%)(46.2%) 5 geographic regions, broad range of industries5 geographic regions, broad range of industries
ResultsResults– Composition of M&E in WisconsinComposition of M&E in Wisconsin
93% exempt93% exempt 7% taxable7% taxable
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M&E Estimates: ComparisonM&E Estimates: Comparison
Property Tax and Sales Tax Revenue Impact($ millions)
Estimates Property Tax:Tax Shift
Sales Tax: Forgone Revenue
La Follette Project $332 $155
Summary of Tax Exemptions $239 $159
Difference $92 (39%) $4 (-3%)
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Framework for AnalysisFramework for Analysis Economic Development Economic Development
– Job creation, firm attraction, retention & Job creation, firm attraction, retention & reinvestmentreinvestment Model impact: output, employment, value-addedModel impact: output, employment, value-added IMPLAN, elasticity, multipliersIMPLAN, elasticity, multipliers
Equity Equity – Ability to pay (tax incidence)Ability to pay (tax incidence)– Public services receivedPublic services received
Efficiency Efficiency – Impact on purchasing and location decisionsImpact on purchasing and location decisions
Administrative Costs Administrative Costs
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Economic Development: Economic Development: ImpactImpact
Impact of a Simulated $50 Million Tax Decrease to Manufacturers on Wisconsin’s Economic Activity
($ millions)
Elasticity OutputWisconsin
OutputEmployment
Wisconsin Employment
Value-Added
Value-Added
Wisconsin
(-0.2) $461.1 0.25% 4,181 0.12% $225.3 0.19%
(-0.3) $725.0 0.40% 6,554 0.19% $350.9
0.30%
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Economic Development: Economic Development: JobsJobs
*Based on a Simulated $50 Million Exemption*Based on a Simulated $50 Million Exemption IMPLAN estimatesIMPLAN estimates
– Minimum annual cost per job: $6,200 to Minimum annual cost per job: $6,200 to $10,600$10,600
– Net present value: $55,700 to $95,200Net present value: $55,700 to $95,200– Best-case scenarioBest-case scenario
Model assumptionsModel assumptions– Omits indirect effectsOmits indirect effects– One year impact onlyOne year impact only– Excludes other firm decision-making factors Excludes other firm decision-making factors
(e.g. public services)(e.g. public services)
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RecommendationsRecommendations Set clear goals and metrics when enacting tax Set clear goals and metrics when enacting tax
incentive policies.incentive policies. Consider short and long-term evaluations from Consider short and long-term evaluations from
the beginning.the beginning. Target tax exemptions/incentives carefully to Target tax exemptions/incentives carefully to
achieve the highest return.achieve the highest return. Evaluate policies holistically using all four Evaluate policies holistically using all four
framework categories. If tradeoffs are made, framework categories. If tradeoffs are made, take care to justify them.take care to justify them.
Consider the unique economic features of Consider the unique economic features of Wisconsin in order to get the highest return. Do Wisconsin in order to get the highest return. Do not create policies solely on the basis of other not create policies solely on the basis of other states’ actions.states’ actions.
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Questions?Questions?