On Jan. 1, 2018, the Wisconsin Legislature eliminated the personal property tax on machinery, tools and patterns. Hopefully, your clients is already taking advantage of this tax cut, especially those who do heavy/highway work.
However, the State of Wisconsin has not provided much application guidance, and there are reports of local municipalities still taxing exempted personal property. Fortunately, there is a dispute resolution process to regain unlawfully collected taxes.
Background: Taxes on Personal Property in Wisconsin
Wisconsin is one of the few states that still taxes personal property.1 Over the years, elected officials have exempted personal property tax categories, including agriculture equipment, animals, and supplies (1923, 1937, and 1941);2 manufacturing equipment (1974); and computer equipment (1999 and 2003).3
As a result, over 95 percent of Wisconsin personal property is exempt, leaving a vestigial tail of a tax.4 The consensus from taxpayers, tax collectors, and elected officials is that the personal property tax is not applied uniformly or fairly, and is complicated to pay and cumbersome to collect. However, it still generates more than $200 million annually for local governments.
During the 2017-19 state budget, the most significant exemption since 1999 was created for non-manufacturing machinery, tools, and patterns. This new exemption saves personal property taxpayers $75 million each year, while holding local municipalities harmless for the lost revenue. In addition, this reform saves administrative time for both the taxpayer and tax collector.
Construction companies should evaluate whether their property is required to be included elsewhere on the property tax return or is an otherwise exempt item.
Guidance – and Lack Thereof
The Wisconsin Department of Revenue (DOR) has not provided much guidance, or even a list of qualified property to assist taxpayers and tax collectors – thereby leaving them to make their own interpretation of what is taxable and what is exempt.
DOR officials under former Gov. Scott Walker blamed the method the legislators used to create this most recent exemption. Tools, machinery, and patterns were reported on Schedule C of the Statement of Personal Property Assessment.5 The Wisconsin Legislature saw that Schedule C collected $75 million a year, exempted that amount, and backfilled the lost revenues to local municipalities.6
So, from the DOR’s point of view, everything exempted under this tax cut was previously listed on Schedule C. If an item of personal property was not otherwise exempt and was not previously listed on Schedule C, then it is not exempt.
The problem arises for businesses who were not as careful as they should have been in differentiating personal property on Schedule C (Machinery, Tools & Patterns) or Schedule D (Furniture & Fixtures). The statutory definition of machinery appears clear, and is backed up by a Jan. 3, 2019, attorney general opinion: Generally, if a piece of equipment or machinery is plugged in, fueled by gas, or mechanically powered, it is now exempt.7
Now that there is an exemption on machinery, your business clients should re-evaluate their personal property asset classifications and move them to Schedule C or D, as necessary.
Appealing a Wrongful Personal Property Tax Assessment
There have been reports of conflicting treatment by municipalities in assessing the personal property tax.
A claim for unlawful tax is the avenue for disputing a municipality’s assessment of your client’s personal property that you or your client believe is exempt by law from taxation.8
If you own machinery that has not been exempted by your municipality, you can appeal the assessment by filing a claim against the municipality for unlawful tax. The proper venue, however, is not the local Board of Review, which typically addresses subjective valuation issues.9
Rather, to claim a refund for an unlawful assessment, the taxpayer must first pay the tax, then file a signed,10 written claim for the amount of refund served with the clerk of the municipality, stating that the tax was unlawful because the personal property is tax exempt.11
If the municipality approves the claim, payment must be made within 90 days. If the municipality disallows the claim,12 the taxpayer may commence an action in circuit court to recover the amount of the claim not allowed within 90 days.
This article was originally published on the State Bar of Wisconsin’s Construction and Public Contract Law Section Blog. Visit the State Bar sections or the Construction and Public Contract Law Section web pages to learn more about the benefits of section membership.
1 See Wis. Stat. section 70.04: “Goods, wares, merchandise, chattels and effects of any nature or description having any marketable value and not included in real property.” Household furnishings were exempt in 1891 and 1911; see Wis. Stat. §§70.111 (1), 70.111 (1)(6).
2 Wis. Stat. §§70.111 (2), (4), (6), (7), (9), (10), (11), (17), (21)
3 Wis. Stat. §70.11(39)
4 Wis. Stat. section 70.111 exempts 22 specific categories of personal property. Wis. Stat. 70.11 exempts section 61. Wis. Stat section 70.112 exempts certain types of personal property from the property tax, because the property is subject to another tax or fee, i.e., automobiles and certain public utility property.
5 Form PA-003
6 Act 59 (AB-64) exempts from the personal property tax machinery, tools, and patterns, not including such items used in manufacturing. The act also provides an annual state aid payment to each taxing jurisdiction equal to the amount of the personal property tax imposed on such items by the taxing jurisdiction for the Jan. 1, 2018, assessment.
7 See Wis. Stat. section 70.111(27)(a): “a structure or assemblage of parts that transmits forces, motion or energy from one part to another in a predetermined way by electrical, mechanical or chemical means.”
8 Wis. Stat. section 74.53 provides for the recovery of unlawful taxes under very specific conditions, specifically if: a clerical error made in the property description or in the tax calculation; the assessment included real property improvements that did not exist on the Jan. 1 assessment date; property was exempt from taxation; property was not located in the municipality; a double assessment was made; or an arithmetic, transpositional, or similar error occurred.
9 Wis. Stat. §70.74
10 Either the taxpayer or their agent. Wis. Stat. §74.53.
11 Must be filed within two years after the last date specified for timely payment of the tax. All other claims for recovery of unlawful taxes must be filed by Jan. 31 of the year the tax is payable. Wis. Stat. §74.53.
12 Either by denying the claim or by failing to take any action on the claim within 90 days after the claim has been filed.