Wisconsin Enacts Discriminatory Exit Charge For Businesses Moving Out Of State

On June 24, 2019, Wisconsin Governor Tony Evers (D), signed into law AB 10, entitled "2019 Wisconsin Act 7." This Act either bars a deduction for, or requires that amounts deducted be added back to, Wisconsin taxable income "for moving expenses" deducted on federal income tax returns if the expenses are associated with a move of a business either out of the state or out of the country. This requirement would not apply to expenses incurred by a taxpayer in moving a business to a different location within the state of Wisconsin. The provisions apply regardless of the form of ownership of a business, either as a sole proprietorship, a corporation, or a pass through entity such as a partnership, limited liability corporation or subchapter S corporation.

Under federal tax law, a taxpayer generally may deduct the costs associated with moving its business operations from one location to another as ordinary and necessary business expenses. The Wisconsin income tax "piggybacks" on federal taxable income for purposes of determining the state income tax. Under the provision, a taxpayer would have to add back to its Wisconsin taxable income any expenses associated with a move that had been deducted on the federal return.

The fiscal note accompanying the bill notes no data exists that would permit an estimate of how much revenue the measure would raise, but anticipates the amount would not be large. The fiscal note provides an example of a business that spent $500,000 in moving either out of the state or out of the country. Assuming an apportionment factor of 14.7% (the average for all Wisconsin businesses in 2016), it would pay an additional $5,807 in income tax. If 100 similar businesses moved out of the state, the revenue increase to the state (or cost to business in increased income taxes) would be $580,700.

The low revenue score for the measure suggests the purpose is political rather than revenue raising. Indeed, Governor Evers, in his Twitter feed, stated "I signed AB 10 into law to make sure businesses don't get an unfair tax advantage for moving their business out of Wisconsin." Governor Evers was backed by the head of the Wisconsin chapter of the AFL-CIO, who praised him for calling out the "unjust practice of rewarding companies with tax breaks for moving jobs out of WI."

Discriminatory?

The Act blatantly discriminates against interstate and international commerce and is unconstitutional under the Commerce Clause of the US Constitution, which...