Maximizing Tax Savings: Understanding the Wisconsin Manufacturing Credit

The Wisconsin Manufacturing Credit can reduce or eliminate state income tax liability on qualified income for businesses engaged in manufacturing activities in Wisconsin.

Don’t have operations in Wisconsin? State tax credits vary significantly across the United States – consult with your tax advisor to understand what credits might apply to your specific operations and location.

What is the Wisconsin Manufacturing Credit?

The Wisconsin Manufacturing Credit is designed to support manufacturers by offering a credit of 7.5% on net income derived from eligible manufacturing activities in the state. This credit can significantly lower, or even eliminate, the state tax obligation for income generated from manufacturing operations.

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Key Requirements to Qualify

To qualify for the Wisconsin Manufacturing Credit, businesses must meet the following criteria:

1. Registered as a Manufacturer

Companies must register as manufacturers with the Wisconsin Department of Revenue. The registration process involves meeting specific requirements, such as having a portion of property and activities located in Wisconsin.

2. Manufacturing Gross Receipts

Businesses need to accurately track and report gross receipts attributable to Wisconsin manufacturing activities. These receipts must be separate from those earned in other states or from non-manufacturing activities.

3. Cost of Goods Sold

Direct and indirect costs associated with goods sold must be identified and allocated to Wisconsin manufacturing. Proper documentation ensures that only the appropriate costs reduce the manufacturing gross receipts, thereby maximizing the credit.

4. Wholesale Component

The credit generally applies to businesses involved in wholesale manufacturing. For example, manufacturers that produce and sell their goods directly to consumers without a wholesale component may not qualify.

5. Entity Type

For pass-through entities such as S corporations and partnerships, the credit flows through to the owners and is reported on their personal tax returns. However, the credit is limited to the tax liability associated with the manufacturing income. Any unused credit can be carried forward to future tax years.

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Documentation Needed

Manufacturers claiming this credit should maintain robust documentation, including:

• Records detailing Wisconsin manufacturing gross receipts
• A breakdown of direct and indirect costs of goods sold
• Registration as a manufacturer with the Wisconsin Department of Revenue
• Allocation of property and activities to Wisconsin versus other states

State-Specific Considerations

While the Wisconsin Manufacturing Credit is specific to the state of Wisconsin, other states may offer similar incentives tailored to their local manufacturing industries. Business owners operating outside Wisconsin should consult their tax advisors to explore potential credits available in their states.

Tax advisors can help ensure compliance with state-specific requirements and identify opportunities to reduce tax liabilities.

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Resources for Manufacturers

The Wisconsin Department of Revenue provides detailed resources and guidance on the manufacturing credit, including registration requirements and documentation tips. Visit their Manufacturing Home Page for additional information.