Disregarding a taxpayer's election to include another in its combined group, disallowing certain carry-forward amounts for combined reporting purposes, repealing the income and franchise tax credit for qualified production activities income, repealing the changes made to the earned income tax credit in 2011 Wisconsin Act 32, restoring indexing provisions to the homestead tax credit, eliminating the individual income tax exclusion for long-term capital gains other than for farm assets, computing the estate tax based on 2002 federal law, and creating a new individual income tax upper bracket

Qualified production activities income credit Under the federal Internal Revenue Code, a taxpayer may claim a deduction equal to 9 percent of the taxpayer's qualified production activities income in the taxable year or 9 percent of the taxpayer's total taxable income, whichever is less.

For federal tax purposes, qualified production activities income is, generally, the amount of the taxpayer's domestic production gross receipts that exceed the sum of the cost of goods sold and other expenses, losses, or deductions. Domestic production gross receipts are, generally, gross receipts derived from property that was manufactured, produced, grown, or extracted in the United States.

Under current law, an individual taxpayer may claim a state income tax credit equal to the taxpayer's qualified production activities income derived from manufacturing property and agricultural property, multiplied by a certain percentage. A corporation or insurer may claim a state income and franchise tax credit equal to the lesser of its taxable income apportioned to this state or its qualified production activities income derived from manufacturing property or agricultural property located in this state, multiplied by a certain percentage. The percentage of qualified production activities income that a taxpayer may claim as a credit is 1.875 percent for 2013, 3.75 percent for 2014, 5.526 percent for 2015, and 7.5 percent for 2016 and for each year thereafter.

The bill eliminates the tax credit for qualified production activities income.

Estate tax Under current law, the estate tax is equal to the federal estate tax credit allowed for state death taxes as computed under the federal estate tax law in effect on the day of the decedent's death. Under current federal law, the estate tax is imposed on the portion of an estate that is in excess of $5,000,000 and the federal credit for state death taxes has been eliminated for 2011 and 2012.

Under this bill, for deaths occurring after December 31, 2011, the estate tax is equal to the federal estate tax credit allowed for state death taxes as computed under the federal estate tax law in effect on December 31, 2002. Under the bill, the tax imposed on estates of $1,000,000 or more, but not on property used in farming.

Upper income tax bracket Under current law, there are five income tax brackets for single individuals, certain fiduciaries, heads of households, and married persons. The brackets are indexed for inflation. The rate of taxation under current law for the lowest bracket for single individuals, certain fiduciaries, heads of households, and married persons is 4.6 percent of taxable income; the rate for the second bracket is 6.15 percent; the rate for the third bracket is 6.5 percent; the rate for the fourth bracket is 6.75 percent;

and the rate for the highest bracket, which was created in the 2009-11 biennial budget act, 2009 Wisconsin Act 28 , is 7.75 percent.

For taxable year 2011, the highest bracket applies to taxable income exceeding $224,210 for single individuals, certain fiduciaries, and heads of households. For married persons, the highest current bracket applies to taxable income exceeding $298,940 for joint filers and $149,470 for separate filers.

For taxable year 2012 and thereafter, this bill creates a sixth bracket with a taxation rate of 8.75 percent. For single individuals, certain fiduciaries, and heads of households, this bracket applies to taxable income exceeding $1,000,000. For married persons, this bracket applies to taxable income exceeding $1,000,000 for joint filers and $500,000 for separate filers. This bracket is indexed for inflation.

Earned income tax credit Under current law, as created in 2011 Wisconsin Act 32 , the earned income tax credit (EITC) is reduced for claimants with two or more qualifying children. The bill repeals those provisions and restores former law. Under the bill, the EITC, as a percentage of the federal credit, would be 4 percent for claimants with one qualifying child, 14 percent for claimants with two qualifying children, and 43 percent for claimants with three or more qualifying children.

Homestead tax credit Under current law, as created in 2011 Wisconsin Act 32 , the homestead tax credit formula factors (maximum income, maximum property taxes, and income threshold) are not indexed for inflation after 2010. The bill repeals those provisions and restores former law. Under the bill, the homestead tax credit formula factors would be indexed for inflation for 2011 and beyond.

Exclusion of capital gains Under current law, there is an income tax exclusion for individuals, fiduciaries, members of limited liability companies and partnerships, and shareholders of tax-option corporations for 30 percent of the net long-term capital gains realized from the sale of assets held more than one year and the sale of all assets acquired from a decedent, and an exclusion for 60 percent of such gains realized from the sale of farm assets held more than one year and the sale of all farm assets acquired from a decedent.

Under this bill, the exclusion of 30 percent of such net long-term capital gains, and all assets acquired from a decedent, does not apply to taxable years beginning after December 31, 2011. The bill does not affect the exclusion of the gains realized from the sale of farm assets held more than one year and the sale of farm assets acquired from a decedent.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.