SB 440

This bill allows a taxpayer to decrease the amount of capital gains subject to

income and franchise taxation by investing in a Wisconsin opportunity zone.

Currently, under the federal opportunity zone program created in 2017, a

taxpayer may defer paying federal income tax on capital gains, and in some cases

reduce the amount of tax owed, by investing the gains in an opportunity zone. An

opportunity zone is a low-income population census tract designated by the U.S.

Treasury secretary, with input from a state's governor. Wisconsin has 120

opportunity zones. A taxpayer invests in an opportunity zone by investing in a

qualified fund, which must hold at least 90 percent of its assets in opportunity zone

property. If the fund's opportunity zone assets fall below the 90 percent threshold,

the fund is subject to a fine that is based on the shortfall for each month the threshold

is not met. Under the federal program, the taxpayer defers paying tax on the capital

gains until the earlier of the date on which the taxpayer sells the investment in the

fund or December 31, 2026. At that time, the taxpayer may permanently exclude 10

percent of the deferred gains from income, and thus not pay tax on that amount, if

the investment was held for at least five years. The exclusion increases to 15 percent

of the gains if the investment was held for at least seven years. Additionally, if the

taxpayer holds the investment for at least ten years, the investment's earnings are

not taxed. Wisconsin has incorporated the federal provisions into state law and,

therefore, the deferral and exclusion treatments apply when calculating state

income and franchise taxes.

Under the bill, for income and franchise tax purposes, a taxpayer may exclude

an additional 10 percent of the deferred gains if the taxpayer holds the investment

in a Wisconsin qualified opportunity fund for at least five years or an additional 15

percent of the deferred gains if the taxpayer holds the investment for at least seven

years. A Wisconsin qualified opportunity fund must hold at least 90 percent of its

assets in property that qualifies under the federal program and is located in a

Wisconsin opportunity zone. If the fund is liable for the federal penalty for failing

to meet the 90 percent threshold for opportunity zone assets, the fund must also pay

a state civil penalty that is equal to 33 percent of the federal penalty.

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.