Manufacturing matters after all: Qualified production credit proves Wisconsin is open for business

In the early part of this century, there was a prevailing thought that if Wisconsin was going to compete in the “Economy of the Future,” we needed to move on from our manufacturing heritage and embrace the new economy. The state should be grateful that our manufacturing community did not heed the advice of the experts, as manufacturing has shown remarkable resilience in an economic recovery that still feels like a recession for millions of people.

While manufacturing has changed dramatically over the past decade, it has remained a driving force in Wisconsin’s economy. Manufacturing has generated 8,233 new jobs since 2009, and Wisconsin leads the nation in the percentage of its workforce that is employed by manufacturing, which now represents approximately 16% of the state’s workforce.

The economic impact of manufacturing in Wisconsin cannot be understated. The sector supports approximately 1.1 million jobs with total earnings of $53 billion. That is 32% of the state’s jobs and 35% of all earnings. For each manufacturing job that is created, there are by conservative estimates two service sector jobs needed to support the wealth-creation effects of the sector.

A little known provision in the recent State Budget Act 32 is going to make creating economic growth much easier for the manufacturing community in Wisconsin. The Wisconsin Qualified Production Activities Credit will effectively eliminate taxation on qualified production activity within the state by 2016. The credit will be available for all qualified activity income generated from manufacturing and agricultural operations derived from property located in Wisconsin and assessed by the state as either manufacturing or agricultural.

The credit will be available for both Wisconsin corporate taxpayers and individual taxpayers who own their interests through an S-Corp or partnership/LLC. Due to budget constraints, the state was not prepared to roll this piece of legislation out immediately; however, the following phase-in process will begin in 2013:

  • Tax years beginning 2013 – a 1.875% tax credit
  • Tax years beginning 2014 – a 3.75% tax credit
  • Tax years beginning 2015 – a 5.526% tax credit
  • Tax years beginning 2016 – a 7.5% tax credit

With the current top tax rates of 7.5% for an individual or 7.9% for a C-Corp, the state of Wisconsin is positioned to essentially eliminate state income tax for manufacturing businesses. Manufacturing, the actual making of a product, creates wealth and sustainable economic growth, which in turn creates jobs and all the benefits that come with growth.

With the passing of this piece of legislation, the state adds another recruitment tool to its arsenal of competitive advantages in the field of manufacturing. This will not only be an attractive tool to recruit out-of-state companies, it also sends a signal to the existing manufacturing base in Wisconsin that if your company is planning an expansion, Wisconsin wants you to expand in your home state.

Jeff Hoffman is vice president of industrial real estate for Judson & Associates, S.C., and Jim Brandenburg, CPA, is a shareholder in KOLB + Co., S.C.