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Wisconsin’s Machinery & Equipment Tax Exemptions: A Framework for Analysis. Prepared for the Wisconsin Department of Revenue. Agenda. M&E Exemptions Project Components New Estimates Framework Recommendations. Background: M&E Exemptions. Policies Property tax exemption

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wisconsin s machinery equipment tax exemptions a framework for analysis

Wisconsin’s Machinery & EquipmentTax Exemptions: A Framework for Analysis

Prepared for the Wisconsin Department of Revenue

agenda
Agenda
  • M&E Exemptions
  • Project Components
  • New Estimates
  • Framework
  • Recommendations
background m e exemptions
Background: M&E Exemptions
  • Policies
    • Property tax exemption
    • Sales tax exemption
  • Goals
    • Interstate competitiveness
    • Incentive for manufacturing growth & retention
project components
Project Components
  • Derive Value of M&E Exemptions
    • Statutorily required
    • 10% imputation
  • Conduct Policy and Practice Review
    • Literature
    • Survey of state practices
  • Develop Framework for Analysis
    • Apply to M&E exemptions
deriving new estimates
Deriving New Estimates
  • Method
    • Stratified random sampling
      • 475 manufacturing firms (4.5%)
      • Weighted by total personal property value (46.2%)
      • 5 geographic regions, broad range of industries
  • Results
    • Composition of M&E in Wisconsin
      • 93% exempt
      • 7% taxable
framework for analysis
Framework for Analysis
  • Economic Development
    • Job creation, firm attraction, retention & reinvestment
      • Model impact: output, employment, value-added
      • IMPLAN, elasticity, multipliers
  • Equity
    • Ability to pay (tax incidence)
    • Public services received
  • Efficiency
    • Impact on purchasing and location decisions
  • Administrative Costs
economic development jobs based on a simulated 50 million exemption
Economic Development: Jobs*Based on a Simulated $50 Million Exemption
  • IMPLAN estimates
    • Minimum annual cost per job: $6,200 to $10,600
    • Net present value: $55,700 to $95,200
    • Best-case scenario
  • Model assumptions
    • Omits indirect effects
    • One year impact only
    • Excludes other firm decision-making factors (e.g. public services)
recommendations
Recommendations
  • Set clear goals and metrics when enacting tax incentive policies.
  • Consider short and long-term evaluations from the beginning.
  • Target tax exemptions/incentives carefully to achieve the highest return.
  • Evaluate policies holistically using all four framework categories. If tradeoffs are made, take care to justify them.
  • Consider the unique economic features of Wisconsin in order to get the highest return. Do not create policies solely on the basis of other states’ actions.