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Wisconsin’s Machinery & Equipment Tax Exemptions: A Framework for Analysis

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

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  1. Wisconsin’s Machinery & EquipmentTax Exemptions: A Framework for Analysis Prepared for the Wisconsin Department of Revenue

  2. Agenda • M&E Exemptions • Project Components • New Estimates • Framework • Recommendations

  3. Background: M&E Exemptions • Policies • Property tax exemption • Sales tax exemption • Goals • Interstate competitiveness • Incentive for manufacturing growth & retention

  4. 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

  5. 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

  6. M&E Estimates: Comparison

  7. 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

  8. Economic Development: Impact

  9. 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)

  10. 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.

  11. Questions?

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