What Is the Wisconsin Economic Development Surcharge?
Understand the mechanics of the Wisconsin economic development surcharge, a distinct tax for certain business entities based on income or tax liability.
The Wisconsin economic development surcharge is a tax applied to specific business entities to fund state economic growth initiatives. This surcharge is levied on businesses that meet certain revenue thresholds. Its purpose is to generate funding for programs designed to attract and retain businesses, foster job creation, and support Wisconsin’s economy. The revenue collected is distinct from general corporate income or franchise taxes and is specifically earmarked for these development purposes.
Determining Liability for the Surcharge
Liability for the economic development surcharge is not universal for all businesses in Wisconsin; it is specifically targeted based on entity type and revenue. The primary entities subject to the surcharge are C corporations, S corporations, partnerships, and limited liability companies (LLCs) that have elected to be taxed as one of these entity types. These businesses must assess their liability annually. Individuals operating as sole proprietorships are not subject to this surcharge.
The main factor that triggers surcharge liability is a revenue threshold. A business becomes subject to the surcharge for a taxable year if it has $4 million or more in Wisconsin gross receipts. This “gross receipts from all activities” test is comprehensive, including gross sales, receipts from services, and income from passive sources like interest and dividends. A business required to file a Wisconsin franchise or income tax return must pay the surcharge if it meets this revenue test.
For businesses that are part of a combined group, the determination is made for each company on an individual basis. Each member of the group must assess its own gross receipts from all its activities to see if it meets the $4 million threshold. Liability for the surcharge is not automatically applied to the entire group but is a specific calculation for each legal entity.
Calculating the Surcharge Amount
Once a business determines it is liable for the surcharge, the calculation method depends on the entity’s structure. For C corporations and insurance companies, the surcharge is the greater of $25 or 3% of the Wisconsin gross tax liability. For S corporations and partnerships, the calculation is the greater of $25 or 0.2% of the Wisconsin net income. The surcharge is capped at a maximum of $9,800 for any single taxable year.
This dual-calculation system ensures that both profitable and non-profitable but high-revenue businesses contribute. A corporation might have a low franchise tax liability due to various deductions, but if its gross receipts exceed $4 million, it will still owe at least the minimum $25. This structure balances the contribution between companies with high sales volume and those with high net earnings.
Consider a C corporation with $5 million in gross receipts, making it liable for the surcharge. If its Wisconsin gross tax liability is $50,000, the surcharge based on the 3% rate would be $1,500. Since $1,500 is greater than the $25 minimum, the corporation’s surcharge is $1,500. If the same corporation had a gross tax liability of only $500, the 3% calculation is $15, so the surcharge would be $25.
Filing and Paying the Surcharge
The process of remitting the economic development surcharge is integrated into the annual state tax filing routine. Businesses must complete Wisconsin Schedule EDS, the specific form for the Economic Development Surcharge. This schedule guides the taxpayer through the calculation, ensuring they determine whether the percentage-based amount or the $25 minimum applies and that the final amount does not exceed the $9,800 maximum.
The calculated amount from Schedule EDS is transferred to the business’s primary Wisconsin tax return. A C corporation carries this amount to Form 4, the Wisconsin Corporation Franchise or Income Tax Return. An S corporation reports the surcharge on Form 5S, the Tax-Option (S) Corporation Franchise or Income Tax Return.
The payment of the surcharge is not made separately. It is combined with the entity’s total franchise or income tax liability for the year and paid by the return’s due date. If a business is required to make estimated tax payments because its total tax and surcharge liability is expected to be $500 or more, these quarterly payments must also include an estimate for the surcharge. These payments are made using Form Corp-ES for corporations.