Among the bills Republicans are considering in the Legislature is one eliminating the last remnants of Wisconsin’s personal property tax. The bill, AB2, sponsored by Rep. Dan Knodl (R-Germantown), would end property taxes on everything but real estate.
The move is one the Badger Institute long has advocated.
In its “Mandate for Madison,” the institute worked with The Tax Foundation to offer five options for tax reform to make Wisconsin more competitive. You can read the details here. The headline reforms were pathways to a single-rate “flat” income tax that would lower our punitively high top rate and free Wisconsin of economically harmful redistribution in the tax code.
But every option outlined by report author Katherine Loughead also got rid of the personal property tax. As Loughead pointed out, “Personal property taxes not only increase the cost of investing in Wisconsin, but they also impose substantial compliance costs, as businesses must proactively calculate the depreciable value of their taxable tangible personal property each year and remit the appropriate tax. In some cases, taxpayers expend more resources complying with this tax than they remit in tax liability, making it more of a nuisance tax than anything, and one that creates significant deadweight losses.”
Loughead expanded on this last point in her testimony April 26 before the Assembly Ways and Means Committee in Madison: “Compared to the real property tax, tangible personal property taxes are more burdensome to comply with because taxpayers must proactively calculate and report the depreciable value of their taxable tangible personal property each year. … Repealing this tax would relieve taxpayers of this compliance burden, saving them time and money, and the state would benefit by no longer having to administer and enforce a complex tax that generates only a small amount of revenue.”
That wasn’t the first time. In 2021, Loughead noted that property taxes overall constituted a high cost for some businesses, with the burden falling unevenly because of exemptions.
And in 2019, an earlier set of tax reform options the Badger Institute published with the Tax Foundation also saw the personal property tax as low-hanging fruit: Repealing what parts of the tax remain “would reduce the cost of capital accumulation and, by extension, the cost of doing business in the state—both directly (through reduced tax liability) and indirectly (through reduced compliance costs),” wrote the report’s authors, again led by Loughead.
That report pointed out that Wisconsin had already chipped away at the tax over the years. In law, personal property taxes — distinct from property taxes levied on real estate, such as homes or commercial land — are levied on tangible, movable property, except for those covered by exceptions.
Households were exempted more than a century ago. Business inventories were exempted in 1960. Manufacturing machinery was exempted in 1973. All nonprofits, such as universities or hospitals, are exempt. What’s still covered includes boats, office furniture and billboards, among other things. Such tangible personal property amounts to a minute share of all property subject to property taxes — about 2% in 2019, according to the Department of Revenue.
The tax’s small contribution to revenue and large demands on taxpayers’ time has long made it ripe for replacement. In 2014, for example, a proposal for a revenue-neutral reform by the Badger Institute (under its former name, the Wisconsin Policy Research Institute) included in its scenarios the elimination of the personal property tax.
Patrick McIlheran is the Director of Policy at the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited.