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
– Sales tax exemption

Goals
– Interstate competitiveness
– Incentive for manufacturing growth &
retention
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

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
M&E Estimates: Comparison
Property Tax and Sales Tax Revenue Impact
($ millions)
Estimates
Property Tax:
Tax Shift
Sales Tax:
Forgone Revenue
La Follette Project
$332
$155
Summary of Tax Exemptions
$239
$159
$92 (39%)
$4 (-3%)
Difference
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: Impact
Impact of a Simulated $50 Million Tax Decrease to
Manufacturers on Wisconsin’s Economic Activity
($ millions)
Employment
Wisconsin
Employment
ValueAdded
ValueAdded
Wisconsin
Elasticity
Output
Wisconsin
Output
(-0.2)
$461.1
0.25%
4,181
0.12%
$225.3
0.19%
(-0.3)
$725.0
0.40%
6,554
0.19%
$350.9
0.30%
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





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.
Questions?