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Wisconsin Deferral of Long-Term Gains By Reinvestment in Businesses

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In an effort to stimulate investment in Wisconsin businesses, the Wisconsin state budget, signed by Governor Walker in the summer of 2011, included two provisions that provide individuals with the ability to defer the tax on long-term capital gains that they reinvest either in a "Qualified New Business Venture" (limited to $10 million in gains) or in a Qualified Wisconsin Business" (no limitation).

Applicable for tax years beginning January 1, 2011, any capital gain (up to $10 million for new business venture) that is characterized as long-term under the Internal Revenue Code and reinvested in a qualified Wisconsin business may be deferred as long as it meets the following three conditions:

• The long-term gain must be deposited in a segregated account in a financial institution
• Within 180 days after the sale of the asset that generated the gain, all of the proceeds in the account must be invested in the qualified company
• After making the investment, the individual must attach Wisconsin Schedule CG to their Wisconsin income tax return in the year the gain would otherwise be reported

The Wisconsin basis of the investment in the venture or business must be reduced by the amount of deferred gain and is calculated directly on the form.

A "Qualified New Business Venture" is a business certified by the Wisconsin Economic Development Corporation (WEDC, formerly Wisconsin Department of Commerce). In order to qualify, the business must be engaged in one of the following:

• Developing a new product or business process
• Manufacturing, agriculture, processing or assembling products and conducting research and development

A "Qualified Wisconsin Business" is also a business subject to certification by the WEDC with the following characteristics:

• The amount of payroll compensation paid by the business in Wisconsin is equal to at least 50 percent of the amount of all payroll paid by the business
• The value of real and tangible personal property owned or rented and used by the business in Wisconsin is equal to at least 50 percent of the value of all real and tangible personal property owned or rented and used by the business

In both cases, the business must submit an application annually to the Wisconsin Economic Development Corporation for each year that it desires certification.