Magazine article American Banker

Wisconsin Eyes Plan to Tax Banks' Out-of-State Units

Magazine article American Banker

Wisconsin Eyes Plan to Tax Banks' Out-of-State Units

Article excerpt

Wisconsin is considering a change in state tax law that would eliminate the ability of corporations, including community banks, to shift tax burdens to lower-cost states.

To avoid taxes imposed by some states on investments such as U.S. Treasury securities, many companies - including banks, which hold a lot of this sort of investment - create subsidiaries in low-tax havens such as Delaware and Nevada.

However, Wisconsin lawmakers and government officials have talked about eliminating such tax advantages for some time, and some say legislation to do so could evolve in next year's session.

In particular, lawmakers have floated the idea of requiring so-called combined reporting, in which companies would have to report all of their subsidiaries' income, regardless of where it was earned. That would thwart companies' ability to use such subsidiaries to gain tax advantages.

"This investment subsidiary approach is a significant tool" for banks, said William A. Raabe, a professor specializing in taxation at the University of Wisconsin-Milwaukee. Last month, Mr. Raabe released a paper opposing tax changes that would render investment subsidiaries ineffective.

Mr. Raabe predicted that requiring combined reporting would drive some businesses out of the state, but community banks don't have that option.

"In some ways, the kind of burden that we're talking about falls on community banks the hardest," Mr. Raabe said.

Five other states, he said, tax the interest on U. …

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