Thinking about starting a new business in Wisconsin, or expanding your operations to the Badger State? Wisconsin’s unique geographic location offers prime opportunities for new customers throughout the Midwest, with proximity to Canada and major metros like Chicago and Minneapolis. But before scoping out potential workspaces, it’s critical to understand the taxation environment in Wisconsin. Here’s what small business owners need to know about Wisconsin tax regulations, and how to comply with them.

Business Entity Taxes

Wisconsin follows the federal model for pass-through entities like sole proprietorships, partnerships, S corporations, and LLCs taxed as such. There are no entity-level taxes for them, but owners’ profit shares are taxed at the personal level.

Wisconsin’s corporate income tax on C corporations is a flat 7.9% tax on gross income. Corporations are also subject to a franchise tax based on capital structure, which the state charges for its right to exist.

Wisconsin Sales Tax

Throughout most of Wisconsin, the base sales tax is 5% in 2024. Most Wisconsin counties also add a 0.5% county tax, with Milwaukee County charging 0.9% as of January 1, 2024. Milwaukee is the only city in Wisconsin that charges city-level sales and use taxes (the current rate is 2%).

Most Wisconsin businesses must collect a 5.5% sales tax on taxable goods and services, with the exception of 5.9% in Milwaukee County and 7.9% in the City of Milwaukee.

Wisconsin State Income Tax and Multistate Reciprocity Agreement

Under Wisconsin state tax laws, there is a reciprocity agreement between Wisconsin, Illinois, Indiana, Kentucky, and Michigan. Wisconsin has a state income tax that is withheld from employees’ paychecks, similar to the federal income tax.

It’s important to be aware of such reciprocity agreements as they will affect attraction and retention of talent across state lines. Remote employees are affected as well. The reciprocity agreement among the five states helps ensures that payroll is correctly processed by withholding the relevant state income taxes from the employees’ paychecks instead of forcing them to file multiple tax returns.

Employees who live or work in the above states will not be double-taxed at the state level. If they do not live in Wisconsin but have Wisconsin taxes withheld, they can claim a resident credit on their state tax returns.

Wisconsin State Tax Credits and Incentives

Small businesses and large employers can take advantage of more than 20 different tax credit programs the state offers. Many of these programs offer refundable tax credits, meaning that you will receive funds from them even if you don’t owe taxes.

Enterprise Zone Tax Credits and technology tax credits offer lucrative rebates for creating jobs, investing in emergent technologies, offering employee training, and other business activities that spur economic development throughout the state.

Wisconsin is a relatively business-friendly state that offers a comparatively simple tax environment. No matter the size of your business or your industry, starting up or expanding in Wisconsin is an exciting opportunity but one that also needs to ensure proper steps are taken to stay compliant with Wisconsin tax laws. Ensure your small business is compliant with Wisconsin’s tax regulations. Contact Accounting Freedom today for expert tax planning and compliance services.