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Software Design Companies Get Budget Break

Posted on: Friday, 29 July 2005, 21:00 CDT

Jul. 29--Computer software design companies in the Madison area will get a tax break thanks to changes Gov. Jim Doyle signed into the two-year state budget Monday.

The change extends a "single-sales factor" system for figuring corporate taxes to technology development and services businesses.

"It will help level the playing field for us," said Bob Fahrenbach, chief financial officer of Epic Systems, a booming Madison company that develops software for hospitals and clinics.

Under current state law, computer design and services companies may be paying taxes twice if they sell their products in other states.

That's because some states have adopted a system that requires technology companies to pay tax to the state in which they make the sale. Wisconsin's law, though, has been based on how much personnel, property and sales a company has in another state. It, in effect, treats out-of-state sales as Wisconsin sales and taxes them here.

"There were growing numbers of situations where we would have a sale in Minnesota or Texas or Ohio, and it's taxed there and it's taxed here," Fahrenbach said. "What that can do is double the (state) tax burden."

Fahrenbach didn't say how much money a company like Epic might save as a result of the new law.

Tom Still, president of the Wisconsin Technology Council, said the change will help software companies "make decisions to grow in Wisconsin and to maintain operations here."

"If we want Wisconsin to become a state where we have homegrown software companies that are national players -- and we do have some -- then it only makes sense to tax them in a way that doesn't penalize their growth," Still said.

Wisconsin already had altered the tax rules for manufacturing companies.

"This change places Wisconsin technology firms on the same footing as manufacturers and in a more favorable tax climate than many other states," Doyle said in his budget message.

At the same time, software companies located in other states will have to pay corporate taxes to the state of Wisconsin if they sell their products here, Fahrenbach said.

"We're happy with the changes that were enacted," he said.

Brett Rimkus, chief financial officer of Berbee Information Networks Corp., said the new law will reduce the tax bill for the Fitchburg company, which offers a host of computer- related services to companies.

"We expect it'll save some tax dollars initially," Rimkus said.

"But from a tax perspective, Berbee gets more benefit from the personal property tax exemption on computer equipment," which took effect in 1999, allowing the company to "justify large investments in computer equipment," he said.

Licensing, consulting, repair and installation services by Wisconsin tech companies will also fall under the new rules.

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Copyright (c) 2005, The Wisconsin State Journal

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Source: The Wisconsin State Journal

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