Tuesday, July 3, 2018

Walker + WisGOP would use Internet sales tax for more tax cuts to rich

You may remember me mentioning the recent Supreme Court decision clearing the way for states to collect sales taxes on online purchases in almost all circumstances. In Wisconsin, these businesses were not often collecting sales taxes when someone bought a product online, unless they actually had stores in the state. Of course, Wisconsinites were supposed to report these untaxed transactions when they filed their income taxes, but many didn't and it led to a lot of potential sales tax revenue not being collected.

With that in mind, the Legislative Fiscal Bureau released a memo on how sales taxes may change in Wisconsin as a result of SCOTUS ruling. And the LFB says that tightening up this loophole would result in quite a bit more tax revenue for the state.
…Based on information supplied by DOR and the U.S. Census Bureau, it is estimated that expanding sales and use tax collection obligations to out-of-state vendors in compliance with the Wayfair decision would increase state sales and use taxes by $120 million on an annual basis. This estimate is expressed in 2018-19 dollars and assumes Wisconsin would utilize a safe harbor provision for remote sellers similar to the economic thresholds enacted by South Dakota. If changes were made to the administrative code or the statutes such that DOR could extend nexus to remote sellers beginning October 1, 2018, it is estimated that state sales and use tax revenues would increase by $90 million in 2018-19 and $120 million in 2019-20. Further, it is estimated that county and professional stadium park district sales and use tax collections would increase by $7.7 million in 2018-19 and by $10.3 million in 2019-20.
The LFB notes that an interesting sidelight of this is that the $90 million in additional sales taxes for Fiscal Year 2019 could also mean that tax collections end up higher than what’s in the budget for next year, which means that half of that excess would get funneled over into the state’s rainy day fund.

Which is nice for the future, but it also means that there wouldn't be as much breathing room for the rest of this Fiscal Year because half of that windfall because of that diversion into the rainy day fund. And while that $240 million in extra funds by requiring online purchases to have sales taxes won't erase a structural deficit that looks to be in the $1 billion range in both the General and Transportation funds.

The LFB also notes that these extra funds could trigger a GOP budget item that was snuck in 5 years ago that calls for automatic income tax cuts to make up the difference for these higher online sales taxes.
Under a provision created in 2013 Wisconsin Act 20, as amended by 2017 Wisconsin Act 59 [the most recent state budget], state law establishes procedures for reducing state individual income taxes by modifying the rate and Page 4 bracket structure if certain conditions are met. The provision specifies that additional state sales and use tax revenues resulting from "any federal law" that expands the state's ability to require out-of-state sellers to collect and remit tax on remote sales to Wisconsin residents be used to reduce income tax rates. First, DOR is required to determine how much additional revenue has been collected by the state during the first 12 months following the date on which the state begins collecting additional taxes as a result of the federal law. Second, DOR is required to determine how much the individual income tax rates could be reduced in the following taxable year so that income tax revenues would decrease by an amount equal to the estimated increased state sales and use tax revenues (excluding any increased county or professional stadium park district revenues). The individual income tax rate reductions must be calculated in proportion to the share of gross tax attributable to each of the tax brackets in effect during the most recently completed taxable year. After DOR has prepared these estimates and tax rate calculations, DOR is required to certify the revenue estimates and new tax rates to the Secretary of the Department of Administration, the Governor, and the Legislature. The new tax rates would take effect in the taxable year beginning after DOR's certification.

At the time Act 20 was enacted, there were Congressional efforts to override the Quill decision by permitting states to impose the sales and use tax on retailers who lacked a physical presence in their state. The Act 20 provision likely presumed a Congressional law change would serve as its trigger. Nonetheless, given that the law of Quill has been reversed, the U.S. Supreme Court's Wayfair decision could reasonably be construed as "any federal law" triggering the Act 20 provision. Assuming additional legislation or an administrative rule change is needed before the 12-month sales tax collection period can begin, income tax changes could occur as early as tax year 2020, but could occur in tax year 2021, or thereafter.
What LFB says that means is that the Wisconsin DOR would then give the same percentage reduction for all taxpayers, regardless of income level. This means that the richest taxpayers would have a much larger tax break than lower-income Wisconsinites.
A uniform reduction would occur for taxpayers, as all taxpayers would experience a 1.2% reduction in gross tax liability, but taxpayers subject to higher marginal tax rates would experience larger dollar reductions in gross taxes than taxpayers subject only to lower marginal rates. The table below shows that taxpayers with gross taxable income entirely subject to the 4.00% rate in tax year 2017 would have had a gross tax reduction of $3 per taxpayer, whereas the average taxpayer subject to the 7.65% tax rate would have had a gross tax reduction of $592. The average reduction in gross taxes is estimated at $52 per taxpayer.
This is the "offsetting income tax cut" that Scott Walker and other members of the Wisconsin GOP signaled their support for last week after the SCOTUS decision came down. Of course, this also means that Wisconsinites are paying sales taxes when they buy items on-line, and at a 5.5% sales tax for much of the state, that $52 in income tax cuts for the average Wisconsinite is more than eaten up by buying $20 of items a week online. But the richer person who get $592 in income tax cuts would have to spend over $200 a week online to NOT get a tax break - highly unlikely.

Call me crazy, but given how tight our budgets are going to be in the next 2-4 years due to past Walker/WisGOP stunts and how much our roads and schools have deteriorated in recent years, we're going to need all the income we can get. Using a $120 million in online sales taxes to give yet another regressive income tax cut is an absurd idea that will set the state back even farther. Maybe the ALEC crew that wants the state to fall apart likes that, but I bet the average Wisconsinite doesn't.


  1. Damn I can't wait till we kick these fiscally irresponsible bastards to the curb.

  2. This comment has been removed by a blog administrator.

  3. UPDATE- Looks like the Walker Administration has given the order to start automatically collecting the sales taxes beginning on October 1. I'm fine with collecting the taxes, as I do believe it's field-leveler for retailers with actual stores. It's especially key given that it comes right before the important Holiday Shopping season.

    The real question is what to do with that extra money. The Walker folks want to give it away to the rich with that generalized income tax cut, and that's the last thing we need at this point.