Public Policy Forum Blog

Welcome to the new economy, 7 years late

Way back in 2000, the Forum wrote a white paper for the Governor's economic summit (remember those?), which found that while joining the "new economy" was necessary, it could actually harm our tax base in certain ways. We noted especially that our sales tax policies had not caught up to the new phenomenon of Internet sales. At the time, many people assumed that treating Internet stores like mail-order catalogues would suffice...if they had a physical presence in the state, then they would collect sales tax from customers in our state and, if not, then customers in the state would pay a use tax on the goods they purchased. The problem is that this assumed sophisticated retailers, compliant consumers, and tangible goods. And although we did not predict eBay auctions or iTunes (if only I had that kind of prognostication skill!), we concluded that using current sales tax policy to govern Internet sales would surely result in missed opportunity for a larger sales tax base.

Of course, Wisconsin was not the only state grappling with this issue at the time. The National Conference of State Legislatures' Executive Committee established in 1999 a Task Force on State and Local Taxation of Telecommunications and Electronic Commerce, which has resulted in the "Streamlined Sales and Use Tax Agreement" that will not only make collection of sales and use taxes on Internet transactions feasible, it may also make it constitutional. The agreement attempts to remove the burden of tax collections from retailers, level the playing field for bricks-and-mortar retailers vs. e-tailers, and retain states' sovereignty over their own tax policy.

The streamlined agreement is voluntary for both states and merchants and has the support of many retailers and their associations. The intention is for the agreement to serve as the basis for Congress to grant authority to states to require all sellers, regardless of location, to collect sales and use taxes. Currently, as stated in the Supreme Court's Quill case, under the Commerce Clause, unless Congress specifically provides as such, states cannot impose sales taxes on out-of-state merchants. According to NCSL:

The Streamlined Sales and Use Tax Agreement provides the states with a blueprint to create a simplified sales and use tax collection system that when implemented, provides justification for Congress to allow states to request remote sellers to collect sales taxes as was intended in the Quill decision.

Today, 21 states are full members to the agreement...but not Wisconsin. Wisconsin co-chaired the NCSL task force and was lauded by the Forum in our white paper for showing leadership and forward-thinking. But seven years later, we still haven't fully joined the agreement. Our state has debated the issue and did pass legislation in 2001 that got us part way there. Now Governor Doyle's budget proposal includes the necessary legislation to fully join the agreement. This is not a partisan issue; Wisconsin can either lose tax revenue (nationally, state and local tax losses to e-commerce in 2008 are estimated to range from $11.8 B to $17.8 B) or capture it via merchants who will collect it voluntarily. We, as consumers, are already supposed to be paying these taxes...we just aren't. It really doesn't seem like a hard choice.

Author: 
Anneliese Dickman