Legislation from Rep. Jessie Rodriguez (R-Oak Creek) and Sen. Dale Kooyenga (R-Brookfield) is advancing in the Wisconsin Legislature that would make clarifications related to the collection of online sales taxes from out-of-state retailers. The bill comes after the U.S. Supreme Court ruled in 2018 in South Dakota v. Wayfair that states may collect online sales tax from sellers with no physical presence in the state.
Background
A state budget provision in 2013 provided that any additional revenue resulting from changes to federal law regarding online sales taxes must be used to offset income tax reductions. The statute requires the Department of Revenue (DOR) to analyze revenue from the first 12 months of sales tax collection before administering income tax reductions in the following year. 2017 Act 368, passed in the 2018 extraordinary session, clarified that the Wayfair decision triggers this statutory provision. Act 368 also exempted retailers with annual gross sales into Wisconsin less than $100,000 or 200 or fewer transactions in accordance with the Supreme Court decision and gave the legislature’s Joint Finance Committee input in how the new individual income tax rates will be reduced according to the amount of online sales taxes collected and certified by DOR.
2019 Legislation
AB 251/SB 243 clarifies that the income tax rate reductions are ongoing, not one-time for 2019. DOR’s first revenue analysis was for 2018-19, and those rate reductions apply for 2019. The bill then requires DOR to monitor additional revenue from the sales and use tax for 2019-20 and reduce rates accordingly in 2020. The 2020 rate reduction number becomes the permanent rate going forward. Under a Substitute Amendment, the bill makes the rate reductions applicable only to the second individual tax rate in each bracket.
The bill also defines “marketplace providers,” which are entities that facilitate online retail sales as third parties, collecting payment from the purchaser and transmitting the payment to the original seller of the product. The Substitute Amendment clarifies that advertisers who do not collect payments are not “marketplace providers.” Generally, the bill clarifies that marketplace providers must collect and remit sales taxes on behalf of sellers. The Substitute Amendment provides relief from liability for marketplace providers if they receive inadequate information from sellers.
The bill also provides a waiver for marketplace sellers operating under a hotel, motel, or restaurant brand name shared with the marketplace provider. In that case, the marketplace provider may submit an application to the Department of Revenue for a waiver requiring the seller to collect the tax instead. This provision allows local sellers using national marketplace providers to collect and remit their taxes from online sales locally and contribute to the local room tax.
Committee Action
The Assembly Committee on Ways & Means held a public hearing on the legislation on June 6. At the hearing, marketplace provider Amazon testified in favor of the bill and told the committee that 32 other states have enacted marketplace provider legislation in the wake of Wayfair. Amazon and other supporters, including the Wisconsin Restaurant Association and Wisconsin Hotel & Lodging Association said the bill provides important clarity for both sellers and providers. Walmart, Wisconsin Hardware Association, Wisconsin Independent Business, Milwaukee Metropolitan Association of Commerce, and Alliance of Wisconsin Retailers also registered in favor of the bill.
The Assembly committee then passed the Substitute Amendment to the bill in executive session on June 11. Democrats on the committee offered an amendment to apply the reduced tax rates only to the first individual tax rate in each bracket and to limit the reduced rates to 2021. The committee rejected the Democrats’ amendment and passed the Substitute Amendment 7-4 along party lines.
After finishing up votes on the 2019-21 state budget, the Joint Committee on Finance (JFC) unanimously approved the bill. As passed by JFC with additional amendments, the bill would target the tax breaks to the state’s lowest two income brackets, while leaving rates in the top two brackets the same.