Last month, the U.S. Supreme Court ruled in South Dakota v. Wayfair that states may collect online sales tax from sellers with no physical presence in the state. Gov. Walker’s administration has announced that the Department of Revenue (DOR) will promulgate rules for administering Wisconsin’s 5 percent sales tax online and begin collection in October.
Wisconsin’s rule will be modeled after the South Dakota law approved by the Supreme Court in Wayfair. Online sales tax collection will exclude small businesses with less than $100,000 in sales or less than 200 transactions in the state.
The Legislative Fiscal Bureau estimated that collecting online sales tax would increase sales and use tax revenue by $120 million annually. 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 DOR to analyze revenue from the first 12 months of sales tax collection before administering income tax reductions, so DOR could implement income tax changes as early as 2020.
The Wayfair decision overturned Quill Corp. v. North Dakota, which held that states can only collect sales and use tax from retailers with a physical presence in the state. Before Wayfair, states relied on consumers purchasing from out-of-state, online retailers to self-report use tax. Since self-reporting is difficult to enforce, it was estimated that states missed out on significant revenue from online sales. South Dakota enacted its law to collect on this missed revenue, and its case against internet retailers including Wayfair was appealed to the Supreme Court.