Sales Tax: Death By a Thousand Cuts?
The new Legislature has approved or proposed a variety of sales tax exemptions. The exemptions give favored tax status to certain purchases, result in similar goods being treated differently for tax purposes, and add complexity to a sales tax system already rife with exemptions. While each individual sales tax exemption is not going to break the budget, when taken as a whole, the exemptions drain much-needed revenue out of the state’s coffers.
The sales tax in Wisconsin already includes several dozen exemptions. Some exemptions represent a significant amount of lost tax revenue. For example, the exemption for food reduced state sales tax revenue by $534 million in 2010. Other sales tax exemptions represent a very minor amount of lost revenue, like the exemption for live game birds and clay pigeons, which reduced state revenue by $200,000 last year.
Since the new Legislature took office at the beginning of this year, it has been working to carve out additional sales tax exemptions. The biennial budget bill passed this summer included new sales tax exemptions for:
- Modular and manufactured homes, representing a loss of $455,000 in state sales tax revenue over the biennium.
- Advertising and promotional direct mail (starting in FY 2014), for a loss of $1.0 million per biennium.
- Snowmaking and snow grooming equipment, including fuel and electricity used to operate the equipment (starting in FY 2014), for a loss of $300,000 each biennium.
Since the budget, two additional sales tax exemptions have been proposed:
- An exemption for electricity and natural gas year round, a loss of $163 million over the biennium. Currently, electricity and natural gas for residential use are exempt from sales tax only during November through April.
- Extended-range electric vehicles, a loss of $4.5 million over the biennium.
In addition, the Legislature has also proposed moving up the exemption for snow-grooming equipment so it would go into effect now rather than in 2014.
Although the Legislature is eager to exempt specific goods from the sales tax, historically the Legislature has very reluctant to ever expand the sales tax base. In fact, the sales tax base has only been expanded once in the last 13 years.
If the Legislature continues to add exemptions, we risk undercutting the sales tax, one of the state’s main sources of revenue. The reduction in sales tax revenue jeopardizes the resources we need to insure that Wisconsin has a healthy and well-educated workforce and safe and stable communities.