Soaring e-commerce taxes unlikely to boost state budget
Law requires revenue to go to income tax break
MADISON - With stores closed during the COVID-19 pandemic, online sales have soared. But instead of giving a financial boost to the state in the form of sales taxes, the shift toward ecommerce will instead result in an income tax cut required under state law, according to a Wisconsin Policy Forum report released Wednesday.
The pandemic has battered the state’s economy, with businesses losing millions of dollars in revenue and thousands out of jobs. Most of the state’s main tax collections have declined in recent months compared to 2019, according to the nonpartisan research group.
As other segments of the market saw a dip between April 2019 and April 2020, online sales — specifically online and out-of-state sales tax revenues — saw a 133% increase, according to the policy forum. It’s almost undoubtedly caused by those avoiding storefronts and hunkered down at laptops under the state’s stay-at-home order that was in place until May 13.
However, rather than boosting the state’s bottom line, the additional revenue will be used to cut income tax rates under state law.
That means people will get a modest break on the income taxes they pay next year — and the state’s budget won’t see any benefit from the increased tax collections on online sales this year.
The total income tax will be cut at least $80 million more than expected, according to Jason Stein, the policy forum’s research director. Though the exact number has yet to be finalized by the state Department of Revenue, at the individual level, Stein said the tax cut “isn’t going to be huge.”
“It’s certainly a lot of money. When you spread (it) across millions of income tax filers in the state, no single one of them is going to get a ton from it,” Stein said Wednesday.
Still, the break could provide extra support to those who are struggling, of whom there are many in Wisconsin as the backlog on unemployment claims continues to grow.
While sales taxes are being paid and collected right now, the income tax cut won’t be realized by many until they file their taxes in early 2021.
With the state budget already stressed and large tax streams taking hits, Stein said there is potential for other complications.
“Those pressures (are) great enough that it seems reasonable to think the state will have to cut spending in some areas and consider tax increases in some areas,” Stein said.
Before the pandemic, state officials were already projecting a large tax cut generated by online sales — around $119 million — for 2020. That’s up $77 million from 2019.