Arguments for Internet sales tax fall apart

By Ryan Ekvall | Wisconsin Reporter

MADISON, Wis. — Previous estimates of revenue coming to Wisconsin from a potential tax on out-of-state Internet retailers were wildly inflated, according to new research from the Wisconsin Taxpayers Alliance.

The research undercuts most of the talking points used by proponents of the Marketplace Fairness Act.

“Of $5.5 (billion) in estimated Wisconsin Internet sales, it appears that about $4 (billion) is either tax-exempt (almost $2b) or from retailers that already collect tax on the 70% of online activity for which they are responsible,” the Taxpayers Alliance found. “That leaves only $1.6 (billion) in Internet sales by companies whose nexus is unclear.”

Nexus is lawyer speak for companies with a physical presence in Wisconsin. Now, sales taxes are collected only on businesses with a physical location in the state. In other words, the state can’t require a company from New Hampshire to collect sales taxes from a Wisconsin resident.

The Marketplace Fairness Act would require those businesses to collect sales taxes and send the proceeds to Wisconsin tax collectors.

Amazon.com, one of the world’s the largest e-commerce companies, recently built a distribution center in Kenosha and started collecting sales tax from Wisconsin residents. That leaves just a sliver of Internet commerce untaxed in Wisconsin, according to Wisconsin Taxpayers Alliance research.

“With 70% or more of sales by the largest 100 “e-tailers” now taxed in Wisconsin, that leaves at most $1.6 billion of the state’s $5.5 billion in Internet purchases — mostly from smaller retailers —untaxed here,” researchers Dale Knapp and Todd Berry wrote in a statement.

That leaves just $25 million in “lost revenue” for state coffers, not the $140 million cited by Internet tax proponents. Wisconsin collects about $4 billion annually in sales taxes.

Lawmakers have argued collecting sales taxes from out-of-state businesses is about fairness for Wisconsin’s brick-and-mortar retailers, not a new revenue source for the state. One GOP lawmaker said the new taxes could create jobs.

“(Arthur Laffer’s) research shows that if Congress closes the online sales tax loophole and Wisconsin uses the additional sales tax revenue to cut income taxes — as the state budget provision requires — our state will see over 23,000 new jobs and an additional $7.6 billion pumped into our economy,” Rep. John Nygren, R-Marinette, wrote in an op-ed piece.

The Wisconsin Taxpayers Alliance has upended that research.

Contact Ryan Ekvall at rekvall@watchdog.org, 608-257-1382, or follow him on Twitter @Nockian.