A bill under consideration in the U.S. House of Representatives could limit Wisconsin’s flexibility in applying sales tax and make it more difficult to invest in schools and communities, a new report from the Center on Budget and Policy Priorities shows.
A committee in the House recently approved a bill that would prohibit all state and local taxation of Internet access. Currently, there is a moratorium on new taxes on Internet access fees, but seven states with pre-existing internet access taxes – including Wisconsin – were grandfathered in. This new proposal would eliminate the exception for Wisconsin and other states, and permanently ban all taxes on Internet access.
For Wisconsin, this restriction would reduce the resources the state uses to invest in public education, a healthy workforce, and a solid transportation network. Wisconsin would lose $127 million in tax revenue in 2015 if prohibited from taxing Internet access – resources that could be used to make Wisconsin a more attractive place to live and do business. The state would have to reduce services or increase other taxes to make up for the revenue loss.
The House is expected to vote on this proposal next week.
If this proposal passes, it will join several other recent developments that are going to make it harder for the state to balance its books, including:
- Tax revenue that is lower than expected;
- Medicaid spending that exceeds budgeted amounts;
- A mismatch between revenues and spending that could lead to a $46 million shortfall in the Veteran’s Trust Fund by 2019; and
- A $30 million cost overrun on a historical rehabilitation tax credit due to greater-than-anticipated participation.
Aside from the revenue implications for Wisconsin, it’s a bad idea for the federal government to prohibit states from making their own decisions about sales taxes.
Wisconsin is already missing out on a considerable amount of tax revenue because Congress hasn’t closed a loophole that lets many online companies avoid paying the same sales tax that Main Street businesses pay. Congress shouldn’t compound the problem by banning state taxation of Internet access services.
by Tamarine Cornelius