An Internet Sales Tax Would Mean Reduced State Income Taxes

If Congress ever agrees on a bill that would tax Internet sales across state lines, the extra revenue would be used to cut income taxes in Wisconsin.

The debate over whether to tax Internet sales is not new, but this is as close as Congress has ever come to dealing with the issue. In May, the Senate voted 69-27 for a bill that would require all online retailers to collect sales taxes for the states where they ship goods. Brick-and-mortar retailers are hoping the U.S. House will do the same.

“This money is due to our state if these products are sold into our state,” says Gary Stein, who runs the Wausau-based audio-video store Sound World. “We’re not collecting it, and I think we’re making a mistake by not collecting it.”

States would have to decide what to do with the bump in sales tax collections if this bill becomes law. In Wisconsin, that decision’s already been made. The newly enacted state budget would use the money to first eliminate the alternative minimum tax and then to reduce state income tax rates.

“We believe that the best way to grow our economy is to put more money back into peoples’ pockets,” says Rep. John Nygren, R-Marinette, who co-chairs the legislature’s budget committee.

Not everyone sees it that way: Bob Jacobson with the Wisconsin Council on Children and Families says the legislature is tying its hands by dedicating this potential new money to tax cuts when other programs need it.

“We would much rather see that additional revenue be used to avoid these dramatic spending cuts we’ve had to see recently in areas like education and early childhood rather than adding to an already, in our opinion, too-large income cut that was passed,” says Jacobson.

Wisconsin’s U.S. Senators were split on the Internet sales tax bill. Democrat Tammy Baldwin voted for it, while Republican Ron Johnson voted against the measure.