Essay: Why Amazon Will Now Collect Wisconsin Sales Tax
The news hit late last week that a new stream of sales tax revenue will soon be coming to the Badger State. Lake Effect essayist Avi Lank tries to put the development in perspective.
It’s funny how money flows through our state government. Take the $30 million that Madison is expected to collect each year after Nov. 1, when Amazon.com begins to collect sales tax from its Badgerland customers. Already some are saying that extra income is big boost to Gov. Walker’s plan to enact a $100 million property tax cut just prior to his reelection campaign next year. Well, let’s take a deep breath and put this in some perspective. To begin with, both the $30 million in sales taxes from Amazon’s customers, and the $100 million that may flow back to some of them in what are sure to be much ballyhooed property tax credits, are very small numbers in Madisonfinanceland.
Wisconsin collects $4.4 billion in sales taxes and spends almost $34 billion on operations annually, making sums as paltry as $30 million in income and $100 million in expenses mere rounding errors. In addition, the state no doubt will spend some as yet undisclosed sum encouraging Amazon to build the distribution center near Kenosha that triggered its decision to start collecting sales tax in Wisconsin in the first place. On Nov. 1, Wisconsin will become the 14th state in which Amazon, the world’s largest online retailer, collects sales tax. Amazon is doing so not because it suddenly decided it was proper to send money to Madison to help pay for a property tax credit, but rather as a calculated cost of doing business.
Under the strange set of laws and court opinions covering taxation of Internet commerce in the US, only in states where companies have a physical presence must they collect sales tax. There have been numerous disputes about what physical presence, or nexus, to use the technical term, means (is it something as small as a computer switch or cell tower, for example) but the Amazon proposal -- a 1-million-plus square foot warehouse employing about 1,100 people just off the main road between Milwaukee and Chicago -- is a physical presence that is hard to ignore. Hence, the sales tax collection.
Interestingly, Amazon does not collect tax on sales in Illinois, which it would have been compelled to do had it built the facility just a few miles down the road. Illinois is a much larger market than Wisconsin, meaning that a physical presence in the Land of Lincoln would have raised the cost of Amazon products for many more customers than a physical presence in Packerland. Perhaps this is one time Wisconsin’s small size helped it win a development project from Illinois. I don’t know, because Amazon officials declined to talk to me. But it is fun to speculate.
Getting online sellers to collect sales tax long has been a goal of state tax officials and traditional brick-and-mortar retailers, who rightly claim that not collecting the tax gives the e-tailers an unfair advantage. Online merchants respond that the complicated sales tax laws make collecting them difficult for a company selling nationally. For example, in Wisconsin sales taxes vary among counties and sometimes even within them, such as the tax levied to support Milwaukee’s convention center. But apparently, that problem can be overcome when necessary as shown by Amazon’s ability to collect taxes in Wisconsin when it fits with other business plans.
Congress is considering legislation requiring online companies to collect sales tax, but like most things in the swamp on the Potomac, it is mired in partisan and philosophical politics. One thing the tax collections on e-sales are not, however, is a tax increase. Under the law in Wisconsin and most other states, you are required to add to a state income tax return the sales taxes Amazon and other e-tailers don’t collect. It is right there line 36 of the Wisconsin long tax form and line 26 of the short.
As all of you good citizens actually do this, Amazon’s decision to collect sales tax will result in you sending less to Madison next year. Of course, the smaller amount will not be much, probably just a rounding error in your personal accounting.
Avrum D. Lank was an award-winning reporter and columnist at the Milwaukee Sentinel and Journal Sentinel for more than 35 years. He lives in in Whitefish Bay.