First imposed in 1962 as part of a property tax relief effort, the Wisconsin sales tax is now state government’s second-largest source of tax revenue, trailing only the individual income tax. Although the tax evolved from a 3% selective tax in 1962 to a 5% general tax today, it has changed relatively little over the past three decades. In a 21st-century economy, some economists and tax researchers question whether the tax, in its current form, is out-of-date.
No tax is particularly popular with taxpayers. However, findings from a recent state survey mirror what prior surveys have found: the sales tax is more popular than income and property taxes. Taxpayers polled say the sales tax is more understandable—and more fair—than these other taxes.
Aware of its relative acceptability, interest groups have long lobbied for an earmarked piece of the sales tax pie. Whether for income tax reduction, property tax relief, or a “penny for schools,” sales tax increases have been suggested as a revenue source for new or expanded programs.
With sales tax revenues increasing at a somewhat anemic pace over the past decade, proposals for expanded use beg the questions: What is ailing the sales tax? Are online retailers who fail to collect the tax to blame? Is a 20th-century tax on tangible goods ill-suited for a 21st-century service and information economy?
These kinds of questions have spurred calls for change. Among proposals floated from time to time are a higher sales tax rate, an expanded tax base, and a more fundamental overhaul of state sales tax law.
YESTERDAY’S SALES TAX
This is not to say that Wisconsin’s sales tax remained unchanged since original enactment more than five decades ago. First tied to an effort to fund local property tax relief, the state sales tax is now Wisconsin’s second-largest source of general fund (GPR) tax revenue. Along with its heftiest companion, the state’s individual income tax, the sales tax helps pay for state programs, most notably health care, education, and corrections.