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News of the Day - 08/25/16
Two Taxes Loom Large Next Legislative Session
If Republicans keep control of the Legislature in Nov. 8 elections, will a H-U-G-E two-step budget deal be considered?
Step 1: Eliminate the personal property tax, which the Wisconsin Taxpayers Alliance says (WTA) totals about $287 million a year—taxes now collected by cities, towns and villages. Cities get about two-thirds of that.
Step 2: Raise the gas tax or vehicle registration fee, or some combination of revenue increases, to pay for highway programs by about that same $287 million. It would be a step toward closing an estimated $1-billion shortfall in funding for road building and maintenance. Assembly Republican leaders, and some Democrats, are willing to raise revenues to avoid construction delays or more borrowing.
Why might—just might—a tax-shift deal like this be considered?
It meets Republican Gov. Scott Walker's read-my-lips promise to not agree to any increase in Transportation Fund revenues, unless there is an offset in other tax collections. It's another tax cut that helps businesses, who are expected to again support Walker if he runs for a third term two years from now. And, it repeals a tax that many regard as unfairly and unevenly administered.
“Wisconsin's personal property tax is unknown to most residents as it applies only to certain business property,” WTA said in a report this year, adding:
“The tax is riddled with exemptions…. The tax also raises questions about the consistent treatment of property—e.g., a chair owned by a business is taxed, but one owned by a homeowner is not. Charter fishing boats on Lake Michigan are not taxed, but certain boats used by businesses are.”
Hundreds of items have been exempted from the personal property tax since the mid-1800s, WTA noted. Exemptions for business property, livestock, business inventories, stocks and computers were approved over the last 50 years.
The Wisconsin Department of Revenue (DOR) says personal property now includes business-owned “watercraft,” machinery tools and patterns, furniture, fixtures and equipment.
Last week, DOR said the $12.5 billion in personal property was only 2.4 percent of the total value of all property statewide in 2015. Those values will be the basis of property tax bills to be mailed in December.
The WTA report raised questions about how fairly, and evenly, personal property is assessed and collected in Wisconsin. While DOR assesses manufacturing property statewide, local assessors must collect personal property taxes.
Businesses must self-report their personal property and estimate its value, according to WTA.
But “self-reporting has problems,” WTA added. “Some businesses fail or refuse” to do so, and “many small businesses are unaware of the tax on personal property.”
Also, “Assessors are not required to accept reported values and are advised by DOR to audit the report…It is unclear how frequently local assessors perform audits.”
What would stop a major tax-shift deal like this from being part of the 2017-19 budget the Legislature finally passes next year? Plenty.
First, WTA said, “Would the state replace the $287 million of revenue lost to local governments”—chiefly cities? Expect mayors and city council members to demand reimbursement from state government, if the personal property tax is abolished with no way to replace it.
Second, that tax-shift deal could not only raise what drivers pay to use the state's roads, but also raise property taxes on homes, if state government didn't make up the $287 million that local governments would lose.
The powerful Wisconsin Realtors Association (WRA), which has supported Walker in his three campaigns for governor, warned in a statement that abolishing the personal property tax “without identifying an alternative source of revenue” would increase the property tax bill on average Wisconsin home by $80 per year.
Chief WRA lobbyist Joe Murray also said that increase would ”violate Gov. Walker's property tax pledge” to keep property taxes lower in 2018 than in 2014 and ”worsen Wisconsin's ranking has one of the highest property taxed states in the country.”
Finally, how much of an increase in the 30.9-cent gas tax or the $75 annual vehicle registration fee would it take to add up to $287 million per year?
Every 1-cent increase in the 30.9-cent gas tax brings in an additional $33.4 million; a $10 increase in the vehicle registration fee raises $47 million. Do the math.