…or…

Aren’t women more important than dried cranberries?

Scott Liddicoat, BCTA

A story with the word “loopy” in the title needs to have an introduction like this one. 

Which of these things is not like the other things?  Which of these things just doesn’t belong?  The things?

• Diapers
• Dried cranberries
• Clay pigeons
• Bull semen
• Newspapers

The answer is diapers, as much as I’d like it to be one of the others.  What makes diapers different?  Diapers have only been proposed for exemption from Wisconsin sales tax in Governor Evers budget recommendations this year.  Dried cranberries, clay pigeons, bull semen, and newspapers are alreadyexempt from Wisconsin sales tax. 

Trying out this question on people for their reaction was fun.  Nearly every response involved a smile, and a reply like this one.  “Crazy loopholes!”  Ahh, would that it were so.

Loopholes are usually understood to be an evasion of law resulting from an ambiguity or inadequacy in how a law is written.  Pringles tried to avoid potato chip taxation in the UK by exploiting a loophole.  They did this by describing their snack as a “multi-grain, parabola-shaped, stackable savory crisp.”  Ultimately they lost, but it took years to work through the courts.

However, the items in my introductory question (and many more) are exempt from sales taxation not because they’ve exploited how the law is written.  Rather, they’re exempt because they’ve exploited politicians to specifically write a law in their favor.  B – i – g  difference, with b – i – g consequences.  Unhappy, deceptive, some even say destructive consequences.  Let’s review them.

• Just one exemption turns every item subject to the sales tax into a political football.

For example, we’ve made the exception for dried cranberries.  Cranberries are, after all, an important economic driver in Wisconsin.  But when will the dairy industry get its exemption?  I live in Green Bay.  Shouldn’t we have a paper products sales tax exemption?

And why shouldn’t we eliminate the “Pink” sales tax?  This is the sales tax applied to feminine hygiene products necessary for many women.  Even though calling them “Pink” products is a terrible gender stereotype, aren’t women more important in Wisconsin than dried cranberries?  Or clay pigeons?  Or newspapers, for that matter? 

The alternative?  Apply the sales tax equally across all retail sales, removing every form of political manipulation and contention from the issue.

• Sales tax exemptions create a class of favored political cronies, and an ill-favored, political underclass. 

Those whose products are not sales taxed are plainly elevated to a growing class of political favorites and winners.  A politically distorted market now favors them in the eyes of consumers.  The burden of sales taxation is shifted to the losers whose goods are taxed at sale. 

Exactly how the winners achieved favored status is always open to a certain amount of dark and shadowy speculation.

Furthermore, it’s not just producers of raw nuts (winners) vs. makers of processed nuts (losers).  Not just clay pigeon manufacturers (winners) vs. shooting range target printers (losers).  Not just bull semen sellers (winners) vs. stud service providers (losers).  It’s every single producer and provider that is not sales taxed (the winners) vs. every single producer and provider that is sales taxed (the losers).  Every producer and provider is either a winner or a loser.

The alternative?  Apply the sales tax equally to all retail sales, removing political favoritism, bias, injustice, lobbying, cronyism, winners, and losers from the issue.

• Each exemption requires legal language that results in more uncertainty in application, and more loopholes available for exploitation. 

Obviously, there can be, and have been challenges to what qualifies as exempt and what doesn’t.  Remember Pringles?

And how long can it be before dark chocolate producers challenge their sales tax status as a candy?  You didn’t know?  Dark chocolate is a health food.  It decreases bad cholesterol and lowers the risk of blood clots.  It supplies vital bodily minerals and increases mood-boosting serotonin and endorphin levels. It may lower blood pressure.  Clearly, dark chocolate is a health food and shouldn’t be considered candy anymore.

But even with established products there can still be uncertainty determining what qualifies as exempt and what doesn’t.  I’ll wager that like me, you’ve made a purchase where the sale of some particular item was taxed at one Wisconsin location, but not another.  Determining what’s exempt and what isn’t can be especially hard for many small businesses.  Far from small though, are the penalties they have to pay for taxing incorrectly.

But then there can still be problems even when exemption language is well understood. How in the world should we deal with pumpkin sales?  Currently unprocessed farm produce for human consumption is not subject to sales taxation.  But what if someone buys a pumpkin and instead of eating it, they do something else?  Perhaps, for example, they hollow it out, cut a face in it, place a candle inside, and display it in their front window?  Should they go back to the store and pay the sales tax?  Should customers be required to declare their pumpkin-buying motives at checkout?  Should we leave this whole hot mess to the sales tax police? 

The alternative?  Apply the sales tax equally to all retail sales, removing any uncertainty in the application of sales tax, and removing all loopholes for exploiting its language.

• And finally the big one.  Every exemption leaves money on the table.

Recently Governor Tony Evers proposed a two-year Wisconsin budget of $104 billion.  That figure is up $15 billion over the biennial budget that was approved for 2021-23.  A variety of new taxes and tax devices have been requested in his budget to cover that fiscal gap.

Governor Evers has unruly Republican majorities in both houses to deal with though.  I think it’s safe to say our budget will not balloon by $15 billion over the biennium.  To be sure there will be an increase, but one that’s far less dramatic. 

The good news is that we can cover a less dramatic increase by doing away with sales tax exemptions, using money that’s been left on the table.

Wisconsin’s Annual Fiscal Report shows sales tax collections in 2022 of $7 billion.  However, the Department of Revenue estimates that in FY 2022 Wisconsin sales tax exemptions amounted to nearly $4 billion.  Of course, that would equate to $8 billion left on the table over a budget biennium. 

Plainly, there’s no need for new taxes and tax devices.  The alternative is already here.    

Apply the sales tax equally across all retail sales.  In the process, all the evils I reviewed earlier dissolve away.  They would be replaced with greater tax simplicity and greater tax integrity.

• In conclusion, an even better option.

It’s likely Republicans will settle on a budget increase like their last one—about 7%, or $6 billion dollars.  That’s $2 billion lower than the Department of Revenue’s $8 billion biennial estimate of our sales tax exemptions.

Consider too, that many experts believe estimated sales tax exemptions are undervalued.  Over the biennium several billion more in state revenue is probably left on the table.

You might say this situation offers a once in a generation opportunity to transform the state of Wisconsin.  So let’s eliminate all sales tax exemptions and at the same time decrease the state sales tax by 1%. 

The transformative benefits are clear.  Once again, all the evils I discussed earlier disappear.  Greater tax simplicity and greater tax integrity prevail.  We’ll have more than enough money to cover the anticipated budget increase.  And we’ll get a 1% decrease in the sales tax—albeit a broadened sales tax.

Not to be overlooked, a decrease in Wisconsin’s sales tax would probably attract even more brisk over the border sales from neighboring states.  All of our border states already have higher sales taxes than ours.

However the ultimate benefit can only be appreciated by those of us who remember when the state sales tax increased from 4% to 5% in 1982.  We were told at the time not to worry with assurances that the increase was only temporary.  This is the perfect, generational opportunity for Wisconsin politicians to finally honor that forty year old promise.

And as an added improvement to everyone’s life, we’ll never have to discuss sales tax exemptions for bull semen again.