Wisconsin to Collect Internet Tax Despite Federal Ban

Published April 1, 2005

The State of Wisconsin plans to keep collecting its Internet access tax, despite a federal law designed to require the state to drop the tax in 2006.

On January 25 officials with the Wisconsin Department of Revenue announced the state would continue to collect the 5 percent tax, which was implemented in 1991 and brings in about $30 million a year. A provision that apparently requires Wisconsin to drop the tax was included in the Internet Tax Nondiscrimination Act, which President George W. Bush signed in December 2004. Wisconsin Governor James Doyle (D) opposed the act.

“Governor Doyle is looking for a loophole to continue taxing Wisconsinites who log onto the Internet,” said Rep. James Sensenbrenner (R-WI), who insisted his home state be forced to drop its Internet tax.

“He claims that this new law does not apply to Wisconsin.” Sensenbrenner said. “This is a slap in the face to Congress, as the intent of this law is crystal clear. This also goes to show that Governor Doyle has a hard time keeping his nose out of the tax trough, and his hands out of the wallets of people from Wisconsin.”

The Internet Tax Nondiscrimination Act extended by three years a ban on state Internet taxes. It blocks state and local governments from taxing Internet connections, including dial-up and DSL. It also blocks multiple state and local taxes from being levied on online purchases and prohibits the creating of taxes unique to the Internet.

Wisconsin was one of several states that began taxing Internet access before the original Internet tax ban in 1998. The recent extension of the ban was designed to force those states to phase out their taxes.

Does Enacted Mean Implemented?

In a January 25 letter to the Wisconsin Joint Finance Committee, Wisconsin Department of Revenue officials said they believe Wisconsin may continue to impose the sales tax on Internet access services. The letter said the department intends to continue taxing such services.

The provision in question says any state that enacted an Internet access tax on or after October 1, 1991 must end the tax on November 1, 2006.

The state Department of Revenue argues Wisconsin “enacted” the law in August 1991 and that it merely took effect on October 1, 1991. Therefore, the department says, the provision does not apply to Wisconsin.

“We’re implementing the law as written in the statute,” said Audra Brennan, the Department of Revenue’s division administrator for research and policy. “We don’t meet the criteria. There’s no room for interpretation.”

She said Wisconsin expects to collect about $37 million in Internet access taxes during fiscal 2005.

“Revenues are increasing a lot because Internet sales are increasing every year,” Brennan said.

Congressman Shocked by Decision

Rep. Mark Green (R-WI), who joined Sensenbrenner in pushing for the phase-out provision in the act, said he was “shocked” to learn of plans by Doyle’s administration to continue taxing Internet service charges.

“While Chairman Sensenbrenner and I have been fighting to lower the tax burden on Wisconsinites, Governor Doyle has continued looking for every opportunity to collect more of their hard-earned income,” Green said. “The intent of this federal law they plan to ignore couldn’t be more apparent: No more taxing Internet access services in Wisconsin.”

Sensenbrenner hinted at a lawsuit in a January 28 press statement.

State Government Unworried

“It’s possible that Governor Doyle will use more taxpayer dollars to defend his position,” Sensenbrenner said. “This would be a poor use of our state’s finances, and Governor Doyle’s time and efforts would be better spent in more clearly reading the legislation Congress passed in November.”

Brennan said the Department of Revenue is not worried about a possible lawsuit if the state continues to collect Internet access taxes.

“The law is clear,” Brennan said. “If a taxpayer refused to pay, we would follow our typical audit routes. We’re reading the language and following it.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.