Federal law prohibits states from imposing a cigarette tax on sales by Native Americans to Native Americans on reservations. Ten of the 11 Indian tribes in the state have signed agreements with the state in which the tribes agree to sell only stamped (taxed) cigarettes and the state agrees to provide refunds to the tribes of 100% of taxes paid on cigarette sales to tribal members living on the reservation. For these tribes, DOR refunds 100% of tax collections on cigarettes sold to tribal members, and 70% of taxes on cigarettes that are sold to non-tribal members.
The remaining tribe, which does not have an agreement with the state, sells unstamped (untaxed) cigarettes to tribal members and stamped cigarettes to non-tribal members. For this tribe, the 70% refund applies only to tax collections from the sale of stamped cigarettes to non-tribal members.
The provision to reduce the refund rate would first apply to taxes imposed on the first day of the second month beginning after publication of the bill.
Tax on Tobacco Products
Current Law. Under current law, the Wisconsin tax on tobacco products is an occupational tax imposed on distributors of tobacco products. For domestic tobacco products sold by distributors, the distributors are required to pay a tax at the rate of 20% of the manufacturer's established list price (for imported products, federal tax is added to the list price before applying the 20% tax rate). However, the statutes provide exceptions to the tobacco products tax for the following:
a. tobacco products sold to or by post exchanges of the U.S. armed forces;
b. tobacco products sold to or by state-operated veterans hospitals in this state;
c. tobacco products sold to an interstate carrier of passengers for hire to be resold to bona fide passengers of such carriers;
d. tobacco products sold for shipment outside this state in interstate commerce; and
e. tobacco products that, under the Constitution and laws of the United States, may not be taxed by this state.
The U.S. Constitution and federal law have been interpreted in a manner that would exempt sales of tobacco products by distributors to Indian tribes from the tobacco products tax. According to DOR, in-state distributors of tobacco products typically claim exemptions from the tobacco products tax for their sales to Indian tribes. As a result, there may be retail sales on reservations of tobacco products to non-tribal members on which no tobacco products tax has been paid.
Change from an Occupational to an Excise Tax. The bill would change the tobacco products tax from an occupational tax to an excise tax. The tax would continue to be imposed at the distributor level. However, the bill would specify that the tax be passed on to the ultimate consumer of the tobacco products.
The bill would also eliminate the current exemption for sales that may not be taxed under the U.S. Constitution or federal law [item (e) above]. The bill would further specify that all tobacco products received in this state for sale or distribution in this state would be subject to the tax, unless they were specifically exempted. Under these provisions, it appears that sales of tobacco products by distributors to Indian tribes would not be exempt from the tax.
The bill would provide that a distributor of tobacco products who failed to file required reports and to collect and remit the tax on all tobacco products not specifically exempted would be subject to the following: (a) a fine of not less than $1,000 nor more than $5,000; (b) imprisonment for not less than 90 days nor more than one year; or (c) both types of penalties.
50% Refund to Tribes. The bill would require DOR to refund 50% of tobacco products tax collections in respect to sales on reservations or trust lands of an Indian tribe to the tribal council having jurisdiction over the reservation or trust land if all of the following conditions were met: (a) the tribal council had filed a claim for the refund with DOR; (b) the tribal council had approved the retailer; (c) the land on which the sale occurred had been designated a reservation or trust land on or before January 1, 1983; (d) the tobacco products had not been delivered by the retailer to the buyer by means of a common carrier, a contract carrier or the U.S. postal service; and (e) the retailer had not sold tobacco products to another retailer or to a subjobber. The bill would also expand the sum sufficient appropriation for cigarette tax refunds to include refunds related to the tobacco products tax.
Agreements with Tribes. The bill would authorize DOR to enter into agreements with Indian tribes to refund the tobacco products tax imposed on tobacco products sold on reservations or trust lands to enrolled members of the tribe residing on the tribal reservation.
These provisions on tobacco tax refunds and agreements with tribes would parallel current provisions related to cigarette tax collections.
Effective Date. The changes in the tobacco products tax would first apply to tobacco products taxes imposed, and to claims for refunds of such taxes filed, on the first day of the second month beginning after publication of the bill.
Fiscal Impact. The fiscal effect of these provisions is estimated to be a reduction in refunds to Indian tribes of $2,708,500 in 1999-00 and $3,250,000 in 2000-01. These estimates include: (a) reductions of $2,500,000 in 1999-00 and $3,000,000 in 2000-01 for the change in the refund percentage to Indian tribes for taxes paid on cigarettes sold to non-tribal members; and (b) reductions of $208,500 in 1999-00 and $250,000 in 2000-01 associated with the changes in the tobacco products tax.
It should be noted that the estimates related to the tobacco products tax reflect the net effect on the general fund, rather than an actual decrease in refunds to Indian tribes. The components of this estimate are an estimated increase in tobacco products tax collections of $417,000 in 1999-00 and $500,000 in 2000-01 and a corresponding increase in refunds equal to 50% of such collections. The difference between the estimated increases in collections and refunds results in the estimated net positive effect on the general fund of $208,500 in 1999-00 and $250,000 in 2000-01, which is shown by the administration as a reduction in the refund expense.
[Bill Sections: 610, 2171 thru 2182 and 9343(6)&(7)]
17. CIGARETTE TAX REFUNDS: CURRENT LAW REESTIMATE
GPR - $3,100,000
Governor: Reduce funding for cigarette tax refunds by $1,800,000 in 1999-00 and $1,300,000 in 2000-01 to reflect lower estimates of the amount required to reimburse Native American tribes under present law. Currently, the tribes receive a refund of 100% of the cigarette tax on cigarettes sold to Native Americans and 70% of the tax on sales made to non-Native Americans on reservations or trust lands. The reduced funding reflects estimates of lower cigarette tax collections, primarily as a result of anticipated reductions in cigarette consumption following price increases associated with the settlement of the tobacco lawsuit.
18. REAL ESTATE TRANSFER FEE AND SALES TAX ON TIME-SHARE PROPERTIES
GPR-REV $2,640,000
Governor: Modify the treatment of conveyances of time-share properties with respect to the real estate transfer fee and the sales tax as described below.
Real Estate Transfer Fee
Exempt from the real estate transfer fee and the requirement to file a real estate transfer return transfers of time-share property as defined in section 707.02(32) of the statutes, which relates to time-share ownership.
Section 707.02(32) defines "time-share property" as one or more time-share units subject to the same time-share instrument, together with any real estate or rights to real estate appurtenant to those units. In addition, to qualify as "time-share property" under this definition, an owner's interest in the property must provide the right to use or occupy a unit during at least four separate periods over at least four years.
Current statutes on the real estate transfer fee do not specifically refer to sales of time-share property. However, the Department of Revenue has interpreted the law as subjecting only "fixed-time" time-share sales, in which the use of the rooms or lodging is fixed at the time of sale as to the starting day or lodging unit, to the real estate transfer fee. The bill would exempt these types of time-share transactions from the real estate transfer fee, if they meet the definition under s. 707.02(32).
Sales Tax
Under current law, the furnishing of rooms or lodging through the sale of time-share property as defined in s. 707.02(32) is subject to the sales tax if the use of the rooms or lodging is for continuous periods of less than one month and if the use of the rooms or lodging is not fixed at the time of the sale as to the starting date or lodging unit. The Governor's recommendation would subject all sales of time-share property for continuous periods of less than one month to the sales tax. This provision would also specify that charges associated with taxable time-share property would be taxable at the time the charges are incurred, even if those charges were not taxable at the time of the initial sale of the time-share property.
Additional Provisions
The bill would amend additional statutes to make them consistent with the exemption of time-share property from the real estate transfer fee. Currently, transfers of time-share property as defined in s. 707.02 (32) in this state are subject to certain reporting requirements related to disclosure by owners of residential real estate. In addition, such time-share property is subject to a requirement that the small claims procedure be the exclusive procedure used in circuit court in actions relating to the return of earnest money tendered pursuant to a contract for purchase of property. However, in both cases the statutes specify that transfers that are exempt from the real estate transfer fee are also exempt from such requirements.
The bill would specify that theses requirements would no longer apply to transfers of time-share property as defined under s. 707.02 (32). However, transfers of time-share property that do not meet the definition under s. 707.02 (32) would continue to be subject to the requirements on disclosure and on the specified use of the small claims procedure.
These provisions would take effect on the first day of the second month beginning after publication of the bill. The fiscal effect is estimated to be a net increase in general fund revenues of $1,200,000 in 1999-00 and $1,440,000 in 2000-01.
[Bill Section: 1811 thru 1814, 3050, 3073 and 9443(2)]
19. UTILITY TAX ON CAR LINE COMPANIES
Governor: Reduce the gross earnings tax on car line companies from 3% to 2.5% of gross earnings of such companies in this state. A "car line company" is any person, other than a person operating a railroad, that is engaged in the business of leasing or furnishing car line equipment to a railroad. "Car line equipment" includes railroad cars and other equipment used in railroad transportation. Under current law, a 3% gross earnings tax is levied on car line companies in lieu of all property taxes on their car line equipment.
This provision would first apply to taxable years beginning on January 1 of the year in which the bill generally takes effect, unless the bill's general effective date is after July 31. In that case, the tax decrease would first apply to taxable years beginning January 1 of the following year. It is estimated that this provision would reduce general fund revenues by $100,000 in 1999-00 and $200,000 in 2000-01, assuming that the tax reduction would first apply on January 1, 2000. However, these revenues are not accounted for in the bill.
[Bill Sections: 1809 and 9343(12)]
20. AD VALOREM TAX EXEMPTION FOR COMPUTERS AND COMPUTERIZED EQUIPMENT
GPR-REV - $225,000
Governor: Extend the exemption for mainframe computers, minicomputers, personal computers, networked personal computers, servers, terminals, monitors, disk drives, electronic peripheral equipment, tape drives, printers, basic operational programs, systems software, prewritten software and custom software, which currently applies to property subject to locally imposed property taxes and to telephone companies subject to state ad valorem taxation, to the property of air carrier, conservation and regulation, municipal electric, pipeline and railroad companies that are also subject to state ad valorem taxation, effective with assessments as of January 1, 1999.
Provide an exemption for fax machines, copiers, cash registers and automatic teller machines for all public utility property subject to ad valorem taxation, effective with assessments as of January 1 of the year following enactment of the bill.
The fiscal effect is estimated to be a reduction in general fund ad valorem tax collections of $75,000 in 1999-00 and $150,000 in 2000-01 from the following types of companies: conservation and regulation; municipal electric; pipeline; and telephone companies. In addition, it is estimated that transportation fund ad valorem tax collections for air carrier and railroad companies would be reduced by $50,000 in 1999-00 and $100,000 in 2000-01. The transportation fund reductions are reflected in this document under the section for "Transportation."
[Bill Sections: 1654, 1807, 1808, 1810 and 9443(3)&(4)]
Tax Administration
21. MINNESOTA-WISCONSIN INCOME TAX RECIPROCITY PAYMENTS
GPR $12,500,000
Governor: Provide $4,500,000 in 1999-00 and $8,000,000 in 2000-01 to reflect estimated Minnesota-Wisconsin income tax reciprocity payments. Total funding after these adjustments would be $44,500,000 in 1999-00 and $48,000,000 in 2000-01.
22. ILLINOIS-WISCONSIN INCOME TAX RECIPROCITY PAYMENTS
GPR - $2,750,000
Governor: Increase funding by $2,750,000 in 1999-00 and decrease funding by $5,500,000 in 2000-01 to reflect Illinois-Wisconsin income tax reciprocity payments. Total funding after these adjustments would be $8,250,000 in 1999-00. Under the current agreement, no payment will be made in 2000-01. However, payments will resume in 2001-02.
23. ILLINOIS-WISCONSIN INCOME TAX RECIPROCITY STUDY
GPR $2,500
Governor: Increase funding by $28,400 in 1999-00 and decrease funding by $25,900 in 2000-01 for a study to provide data for determining future income tax reciprocity payments between Wisconsin and Illinois. Total funding of $105,000 in 1999-00 and $50,700 in 2000-01 would be provided under this provision.
24. INTEREST ON OVERPAYMENT OF TAXES
GPR $700,000
Governor: Provide $300,000 in 1999-00 and $400,000 in 2000-01 for estimated interest paid on the overpayment of individual income taxes. Total funding would be $800,000 in 1999-00 and $900,000 in 2000-01.
25. SALES TAX LATE FILING FEE
GPR-REV $2,530,000
Governor: Increase the late filing fee for delinquent sales and use tax returns from $10 to $30. The current law exception from paying the fee in cases where there is a reasonable cause would be modified to require a good cause but not due to neglect. The bill would also clarify a provision regarding security that may be required by the Department for retailers. These provisions would first apply to sales and use tax returns that are filed for periods beginning after September 30, 1999. It is estimated that the increase in the late filing fee would result in additional general fund revenues of $1,130,000 in 1999-00 and $1,400,000 in 2000-01.
Under current law, delinquent sales and use tax returns are subject to a $10 late filing fee. However, the fee is not imposed in cases where the person who was required to file the return has died or where the return was not filed because of a reasonable cause and not because of neglect.
