[Act 9 Sections: 2171, 2171m and 9343(6)]
3. TOBACCO PRODUCTS TAX [LFB Paper 122]
Governor: Convert the tobacco products tax from an occupational tax to an excise tax. Require DOR to refund 50% of tobacco products tax collections on sales by Indian tribes to non-tribal members under certain conditions as described below.
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.
_Hlt444936206 Fiscal Impact. The fiscal effect of these provisions is estimated to be a reduction in refunds to Indian tribes of $208,500 in 1999-00 and $250,00
0
in 2000-01. It should be noted that these estimates 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.
Joint Finance: Approve the Governor's recommendation with a modification to provide that the refund rate would be a maximum of 70% of taxes collected on sales to non-tribal members and authorize DOR to enter into agreements that would specify the refund rate at or below the maximum. In addition, specify that "trust lands" means any lands in this state held in trust by the United States government for the benefit of a tribe or a member of a tribe.
With the change in the tobacco products tax to an excise tax, general fund tax collections would increase by an estimated $375,000 in 1999-00 and $500,000 in 2000-01. However, there would be no funding for refunds, as negotiations with the tribes would have to occur before the refund process could be implemented.
Assembly: Retain the Joint Finance Committee provision. However, establish the maximum refund rate at 50%, rather than 70%. There is no fiscal effect of this provision, as there are no agreements in place for such refunds. However, it is estimated that if all of the tribes received refunds at the rate of 50%, the refund expense to the state would be $250,000 GPR annually.
Senate: Delete the provisions of the Joint Finance Committee that would specify a 70% maximum refund rate for tobacco products taxes collected from sales of tobacco products to non-tribal members, with the exact rate to be negotiated in individual agreements with the tribes. Instead, specify a refund rate of 70%, in provisions that would parallel current law for cigarette tax refunds.
Estimate increased refunds of taxes collected from sales of tobacco products to non-tribal members of $262,500 in 1999-00 and $350,000 in 2000-01. Under the Joint Finance Committee provision, which specified the 70% refund rate as a maximum, it was assumed that no refunds would be issued until agreements were negotiated with the tribes. Under these provisions, the 70% refund would apply to all taxes paid on sales of tobacco products to non-tribal members.
Conference Committee/Legislature: Include the Assembly provision. (The bill mistakenly included a provision that would generally authorize refunds of 70% of taxes on sales of tobacco products by the tribes to non-tribal members. However, the bill would also limit refunds of taxes on such sales to a maximum of 50% under provisions related to agreements with the tribes.)
Veto by Governor [F-7]: Delete the provision that would specify the 50% refund rate for taxes collected from sales by the tribes to non-tribal members as a maximum rate. In addition, delete the reference to 70% of taxes on such sales, which was mistakenly included under the bill. As a result of this partial veto, the refund rate that the Department of Revenue may use in agreements with the tribes is 50% for refunds of tobacco products taxes collected from sales to non-tribal members.
Under the bill, no funding was provided for tobacco products tax refunds to the tribes, as the precise rate for refunds of taxes collected on sales to non-tribal members would first have been determined in individual agreements between the tribes and the state (up to the maximum rate of 50%). The partial veto sets the rate at 50%. The administration did not increase the appropriation for cigarette and tobacco tax refunds as a result of the partial veto. However, based on the estimated increases in tobacco products taxes under these provisions and on the 50% refund rate, the projected increase in cigarette and tobacco products tax refunds to the tribes is $187,500 in 1999-00 and $250,000 in 2000-01.
[Act 9 Sections: 610, 2173 thru 2182 and 9343(7)]
4. CIGARETTE DISCOUNT FOR MANUFACTURERS AND DISTRIBUTORS
[Act 9 Vetoed Sections: 2178 and 2179]
[Bill Sections: 610, 2171 thru 2182 and 9343(6)&(7)]
Senate/Legislature: Restore the 2% discount for cigarette manufacturers and distributors that was reduced to 1.6% under the 1997-99 biennial budget bill. Specify that this provision would take effect on July 1, 2000. Estimate the fiscal effect to be a reduction in general fund revenues of $950,000 in 2000-01.
5. LIQUOR TAX AND MEMBERS OF THE MILITARY
Veto by Governor [F-6]: Delete provision.
[Act 9 Vetoed Sections: 2171p and 9443(8d)]
Assembly/Legislature: Specify that a person who is a member of the national guard, the United States armed forces or a reserve component of the United States armed forces may bring into the state an aggregate amount of 16 liters of intoxicating liquor and wine without payment of the state occupational tax on intoxicating liquor if the person: (a) is a state resident; and (b) leaves a foreign country for the purpose of entering into this state after spending at least 48 hours in that foreign country on duty or for training. Currently, all individuals entering this state after spending more than 48 hours in a foreign country may bring into this state four liters of tax-free intoxicating liquor and wine. These provisions would raise the limit to 16 liters for military personnel meeting the qualifications described above. The fiscal effect is estimated to be a minimal revenue loss.
These provisions would take effect on the first day of the second month beginning after publication.
Veto by Governor [F-5]: Reduce the amount of intoxicating liquor that a Wisconsin resident returning from active duty in a foreign country for a minimum of 48 hours may bring into the state without payment of the state intoxicating liquor tax from 16 to six liters.
[Act 9 Sections: 2170s, 2170t and 9443(3tx)]
[Act 9 Vetoed Section: 2170t]
Other General Fund Taxes
GPR-REV - $870,000
1. TAXES ON TELECOMMUNICATIONS COMPANIES: TRANSITIONAL ADJUSTMENT FEE
Joint Finance/Legislature: Provide that, for a telecommunications company subject to a transitional adjustment fee for 1999 and 2000 under 1995 Act 351, if the calculation of the transitional adjustment fee results in a negative amount, a portion of the amount calculated could be used as a credit against the ad valorem tax assessment (under current law, the calculation of a negative transitional adjustment fee would mean that the fee would be zero). However, specify that the credit would only be available for a company with "total Wisconsin gross revenues" under s. 76.38, 1993 statutes of less than $10.0 million. Limit the credit to 60% of the positive value of the negative transition fee amount calculated for the first year of the transition period under Act 351 and 40% of the positive value of the amount calculated for the second year of the transition period. Specify that these provisions would be retroactive to include taxes for the first year of the transition period under Act 351 and would sunset at the end of the transition period
Under current law, telecommunications utilities in Wisconsin are subject to state taxation on the basis of property value (ad valorem), in lieu of local property taxation. However, prior to taxes due for 1997, telecommunications companies were assessed a gross revenues license fee. Act 351 repealed the gross revenues license fee on telecommunications companies on May 15, 1998, and imposed an ad valorem tax beginning with taxes due for 1998. Act 351 also imposed a transitional adjustment fee on each cellular telecommunications utility and local exchange company for 1999 and 2000.
The transition fee is equal to the difference between the ad valorem tax assessment and the gross revenues tax payments that would have been made under s. 76.38 of the 1993 Statutes. While the transitional adjustment fee applies for 1999 and 2000, the transition fee is based on a comparison of ad valorem taxes from assessments on 1998 and 1999 property values and a 5.77% gross revenues license fee on revenues during calendar years 1998 and 1999. The Department of Revenue has interpreted Act 351 to mean that, if the transition fee calculation produced a negative number, the transition fee would be zero and such companies would be taxed at the ad valorem rate. This provision would specify that a credit could be taken against the ad valorem tax assessment for a telecommunications company if: (a) the telecommunications company had annual gross revenue under s. 76.38, 1993 Statutes of less than $10.0 million; and (b) the calculation of the transition fee for the company resulted in a negative number. As described above, the credit would be limited to 60% for the first year and 40% for the second year.
Because these provisions would be retroactive to include taxes due for 1998 and would sunset beginning with ad valorem taxes due for 2000, the full effect of the proposal would occur in 1999-00. It is estimated that these provisions would result in reduced utility tax collections of $870,000 in 1999-00.
[Act 9 Sections: 1810d, 9343(22f) and 9443(7d)]
2. AD VALOREM TAX EXEMPTION FOR COMPUTERS AND COMPUTERIZED EQUIPMENT [LFB Paper 856]
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.
Joint Finance: Modify the provision to extend the property tax exemption for computers and related property to the property of air carrier, conservation and regulation, municipal electric, pipeline and railroad companies subject to state-imposed ad valorem taxes by specifying that the exemption would take effect with property assessed as of January 1, 2000. Delete the provisions establishing an exemption for fax machines, copiers, cash registers and automatic teller machines. Decrease the estimated reductions in general fund revenue by $50,000 in 1999-00 and $100,000 in 2000-01. As compared to current law, these provisions would decrease general fund revenues by $25,000 in 1999-00 and $50,000 in 2000-01. The transportation fund reductions are reflected in this document under the sections for "Transportation -- Transportation Finance" and "Shared Revenue and Tax Relief -- Property Taxation."
Senate: Delay the current law property tax exemption for computers and related equipment from assessments as of January 1, 1999, to assessments as of January 1, 2002. Extend the delay both to local property taxes paid under Chapter 70 of the statutes and to state ad valorem taxes paid under Chapter 76 of the statutes.
3. RELIABILITY 2000 INITIATIVE -- TAX PROVISIONS
Under current law, an exemption for computers and related equipment applies to property subject to locally imposed property taxes and to telecommunications companies subject to state ad valorem taxation. Under the Joint Finance provisions, the current law exemption for telecommunications companies that are subject to ad valorem taxes would be extended to all utility companies that pay ad valorem taxes, effective with property assessed as of January 1, 2000. The Senate provisions would delay until January 1, 2002, both the current law exemption and the proposed extension of the current law exemption that was specified under the Joint Finance provision.
Estimate the following fiscal effects of these provisions: (a) increased general fund ad valorem tax collections from public utility taxpayers of $925,000 in 1999-00 and $1,050,000 in 2000-01; (b) increased transportation fund ad valorem tax collections from public utility taxpayers of $30,000 in 1999-00 and $60,000 in 2000-0; (c) increased state forestry tax collections of $505,900 in 1999-00 and $573,800 in 2000-01; and (d) reductions in expenditures under the state aid for exempt computers program of $63,800,000 in 1999-00 and $71,000,000 in 2000-01. These provisions are also described in this document under the sections for "Transportation -- Transportation Finance" and "Shared Revenue and Tax Relief -- Property Taxation."
Conference Committee/Legislature: Include Joint Finance provision.
[Act 9 Sections: 1807, 1808 and 9343(23c)]
Senate: Include the following provisions related to light, heat and power companies under the Reliability 2000 Initiative (as described in this document under the section for "Public Service Commission -- Agencywide"):
· Define a transmission company as a light, heat and power company that is subject to the state gross revenues license fee in lieu of local property taxation. Provide that the rate of the license fee for a transmission company would be the same as the rate for a private light, heat and power company. However, specify that a transmission company's revenues for transmission service to certain public utilities and electric cooperative associations would be excluded from the definition of gross revenues subject to the license fee.
· Specify that an electric cooperative that is subject to the gross revenues license fee on electric cooperatives and that is in the business of transmitting electric current for light, heat and power would be excluded from taxation as a light, heat and power company.
· Specify that these provisions 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 provisions would first apply to taxable years beginning on January 1 of the following year.
Conference Committee/Legislature: Include the Senate provision. In addition, provide the following tax exemptions related to the Reliability 2000 Initiative:
Gross Revenues License Fee
Specify that, for the purpose of determining the gross revenues license fee on light, heat and power companies and electric cooperatives, "gross revenues" would exclude the following items [as defined under Reliability 2000 and described under "Public Service Commission -- Agencywide"]: (a) public benefits fees collected by an electric utility or retail electric cooperative; (b) grants awarded to a generator public utility or to an electric cooperative under the air quality improvement program; (c) public benefits fees received by a wholesale supplier from a municipal utility or retail electric cooperative or under a joint commitment to community program; and (d) public benefits fees received by a municipal utility or a retail electric cooperative from a municipal utility or retail electric cooperative under a joint commitment to community program.
Sales Tax
Provide a sales tax exemption for the transfer to the transmission company of the following: transmission facilities on land not owned by the transferor that are made after the transmission company is organized in exchange for an equity interest in the transmission company. Under current law, such transfers would be subject to the sales tax, while transfers similar in every way except that they occur as part of the organization of the transmission company would be exempt from the tax.
In addition, provide a sales tax exemption for the gross receipts of electric utilities and retail electric cooperatives from the collection of public benefits fees.
Real Estate Transfer Fee
Provide an exemption from the real estate transfer fee for a conveyance to the transmission company of real property transmission facilities or land rights in exchange for securities.
Compared to current law, there would be no fiscal effect of these provisions, as in the absence of Reliability 2000, the transactions that are the subject of these provisions would not occur.
[Act 9 Sections: 1809b thru 1809zp, 1810gm, 1812Lmr, 1813v and 9343(1zt)]
4. UTILITY TAX ON CAR LINE COMPANIES [LFB Paper 124 ]
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.
Joint Finance/Legislature: Delete provision.
[Bill Sections: 1809 and 9343(12)]
