July 2, 2013, 4:16 PM

Wisconsin would cut income taxes if a federal online sales tax law passes

At least four other states are considering a similar trigger.

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Wisconsin Gov. Scott Walker signed into a law this week a two-year state budget with a provision that triggers an estimated $95 million income tax cut if the Marketplace Fairness Act pending before the U.S. House of Representatives becomes law. That federal bill is designed to increase the collection of sales tax by online and catalog retailers.

“Should federal Marketplace legislation become law, my intention would be for any resulting revenue be used to provide individual income tax relief for Wisconsin’s taxpayers,” says Walker, a Republican.

Signed by Walker on June 30, the state budget covers the period from July 1, 2013, through June 30, 2015. It includes a cut in income tax for individuals, families and businesses equal to the amount the state would collect in new sales tax revenue under the Marketplace Fairness Act, should that legislation get signed into law while the budget is in effect. Wisconsin estimates that it would receive $95 million a year in sales tax revenue that currently goes uncollected should the measure, already passed by the U.S. Senate, take effect.

At least four other states are considering similar measures. Three other Republican governors—Terry Branstad of Iowa, Paul LePage of Maine and John Kasich of Ohio—support pending state legislation that would also trigger a statewide income tax cut along with enactment of the Marketplace Fairness Act.

“Such reductions would help stretch family incomes, create jobs, and increase our competitiveness compared to other states,” says Gov. Branstad. His office estimates that Iowa would gain $18 million in sales tax revenue with passage of the Marketplace Fairness Act.

Governors LePage and Kasich have made similar statements, though estimates of what their states expect to gain in collected sales tax revenue weren’t available.

But in Missouri, Gov. Jeremiah W. “Jay” Nixon, a Democrat, opposes the Marketplace Fairness triggering measure, contending that it would cost the state about $300 million in annual revenue. That figure is based on a provision in the pending state budget that would trigger a statewide 0.5% cut in income tax with final passage of the federal legislation.

The Marketplace Fairness bill was passed by a wide margin in the U.S. Senate in May, and is now before the Judiciary Committee in the House of Representatives, where it is expected to run into significant opposition, particularly from Republicans opposed to any measure that could be seen as raising taxes. Proponents point out that consumers already are supposed to pay sales tax on online purchases. But few do, and e-retailers without a physical presence in a state can’t be required to collect sales tax under existing federal law.

If enacted into law, the act would replace existing federal law that says states can mandate sales tax collection by retailers only if the merchants have an in-state physical presence, such as stores or distribution centers. According to a study by the University of Tennessee, passage of the Marketplace Fairness bill would result in more than $20 billion in annual sales tax revenue that would otherwise go uncollected across the 45 states plus the District of Columbia with a sales tax, though other studies estimate a lower revenue figure.

A review by Internet Retailer found that the federal bill would impact the tax collection duties of many of the retailers listed in the 2013 Top 500.

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