Steven Walters
The State of Politics

County’s Sales Tax Revenue Plummets

A 16% one-year drop, as urban counties saw biggest declines due to pandemic.

By - Jun 22nd, 2020 10:44 am
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S. Kinnickinnic Avenue. Photo by Carl Baehr.

S. Kinnickinnic Avenue. Photo by Carl Baehr.

Taxable sales in Milwaukee County’s lodging, restaurant and bar businesses fell 52 percent in March and April, causing a 16 percent one-year drop in countywide taxable sales.

One of two studies of taxable sales statewide during the COVID-19 lockdown of schools, businesses and non-emergency industries also found that retail sales in Milwaukee County fell 11 percent, telecommunication and data processing sales increased 17 percent, and wholesale trade sales slipped by 22 percent.

That study, by Forward Analytics, the research arm of the Wisconsin Counties Association, found that the pandemic did not wreck all local economies equally. For example, while taxable sales fell 10 percent statewide in March and April, compared to 2019, Sauk County got hit hardest – a 31 percent drop. Sales in Dane County also fell by 16 percent.

But three rural counties — Burnett, Polk and Marquette — actually saw their taxable sales grow by 7 percent in that same period.

The second important study, by the Wisconsin Policy Forum (WPF), traced record sales tax payments from Amazon and other online retailers before and during the COVID-19 lockdown — payments that, under a unique state law, would force a cut in income taxes.

“Given the current trend, it is reasonable to think [online sales tax] collections could top $200 million for October 2019 through September 2020 and even come close to doubling the initial estimate” of $119 million, WPF concluded.

Both studies document how the COVID-19 lockdown crippled industries that anchor Wisconsin’s economy in March and April.

Dale Knapp, director of Forward Analytics, noted that the mid-March Safer at Home order of Gov. Tony Evers “effectively shut down” most hotels and motels. As a result, taxable sales from those businesses fell 64 percent from the same two months in 2019.

And, because restaurants and bars statewide were either closed or offering only curbside and takeout service, their taxable sales fell 42 percent in March and April. That drop is especially significant, since 10 percent of taxable sales statewide occur in restaurants and bars, Knapp noted.

“Several smaller industries were affected more from the pandemic and the state order due to temporarily closing or reduced consumer traffic,” he added. “Sales from clothing stores fell 57 percent year over year,” for example.

And, “Two other major industries saw sales fall at least 25 percent. Car dealers and automobile parts retailers typically account for more than 13 percent of March and April taxable sales. Their sales dropped 27 percent in the two months studied. Sales at furniture and home furnishing stores fell 25 percent.”

But, Knapp said, ‘“What was most interesting was that the economic impacts varied widely by county…Of counties with [local 0.5%] sales taxes in place in 2019 and 2020, 14 saw more economic activity this year compared to last year.”

The sales data show there was an urban/rural divide to the changes. “As a group, urban counties saw a decline of 11.9 percent while rural counties experienced a drop of 6.5 percent,” Knapp added.

Besides the 16 percent fall in taxable sales in both Milwaukee and Dane counties,  Brown County’s decline was 14.8 percent and Kenosha County was down 10.8 percent.

Two Wisconsin industries – groceries and lawn, garden and hardware sales – thrived during the COVID-19 lockdown. Customers stocking up on taxable household items pushed grocery sales up 23.4 percent and sales in lawn, garden and hardware stores were up 16 percent.

“These numbers show the complicated impact of the COVID-19 crisis across our state,” Knapp said.

Wisconsin appears to be the only state that requires sales taxes paid by online retailers to cut personal income taxes, said Jason Stein, WPF’s research director.

So, if online retailers pay $200 million in taxes, “Some may welcome this unexpectedly large income tax cut,” Stein said.

But, he added, “The actual income tax cut generally will not benefit the consumers … until they file their 2020 income tax returns in early 2021. By then the state is likely to face a budget challenge – if not a crisis.”

Evers has said that general-fund tax collections, which had been projected to total $18 billion in the budget year starting July 1, could be $2 billion less because of the pandemic. As a result, some K-12 school administrators are already drawing up contingency plans for what they fear could be a significant drop in state aid they had been promised.

To help avoid a difficult choice – raise taxes or cut spending on K-12 schools, Medicaid, the UW System, prisons and property tax relief – tapping a $200-million windfall from online sales taxes will tempt legislators and Evers this fall.

Steven Walters is a senior producer for the nonprofit public affairs channel WisconsinEye. Contact him at stevenscotwalters@gmail.com

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