The Debate Over Local Sales Taxes

In November, City of Milwaukee officials approved a 2021 budget that won’t replace 60 police officers who retire or quit.

Last week, Democratic Gov. Tony Evers proposed a state budget that would let the City of Milwaukee – and all local governments with populations of 30,000 or more – begin charging a 0.5% local sales tax, if residents approve by passing a referendum.

In its official summary of that budget, the Evers Administration connected those two events this way: “County and municipal levy limits have restricted the ability of our local governments to sustain basic county and municipal services – including roads, fire protection, social services, and police protection…. [T]he Governor proposes to expand revenue options available to counties and municipalities – but only if residents give their approval.”

“The time to allow counties and municipalities to further diversify their revenue sources to provide necessary local services is long overdue,” the summary continued. “Wisconsin makes light use of the sales tax – especially at the local level. According to the Tax Foundation, among states utilizing the sales tax, Wisconsin has the second lowest population-weighted combined state and local sales tax rate of 5.46%.”

Evers’ budget would also allow the 68 counties that now charge a 0.5% local sales to raise that local-option sales tax to 1%, if voters agree by passing a referendum.

Both of the governor’s recommendations should make the cut when Republicans who control the Legislature cull dozens of non-spending changes Evers wants from their version of the next state budget. That should be done quickly. Assuming the sales tax legislation is not eliminated, that will renew the decades-old debate over local control and who — legislators in Madison or locally elected officials — decide what emergency services stay, are cut or eliminated by local governments.

Democratic Rep. Evan Goyke is researching how much a City of Milwaukee 0.5% sales tax surcharge would raise per year.

But figures are available on how much doubling – from 0.5% to 1% – the local-option sales tax charged by counties would raise. Last year, according to State Department of Revenue (DOR) reports, the 68 counties with local-option sales tax collected $471.5 million, after paying DOR’s fee to administer the tax. Milwaukee County collected $79.9 million; Dane County, $60.2 million; Brown County, $29.5 million. They could effectively double the amount collected under this proposal.

Other Milwaukee-area counties and how much they collected in local sales taxes last year are Kenosha, $16.1 million; Washington, $13.3 million, and Ozaukee, $9.2 million.
Waukesha, Racine, Manitowoc and Winnebago counties do not collect a local sales tax.

If all counties charging a local sales tax doubled it, which is unlikely, they could collect more than $950 million a year. That equals about 11% of the $8.14 billion all 72 counties spent in 2019, according to the Legislative Fiscal Bureau.

The possibility of a major new source of revenue for counties and local governments struggling with limits on their property tax levies, yet facing pandemic-related costs last year they had not anticipated, has officials praising Evers’ proposal. “This budget, as introduced by Gov. Evers, recognizes that counties are critical to  delivering local programs and services,” said Wisconsin Counties Association Executive Director Mark D. O’Connell. “These investments will empower counties to be more effective and operate at an even higher level.”

The League of Wisconsin Municipalities released a statement saying it “applauds” the proposal and encourages the Legislature to support it.

Metropolitan Milwaukee Association of Commerce President Tim Sheehy agreed: “Allowing referenda asking local voters for permission to raise additional sales tax revenue increases local taxpayer control of their own communities’ financial destiny and diversifies the revenue options available to local governments.”

But, if local governments could enact a 0.5% sales tax, and counties go to a 1% sales tax surcharge, what would that mean for property tax bills on homes — tax bills that past governors and legislators have controlled through strict limits on levies?  To control those bills, Evers’ budget would give local governments a 2% increase in state aid – the first increase in many years – and let them raise tax levies by 2% a year.

The combination of more state aid and a 2% levy limit “will keep property tax bill growth for the median-valued home…at about 1.5%” for the next two years,  Evers aides estimated. A 1.5% increase is “modest,” they added.

At a time when the jobs of emergency workers go unfilled by some municipal and county governments, the debate over new sources of revenue for local governments is worth having.

Steven Walters has covered the Capitol since 1988. Contact him at stevenscotwalters@gmail.com