New Milwaukee Sales Tax Collections Slow, But Comptroller Isn’t Panicking

Milwaukee City Hall. Photo by Jeramey Jannene.

The City of Milwaukee’s new 2% sales tax has netted the municipality $63.9 million to date, far short of the $184 million predicted.

But that’s not a cause for panic, says Comptroller Bill Christianson.

“It’s simply too early to develop a projection for the end of the year as to whether we’re going to be higher, lower or spot on with our revenue estimate,” Christianson told the Finance & Personnel Committee on Wednesday.

There are several factors at play.

The most obvious factor is that seasonality impacts collections, with big spending and therefore collections in the holiday season and slower spending at the start of the calendar year, when the tax went into effect.

But the city also experiences a delay in receiving the funding. The Wisconsin Department of Revenue receives 96% of the sales tax revenue from businesses on a monthly basis, but in the month after the sale occurred. It then must transmit the money to the city.

“It’s not as if when you make a purchase in the city of Milwaukee and you tap or swipe your card, that the city portion of that sales tax goes immediately into city accounts, it goes through the Department of Revenue and then back to the City of Milwaukee,” said Christianson.

In addition, retailers need to be collecting the increased tax.

“I think we saw a little bit of that in the April and the March distributions that were a little low, most likely due to slow or delayed implementation by retailers,” said Christianson. Of the $17.8 million received in June, $500,000 was actually from January reports he said. “I think we are still seeing a little bit of catchup from those months.”

The sales tax, and an increased Milwaukee County sales tax, went into effect on Jan. 1 and boosted the sales tax from 5.5% to 7.9%. An additional 0.5% is collected on prepared food and beverage sales and funds the Wisconsin Center District.

Businesses are liable for failing to collect the correct amount.

The city received its first transfer, $4.6 million, in February, which represented only January sales from businesses that filed their returns well before a monthly due date. It received $11.1 million in March, $10.7 million in April, $19.7 million in May and $17.8 million in June.

There is also the challenge of the state only having prior data at the county level. Businesses with multiple locations aggregate their data to report a countywide figure, eliminating the ability to drill down.

“We had a number of limited, less than perfect, data points on which to prepare our revenue estimate for 2024,” said Christianson. He called the estimate “reasonably conservative” and based on low ends of ranges. The state, during the Act 12 debate, estimated that the city could collect $194 million.

“What I can say, I’m comfortable with our $184 million estimate,” said Christianson.

“We’ll put that in the good news category,” said committee chair Alderwoman Marina Dimitrijevic.

Alderman Peter Burgelis praised Christianson for managing the new process.

“I couldn’t be more appreciative of the help that the state Department of Revenue has offered our office,” said the Comptroller.

In addition to its elasticity, the sales tax will also have a timing impact on the city budget. State transfers received through February 2025 will be counted as part of the city’s 2024 budget.

The Wisconsin State Legislature granted the City of Milwaukee the 2% sales tax as part of Act 12, an overhaul of local government funding by the state. The tax averted a long-looming, and growing, fiscal crisis, triggered by state-imposed limits of new revenue sources and declining state aid.

A 2023 city budget office report said that, without the new funding, the city would need to eliminate 700 of the approximately 1,600 police officers, 250 of the approximately 700 firefighters and 400 general city employees.

A series of other measures were included in Act 12, including an increase in shared revenue, a “soft close” of the city’s pension system, policy restrictions on city actions and minimum public safety staffing levels.

Related Legislation: File 240361