Shrinking personal property tax could disappear for good
Business office furniture are one of the few things still taxed under the state’s personal property tax law. Electronics, however, are not. (Pixnio | Public domain)
Wisconsin is moving closer to eliminating a business tax that has become increasingly quirky and disliked in the last few decades.
The Legislature’s budget committee endorsed legislation repealing the state’s personal property tax Wednesday. On Tuesday, the Senate Economic and Workforce Development Committee similarly backed the bill.
Wednesday’s vote by the Joint Finance Committee was largely along party lines, with three of the four Democrats voting against the repeal bill. But the substance of their opposition focused on the process that the Republican majority of the committee used to set aside money to cover the lost revenue — not the idea of repealing the tax itself.
The personal property tax is one of the oldest taxes in Wisconsin, as old as statehood itself. Over time, the tax — originally applied to all personal property for individuals as well as businesses — has been whittled down, becoming a tax paid by businesses only, and then on only limited categories of business property following repeated exemptions.
“This is something that we just need to finally put an end to,” said Sen. Duey Stroebel (R-Saukville), in testimony Tuesday before the Economic and Workforce Development Committee. “All our neighboring states have done away with it.”
In a 2016 analysis of the personal property tax, the Wisconsin Taxpayers Alliance (now part of the Wisconsin Policy Forum) called it “The Property Tax No One Knows.”
Household personal property largely fell off the tax rolls after the advent of the state income tax in 1911. Business exemptions slowly grew in the decades that followed. One of the largest came in 1974, with the removal of manufacturing machinery and equipment. In 1999, computers and related electronic business equipment also became exempt.
Wisconsin’s 2017-2019 budget added machinery, tools and patterns not used in manufacturing to the list of property no longer taxed. That left the tax to cover only furniture and related items, watercraft and a few other items.
According to the Legislative Fiscal Bureau, about 2% of the state’s tax levy in 2019-2020 came from the personal property tax, compared with more than 10% in 1970-1971.
Republican lawmakers signaled their interest in doing away with what was left of the tax early in the 2021-2022 legislative session. They introduced companion bills to get rid of it before the finance committee entered its detailed work on the new state budget, but didn’t advance the legislation until this week.
The finance committee included elimination of the personal property tax in one of its final budget motions on Thursday, June 17, and set aside $202.35 million to compensate municipalities for the revenues they will lose if the tax is repealed. But the motion deferred the repeal to the non-budget legislation already introduced.
Curt Witynski, deputy executive director for the League of Wisconsin Municipalities, said in an interview after work on the budget wrapped up that repeal of the personal property tax “was not a surprise at all.”
Still, it got a boost when earlier this month a new fiscal bureau estimate projected an additional $4.4 billion in tax revenues over the next two years beyond what had been originally forecast. “That made legislators more confident that there would be sufficient dollars to reimburse local governments” for the loss in revenues, Witynski said.
“Our association is on record that as long as the Legislature holds us harmless and sets aside sufficient dollars to reimburse us for the lost revenue, we’re fine with the repeal of the personal property tax,” he added.
Another sign that the tax could be on its deathbed is that no organization testified against repeal at this week’s public hearings. As of this week, the Wisconsin Ethics Commission recorded only two entities that have formally reported they were lobbying against the repeal: The League of Women Voters and the City of Milwaukee.
The city’s filing with the Ethics Commission included the statement that the city “is concerned about the long-term viability of the hold harmless aid, without which would shift more of the property tax burden to residential taxpayers, and that there is no inflationary increase.”
In Milwaukee, taxable personal property represents about 2.3% of the city’s total property tax base, according to the city’s assessment commissioner, Steve Miner.
At Tuesday’s committee hearing, Stroebel said that while the Legislature can’t commit a future Legislature’s actions, maintaining future reimbursement is “fully the intent here.”
Democratic lawmakers who voted against the repeal in committee, however, weren’t willing to count on statements of intent.
“I agree that this tax is antiquated,” said Sen. Janis Ringhand (D-Evansville) at Tuesday’s committee hearing. But municipalities “depend on those dollars,” she added, and state-mandated levy limits would prevent local governments from offsetting the loss if they aren’t compensated.
“So that’s my No. 1 concern — that the state will stop paying them at some point in time, and then that leaves a huge hole,” she said. Ringhand cast the only vote against repeal in the Economic and Workforce Development Committee.
At Joint Finance on Wednesday, Rep. Evan Goyke (D-Milwaukee) focused on how the GOP majority had set aside the funds. Instead of budgeting an appropriation specifically to reimburse municipalities, the funds were added to the committee’s supplemental appropriation, where the Department of Administration will have to formally apply to the committee to release the money later.
“I am not arguing that the personal property tax, or what’s left of this tax, is the most sound public policy,” Goyke said. But he attacked putting the funds in the supplemental appropriation, calling it “this game” and “this maneuver that Republicans are using.” He offered an amendment to directly release the funds once the budget is passed, which was rejected on a 10-4 party line vote.
In response, Stroebel questioned whether Gov. Tony Evers would support repealing the tax. “So to avoid the risk of a line-item veto, this is the only mechanism we have to do it,” he said.
In a follow-up statement to the Wisconsin Examiner, Stroebel said that GOP lawmakers wanted to ensure that the personal property tax repeal was left untouched, rather than being changed through the partial veto that the governor can employ on the budget bill itself, but not on most other legislation.
Witynski said Wednesday that the League of Municipalities is “not concerned” about the procedure that is being used to set aside the reimbursement funds. “The authors of the legislation have assured us they intend to make the aid program permanent next session,” he said.
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