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Sales tax takes in less than expected

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Craig G. Knutson

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Jeffrey A. Smith

JANESVILLE — Rock County took in 20 percent less money than it expected from the new county sales tax in 2007.

But the tax is doing what it was intended to do—hold the line on property taxes and diversify the county’s income sources, County Administrator Craig Knutson said.

Using projections from the UW Extension—and cutting off a chunk to keep the number conservative—Knutson and his staff projected the tax would generate $8.5 million in 2007.

Even though their projection was conservative, the actual amount came in 20 percent short at $6.8 million.

Knutson said the shortfall could be attributed to a number of factors, including the economic downturn or the increase in Internet sales, which do not charge a sales tax.

The idiosyncrasies of the collection process could have caused a hiccup, too, Knutson said. Businesses pay sales tax to the state on a monthly, quarterly or annual basis.

Rock County launched its half percent sales tax in April 2007. It was the 60th county among Wisconsin’s 72 counties to tax consumers at the cash register.

In the 2007 budget, the expected $8.5 million was budgeted as:

-- $1.2 million for operating costs.

-- $7.3 million for UW Rock County construction.

Knutson has not determined exactly where the $1.7 shortfall will come from. The money could come from the county’s general or “rainy day” fund, or it could be pulled from sales tax revenue collected in 2008, Knutson said.

“The rationale is that part of the money that came in February is really for 2007 sales,” Knutson said. “The proportions of each, (general fund or 2008 revenue) we haven’t come to a final decision on. That’s the way we’ll handle it.”

Funding won’t be taken from the UW Rock County project, he said.

Using sales tax rather than property tax revenue on the UW Rock County project saved taxpayers $9 million over time, Knutson said. That’s because if a county borrows money against property taxes, it has to pay back interest on the loan, Knutson said.

The sales tax also helps Rock County hold the line on increasing the property tax levy, Knutson said. In 2007, the county increased the levy, or the total amount collected, less than 1 percent—lower than the 2.99 percent it was allowed by the state.

In 2008, the levy increase was 3 percent, which was below the limit set by the state. In both years, the tax rate, or the amount each homeowner is charged, decreased, Knutson said.

Other than having to think twice about where the money is spent because of the shortfall in 2007 projections, the sales tax program has caused no administrative challenges, Knutson said.

“It’s working well administratively,” he said. “It’s required no additional staff on the part of the county.”

The county sales tax is collected by the state and distributed back to counties through monthly checks, said finance director Jeff Smith.

In January and February 2008, Rock County took in $998,000 and $945,000 respectively.

In 2008, again using UW Extension projections, Rock County expects to earn $11.4 million in sales tax revenues. The money is budgeted as:

-- $9.2 million to be set aside for a future jail expansion.

-- $1.2 million in operational costs.

-- $1 million to replace the general fund application. That reduces the amount of the general fund—or savings account—spent on operational costs to $1.7 million, Knutson said.

SALES TAX FACTS

-- Rock County on April 1, 2007, became the 60th Wisconsin county to enact a half percent county sales tax. The other 12 counties do not have plans to enact a sales tax.

-- Barron and Dunn counties were the first to enact the sales tax in 1986.

-- Ten counties—including Walworth—enacted the sales tax in 1987.

-- Retailers get to keep 0.5 percent of the taxes they collect to defray the cost of collection, sending the money to the state and keeping track of where the money comes from.

-- The state keeps 1.75 percent of the money collected to cover the cost of enforcing compliance, distributing checks and processing returns.

-- If you live in Rock County and buy a car in Racine County, which has no county sales tax, you pay a sales tax that goes back to Rock County. The same would go for a boat or other purchase that would be registered to Rock County. That’s the “use” part of the sales and use tax.

Rock County Finance Director Jeff Smith wouldn’t “venture a guess as to what politicians were thinking” when they made the rule. But he thinks it might have kept things fair for smaller counties in northern Wisconsin that were some of the first to enact a county tax.

Source: UW Extension Local Government Center