The Wisconsin Department of Revenue (DOR) is raising business taxes through aggressive audits, and unilaterally increasing business taxes through new interpretations of the tax code.
Essentially, the un-elected bureaucracy is attempting to collect taxes never authorized by the Legislature or signed by the governor.
The Department’s audit practices in the area of combined reporting, custom computer software, business transfers and internet access taxes have resulted in millions of dollars of unilateral tax increases for businesses without specific laws. Wisconsin companies cannot transact business in a state where the rules are constantly changing at the whim of the bureaucracy.
It does not appear that the agency is working at the directive of Governor Jim Doyle, who has signed business tax cuts and regulation reforms, but rather that the tax collection department is acting on its own to bring in more tax revenue.
The most recent example of DOR’s overreaching practices extends to businesses supplying temporary employees as well as those employing the temps.
In early February, DOR released a tax bulletin that officially and unilaterally imposed the sales tax on certain services performed by temporary employees. [For a copy of the new release, please go to Wisconsin Tax Bulletin 141 – January 2005, page 31. It can be found at www.dor.state.wi.us/ise/wtb/2005.html at the Tax Release section.] WMC began challenging the department on this issue, along with several others, a few years ago.
The official release of the tax bulletin is significant and negative for Wisconsin businesses in all industries. It forces businesses to choose between past historical practice/current law of not collecting and paying the sales tax or DOR’s new audit practice/tax release policy that is in conflict with current statutes — risky business for smaller and medium size businesses that may not be able to afford to take on the DOR.
WMC remains steadfast in its opposition to this tax increase and believes DOR does not have the statutory authority to impose a tax increase on services performed by temps. This is how current law works. In Wisconsin, only services explicitly listed in the statutes are subject to the sales tax — providing temporary employees is not one of them — and until recently, taxes have never been collected on temporary employment services.
If you are a company that hires a temp and the temp performs a variety of duties, DOR, is “looking through” the transaction and declaring that the work being done is taxable if any of the duties the temp performed, included a service that IS subject to the tax under current law. This practice is one of interpreting the statutes to conclude that if some of the work performed by a temp is of the type that would be subject to sales tax if performed by an independent contractor, then the temporary employment is subject to the sales tax.
Taken to its extreme, it could transpire into a tax on employment. Sound ridiculous? Yes, but what if a business’s own employee performed a function that is a taxable service under current law — under DOR’s logic, this should be taxed as well —
a ludicrous idea, but not out of the realm of possibility for the Department of Revenue.
DOR’s practices are sending conflicting messages to the business community, particularly in light of Governor Doyle signing single-sales factor corporate apportionment; and the sales tax exemption on fuel and electricity for manufacturers.
The DOR is undermining the positive effects of other pro-business tax policies as our economy is in the infancy of a recovery. WMC continues to encourage Governor Doyle to clamp down on the Department because it is jeopardizing jobs in our state by playing fast and loose with the tax code.
If your company has had experience with over-reaching audit practices and interpretations, we would like to hear from you. You may email your experiences to jhansen@wmc.org. Your stories will be compiled anonymously and delivered to policymakers to illustrate the audit problems at the DOR.
–Joan M. Hansen is the Director of Tax and Corporate Policy at WMC.
