No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

Craps gas tax – a legal perspective

by @ 8:25 on July 26, 2007. Filed under Politics - Wisconsin, Taxes.

One of the nice things about taking those (almost) twice-monthly trips to Madistan for the Center Right Coalition meetings is I find out some very interesting stuff. Case in point; on my desk is the executive summary of Michael Best & Friedrich LLP’s analysis of the Gross Receipts Tax proposal. Lest you think that just because the firm is Pubbie-friendly, it is fatally-tainted, Peg Lautenschlager came to the same conclusion.

In any case, on with a very brief summary-of-a-summary from someone who does not have legal training. There are three Constitutional faults that Michael Best & Friedrich found:

  • It violates the Commerce Clause of the US Constitution because the anti-pass through provision impermissibly insulates Wisconsin and only Wisconsin consumers from the effects of the tax. Indeed, the only federal case made under the Commerce Clause against an anti-pass through tax was ruled in favor of the taxed industry.
  • It likely violates the Commerce Clause and the Equal Protection Clauses of both the state and US Constitutions because it exempts Wisconsin-produced corn-a-hole and biodiesel. Morever, by basing it on profits, there is no basis for not including other industries with “high” profit margins.
  • Given that even the Department of Revenue has conceded that it can’t tell what price fluctuations would be “legal” versus “illegal”, it likely violates the Due Process Clauses of both the state and US Constitutions.

So, what happens when the US Supreme Court strikes this down in 6 or so years? First, let me explain why it would be SCOTUS, and why it would be about 6 years. Because it involves state tax law, it must go through the state appeals process first, which in this case is the DOR, the Wisconsin Tax Appeals Commission, the Circuit Court, the Court of Appeals and the state Supreme Court. Given that Doyle controls the first two and the last 3 are all elected, it is rather unlikely that members of those 6 organizations will risk the wrath of Doyle or the public.

Now, let’s go forward those 6 years. Every penny of that tax collected would need to be repaid in full and immediately. Doyle’s office estimated that would be $912 million, and they also estimated that gasoline would be roughly $2.50/gallon into perpetuity. Given that gasoline hasn’t been $2.50/gallon for several months, and shows no sign of ever returning to that level, a fairer estimate would be somewhere north of $1 billion.

But wait, it gets worse. State law provides that there is a 9% annual interest paid on a refunded tax. Using that $912 million as a base, Michael Best & Friedrich estimated that penalty would be $330 million. As if that weren’t enough, the state would be liable for 6 years’ worth of legal fees.

Where would all that money go? It wouldn’t be going back to the individual taxpayers of the state. Remember; according to Craps and the ‘Rats, we wouldn’t be “paying” this. Rather, the refund and the interest would be going into the pockets of “Big Oil”, while the lawyers would be taking their cut.

Where would that money come from? Knowing Doyle’s penchant for spending every penny twice, not one cent of that collected tax would be in the coffers when the refund bill comes due, much less the money for the interest and lawyers’ fees. Yipee; </sarcasm> another massive tax increase to pay for one that backfired.

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