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Despite revenue crunch, state clings to sales tax exemptions

Wyoming’s sales tax exemptions are costing the state revenue without achieving the goal of attracting significant new businesses, a prominent lawmaker says.

Many exemptions aren’t having their desired effect because business owners are more focused on economic stability than tax breaks, the chairman of the House Revenue Committee said this week. Rep. Mike Madden (R, HD-40, Buffalo) says many exemptions should be repealed, but that lawmakers lack the political will to do so.

Last legislative session, in the face of a budget crisis, an attempt by lawmakers to repeal some of the larger sales tax exemptions failed. “I don’t know if we did it a year or two too soon or what,” Madden said, “but there was no interest to put a stop to it.”

Instead, the Legislature voted by a wide margin to extend for a decade what Madden considered one of the most egregious tax exemptions — on the purchase of machinery for manufacturing.

The exemption costs the state about $9.2 million a year in lost tax dollars —  $46 million from 2010 to 2015 — but only created an average of 62 jobs a year, according to the Department of Revenue.

Wyoming offers sales tax exemptions for things ranging from mobile homes to tents sold by outfitters. There is an exemption on equipment used in coal gasification or liquefaction plants, and even for pagers and data services for them. Wyoming has no coal gasification or liquefaction plants, and even in a state sometimes criticized for clinging to the past, pagers were long ago obsolete.  

To resolve a pending $400 million per biennium deficit in education funding, the Revenue Committee is taking a broad look at Wyoming’s tax structure. With many new members aboard, the committee recently showed a willingness to buck ubiquitous tax lobbyists, at least when considering a gross receipts tax that’s unpopular with the business community. The legislative leadership, however, did not task the committee with reconsidering sales tax exemptions.

The sales tax exemption on manufacturing equipment particularly irks Madden. The traditional argument for this and most other exemptions is that they will attract new businesses, create jobs, and expand the tax base. With the manufacturing exemption, that thinking doesn’t hold true, Madden said.

“It causes virtually no increase in employment benefit whatsoever,” he said. Of the 62 jobs it creates a year, only 15 are in manufacturing.

Manufacturing jobs are higher paying than those in other state industries like tourism, said Dan Noble, the director of the Department of Revenue. He agreed the exemption doesn’t create many of them.

However, the amount of taxable property held by the manufacturing industry is significant, according to Department of Revenue data. At the high end, for example, the HollyFrontier refinery in Cheyenne had taxable property valued at more than $405 million in 2016. A much smaller manufacturer, but one more in line with a post-fossil fuel economy — Sheridan-based Black Tooth Brewing — had $400,000.

“The question then becomes is it an effective exemption or not,” Noble said. The exemption can spur investment in manufacturing equipment which can then be taxed as property. “It isn’t just a job issue, it’s tax in general,” he said.

During the most recent legislative session both the House and the Senate passed by wide margins a bill to extend the exemption until December 2027. In the House, Madden was one of only three members who voted against it.

“I was just terribly upset about that,” Madden said.   

The tax is important to keep Wyoming competitive in attracting businesses, Thomas Johnson, the Wyoming Business Council’s chief performance officer, said. “It’s a tool that we’ve continued to be able to use.”

More than half of U.S. states have a similar exemption, revenue director Nobel said.

Wyoming doesn’t need the exemption to attract manufacturers, Madden said. Neighbor South Dakota taxes the sale of manufacturing equipment, charges higher property taxes, has a stronger economy, and is in better fiscal shape than Wyoming, he said.

Unlike Wyoming, South Dakota does not levy a property tax on mineral properties. In the Equality State, mineral properties brought in more than half the property tax revenue in 2014, according to a report from the Legislative Service Office. Roughly 40 percent of South Dakota’s revenue comes from sales taxes, the report said.

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Although Wyoming’s philosophy is to keep taxes low to spur economic growth, the tax rate is not the top consideration of companies eying locations here. Tax rates are fifth or sixth among factors companies consider, Madden said, sometimes less important than that.

Despite their disagreements on tax exemptions, both Johnson and Madden agreed on one point. “A lot of legislators and citizens in Wyoming assume that because we have the lowest taxes in the United States companies should be [champing] at the bit to come here,” Johnson said. “The concerns companies always have, and always will, is workforce.”

Even if businesses focus on the workforce, the sales tax exemption for manufacturing equipment is important because other states have it, Johnson said. “If we can get them past the workforce issue and we can get them in the door, then it absolutely makes a difference,” he said.

Wyoming’s budget woes may be more frightening than sales tax to an industry considering moving to the state, Madden said.

“Statistically, through surveys, it’s shown that what new business developers want is a stable fiscal environment that is easy to understand and is sustainable,” he said. “We don’t have a sustainable system here. We don’t even know how we’re gonna fund schools the next biennium.”

Exemption list

The list below is from Wyoming statute, and outlines nearly 50 sales tax exemptions. Exemptions are created by lawmakers for various reasons — some exist as economic incentives, others to avoid double taxation or conflicts with federal law.


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Andrew Graham is reporting for WyoFile from Laramie. He covers state government, energy and the economy. Reach him at 443-848-8756 or at [email protected], follow him @AndrewGraham88

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