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Revenue committee advances tax-increase bills

Lawmakers on the Joint Revenue Committee last week in Thermopolis continued pushing Wyoming’s Legislature toward considering tax increases.

The committee requested six tax-related bill drafts from the Legislative Service Office. They included bills increasing taxes on property, beer and liquor, broadening and raising the sales tax, and collecting more information on companies’ gross income — with an eye toward taxing it later. The drafts will be considered by the committee at future meetings.

Not every tax idea has a revenue estimate yet. However, if the property tax increase and the broadening and increasing of the sales tax were to become law, without exemptions, the state could see at least $230 million a year in revenue.

The committee has been tasked with providing revenue options of $100 million, $200 million and $300 million to help the Legislature face a funding deficit for public education. Committee members said they were going to achieve that goal, despite the reservations of some individual members toward tax increases.

While there are no numbers for the increase on liquor and beer taxes, based on similar previous legislation it’s unlikely the amount raised would push the total over the $300 million mark. The committee has two meetings to go before a November confab with the Select Committee on School Finance Recalibration when the options are due.

Senate Revenue Chairman Ray Peterson (R, SD-19, Cowley) has talked about the unpopularity of the Revenue Committee’s job at each of the last two committee meetings. He continued that trend last week.

“You’ve got a pretty conservative committee which is biting a pretty ugly part of the job here,” he said, advising members to “hold your nose and vote aye.” If they vote against the same bills during the next legislative session, in February, he’d understand, he said.  

“We’re just keeping our options open is what we’re doing,” said Sen. Cale Case (R, SD-25, Lander).

Tax options

For property taxes, the new draft would increase by 1 percent the percentage of a property’s value that could be taxed. The hike would affect private, commercial and industrial property. For personal property, that would increase the taxable value from 9.5 to 10.5 percent. For commercial and industrial properties, the rate would go from 11.5 to 12.5 percent.

Wyoming had the 47th lowest property taxes for homeowners in the nation in 2014, according to the conservative think tank the Tax Foundation. At a Revenue Committee meeting in June, the LSO estimated raising the taxes by 1 percent would generate $72.7 million a year. There would be a year’s delay in implementing the taxes, LSO staff said.

One bill for beer and liquor would increase taxes by a penny a bottle. Lawmakers left it to the Legislative Service Office to define “a bottle” in draft legislation. They’ll probably break it down by volume measures like milliliters, said Josh Anderson, a staff attorney with the LSO. Another bill would increase the markup on liquor sold by the state from 17.6 to 20.6 percent. Wyoming is a control state, meaning the state operates as a wholesaler of liquor to bars and stores.

Revenue from the penny tax on bottles would be directed toward substance-abuse funding. Those programs have been hit hard by budget reductions and declining money Wyoming received as part of a $200 billion-plus settlement with the tobacco industry. Data from the state treasurer’s office shows the Legislature appropriated the tobacco money faster than it came in, to the eventual detriment of programs like substance abuse treatment in Wyoming’s prisons.

Dan Noble, director of the Wyoming Department of Revenue (Department of Revenue website)

Another draft bill would apply the state sales tax to a broad range of services that are currently excluded. Services ranging from a hair cut to ski lessons to corporate accounting to legal services are currently not taxed in the state. If all services were taxed, Wyoming could generate $80 million a year, director of the Wyoming Department of Revenue Dan Noble said. However, it’s likely some services would end up remaining exempt. Already, lawmakers on the revenue committee asked for funeral services and veterinary services for livestock to be exempted in the draft.

A separate bill would raise the state sales tax by 1/2 percent, from 4 to 4.5. The increase would expire in four years, but in the meantime all revenue generated would be directed to school capital construction and maintenance.

The state has spent more than $3 billion on constructing new schools and improving existing ones over the last 20 years. Some lawmakers worry that investment would be wasted without a sufficient maintenance budget. In June, LSO staff estimated raising the sales tax by a 1 percent would generate $154 million in the first year. Half of that increase would be $77.25 million.

The committee did not consider those purchases exempted from the sales tax. Some of these exemptions exist to incentivize economic development — like an exemption on the purchase of equipment and raw materials for manufacturing. Madden has said the exemptions are an unsuccessful drain on revenue.

Gross receipts tax tabled in favor of research

In a meeting in Saratoga in May, the Revenue Committee considered a controversial gross receipts tax, pushed largely by freshman Rep. Jerry Obermueller (R, HD-56, Casper). A gross receipts tax is paid by businesses on their total gross revenue.

In May, the LSO estimated that at a flat rate of 0.26 percent across all industries, a gross receipts tax would raise $90 to $100 million annually.

Last week, lobbyists and a tax expert from the conservative Tax Foundation continued to make the case against a gross receipts tax. “A gross receipt tax is the worst option for a state to consider,” said Nicole Kaeding, a Foundation expert. It’s bad for the economy, she said. Some lawmakers, however, pushed back, notably Obermueller and Madden. They want to capture taxes from companies that do business in Wyoming, but who give little back in revenue, paying corporate income taxes instead to their home state.

“We’re kind of like an undeveloped territory,” for out-of-state companies, Madden said. Companies do business here and then the state doesn’t see them again until they do more business, he said.

Instead of pursuing that unpopular tax, lawmakers decided to request a draft bill that would give the state more information about how much money out-of-state companies were making in Wyoming. The bill would change the annual report businesses file with the Secretary of State to include new lines that would identify how much of a company’s income came from Wyoming.

The lack of knowledge made it harder to show that out-of-state companies weren’t giving back to Wyoming, Obermueller said. “It became difficult because we couldn’t talk about real numbers,” he said.

Any tax that doesn’t involve income

For some, the look at taxation represents a sea change for a Legislature that has been reluctant to consider taxing businesses or residents as long as mineral revenue stayed high. Madden has said that in the past any tax increase has been a non starter, even for the committee dedicated to looking at the state’s revenue streams.

For others, however, last week’s measures aren’t enough to fundamentally change Wyoming’s tax structure and move the state beyond the boom and bust of energy cycles, a long-stated goal of both Legislature and governor.

Other tax increases the committee discussed include increasing the lodging tax to gain more revenue from tourists, and considering a corporate sales tax on businesses grossing more than $25 million a year.

The last idea comes from Senate President Eli Bebout (R, SD-26, Riverton), and was designed to capture revenue from big box stores like Wal Mart, he told the committee. Bebout is not on the Revenue Committee, but attended the meeting.

He also expressed an interest in repealing a sales tax exemption on food. The exemption was designed to help Wyoming’s impoverished, and to avoid taxing essential needs. However, towns and counties have argued it deprives them of revenue from local sales tax. “To me it should be on the table,” Bebout said.

Senate President Eli Bebout (R, SD-26, Riverton) addressed the Joint Revenue Committee during public testimony, offering some select tax ideas and rejecting others. He spoke “as a businessman, as a citizen of this great state, but also as a member of the Wyoming Senate and as its President,” he said. (Andrew Graham/WyoFile)

The Senate President also suggested that if the Legislature were to raise property taxes, it should decrease the percentage at which minerals are valued for ad valorem and severance taxes. That reduction would be from 100 to 90 percent. That way, the property tax increase would be a net neutral for the mineral industry, he said.

Taxes on the mineral industry in Wyoming are already difficult, said Bebout, who makes his living in the oil and gas industry. “Plus we have to deal with all the federal land issues,” he said. He told the committee he’s looking at buying new mineral properties in Colorado because that state has much lower severance taxes. In Illinois, where he owns property, there is no ad valorem or severance taxes on mineral production, he said.

Bebout also told lawmakers he was not in favor of income taxes. “I really don’t like an income tax whether it’s personal or corporate,” he said.

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There was a very brief discussion of personal income taxes at last week’s meeting. The absence of more was notable because the committee had ostensibly met to dust off the findings of the Tax Reform 2000 report, commissioned by the 1997 Legislature during the state’s last mineral revenue bust.

The Tax Reform 2000 group was made up of senators, representatives and officials appointed by the governor. Over two years, they examined the state’s revenue streams and tax structure with the goal of moving the state past the boom-and-bust cycle.

By the time the committee developed its recommendations, the bust had passed and the coalbed methane boom was on. Lawmakers set the report aside.

Chief amongst its recommendations for “long term” reform was a personal income tax.

Noble, the Department of Revenue head, said Wyoming lacks a steady source of revenue to “smooth out the bumps we see.” Income taxes tend to be that steady revenue stream, he said. At the committee meeting in Saratoga, LSO staff analyzing how Wyoming’s tax structure matched up against others said that Wyoming effectively replaces income taxes with severance taxes on the mineral industry. The mineral industry, however, can be volatile.

Noble worked for the Tax Reform 2000 Committee as a then-employee of the DOR, he said, and was asked to model the effects of an income tax. At that time, a 7.5 percent income tax would have generated $155 million in annual revenue, he said.

Because of an amendment to the Wyoming Constitution, any income tax must be accompanied by credits for any sales, use and ad valorem taxes. It’s complicated, Noble told lawmakers, but works out benefitting lower-income earners in the state. “It actually acted like what they refer to as a progressive tax,” Noble said. There are various components of a progressive tax, but it refers in short to taxes that affect the rich more than the poor.

Wyoming’s constitution would protect low earners from the new tax, Noble said. “Until you generated $30,000 dollars worth of income you didn’t see the tax at all,” he told lawmakers.

Looking at a personal income tax for today’s fiscal downturn wasn’t entirely ignored, however. House Minority Floor Leader Cathy Connolly (D, HD-13, Laramie) asked the LSO staff to model what the tax would generate today for revenue’s next meeting.  

Senators on the committee were skeptical, however. “There’s so many other things we need to be looking at,” Peterson said.

“It is kind of a non starter,” said Case. But, he added, “people don’t get their heads around it until they look at the utility of it.”

Resistance awaits

Though the Revenue Committee continues to press ideas, it’s clear any that do become draft legislation will face a tough fight. Many lawmakers have opposed tax increases.

Bebout’s testimony was indicative of that, and came from a particularly powerful position. Bebout has visited or called into various meetings of two of the most integral committees for solving the education funding crisis — the Revenue Committee and the Select Committee on School Finance Recalibration. While he offered some select tax ideas in Thermopolis, his testimony has mostly been against raising taxes without first taking a deeper look at education spending.

“We don’t have a revenue issue we have a spending problem,” Bebout said last week, repeating a refrain popular among lawmakers who think the state needs to cut budgets deeper before raising taxes.

During the last legislative session, Gov. Matt Mead has said cuts to state budgets had gone beyond what was necessary and could hurt citizens who use state services. Before making more cuts, the state should wait to feel the fallout from the deep cuts made over the last two years, he said.

In Thermopolis, Bebout spoke during a period for public testimony. He did so “as a businessman, as a citizen of this great state, but also as a member of the Wyoming Senate and as its president,” he said.

As Senate president, Bebout has the ability to block legislation passed by the House, which he has not hesitated to do in the past. During the 2017 legislative session, he led Senate opposition to a compromise on education funding that included some new revenue measures.

He reiterated that stance last week. “The Senate stands pretty firmly on no tax increases until we have what we consider the responsible reductions,” he said.  

For any bill to even reach Bebout’s desk, however, it will have to make it out of the divided House of Representatives. Wyoming statute dictates any legislation raising new revenue must begin there.

Last session in the House, a group of lawmakers opposed tax increases even as Speaker of the House Steve Harshman and other leaders pushed for a more comprehensive education solution. While few of those lawmakers are on the Revenue Committee, they continue to wait in the wings.

House Revenue Committee Chairman Mike Madden cocks a wary eye at a state fiscal analyst as he receives reports on the deficits in funding for Wyoming’s public education system during a June meeting of the Joint Revenue and Select School Finance Recalibration committees. (Andrew Graham/WyoFile)

An economist formerly employed by the Wyoming Liberty Group, Sven Larson, sent committee members an open letter. In it, he said the state’s economy was in dire shape and was settling into a new, lower-level normal. Taxing businesses would only exacerbate the problem, he wrote.

“The best thing you and the legislature can do now is refrain from increases in the fiscal burden on the private sector,” Larson wrote. “I urge you to let our businesses stabilize, regain their confidence in the future and work their way back to a point where they can invest in the future and in new jobs.”

Among the short-term reforms he suggested was a “pledge from all legislators and future gubernatorial candidates not to raise taxes.”

Others have said a low-tax environment isn’t the only thing businesses look at when they consider the state. They point to questions of quality of life, workforce availability and the education of the workforce as important draws that can be pursued through state investment in infrastructure, services, and education. Mead noted that concern at a July 19 press conference.

“It’s a fact that we have been able to attract some companies to Wyoming because of our low taxes,” he said. However, it’s not all they ask about.

“There is no discussion you have about economic development or moving a business here that doesn’t have almost always at the top of the list — ‘What is the workforce’s education?’” Mead said.

 

CORRECTION: This story was corrected to accurately portray Senate President Eli Bebout’s statement about severance and ad valorem taxes in Colorado and Illinois.  -Ed. 

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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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5 Responses to Revenue committee advances tax-increase bills

  1. Bill Dahlin August 28, 2017 at 5:49 pm #

    If they have not, I recommend the legislature read “Poor States, Rich States.” Also, as a business man, I have never hired and trained employees before starting a business. In order for Wyoming to achieve stability we have to be friendly to our core businesses, and go all out to diversify our economy. I have ideas on how to do that.

    Dahlinforgovernor.com

    Sheridan, Wyoming

  2. Eli Bebout August 18, 2017 at 3:48 pm #

    Andrew, I believe that I referred to Illinois that has no Ad Valorem or Severance tax on shallow O&G production. Co. does have a Severance tax, but it is around 4% compared to 10-13% in Wyoming.

    I agree with Larry Wolfe’s analysis of the assessment ratios.

    Riverton, Wyoming

  3. Bruce Runion August 11, 2017 at 2:24 pm #

    As a one time resident of Wyoming I was amazed that taxes were so low, but also new that Wyoming was getting money from oil and gas and could afford the lower tax rates but if you don’t find some source to replace what’s been loss your whole state will suffer and will have to cut needed services to all new and current residents, let alone won’t be able to draw new businesses and companies to move to Wyoming, causing even more loss revenues it’s better to bite this bitter pill now or face the the fact that your residents will move to where there children can grow up in a strong financially sound state where education and future employment opportunities can be had. Or you can do nothing and wait and pray that coal and oil and gas revenues increase again, but I don’t think they will unless Wyoming can find a way of shipping coal to China seeing they are to curb the amount of coal they recieve from North Korea almost a Billion dollars worth of trade from them. I would say find a way to increase your tax revenue until then and if oil and gas makes a comeback refund some of the excess to the citizens of the state. Don’t kick the bucket down the road and cross your fingers as I find that doesn’t solve the problem. In the state I live in we have a legislation that is all repulicans and we where always running in the black and our Repulican leader cut our state income tax rate by $500 million and reduce corporate tax rates also at the same time, and now we’re facing a $700 million storage in revenue and have seen major cuts to k-12 schools state higher education medicaid, and Foster care yet they refuse to raise taxes I imagine our state also will see a mass exodus people to other states.

    Saint Robert, Missouri

  4. Larry Wolfe August 11, 2017 at 12:55 pm #

    Andrew: one other comment, Sen. Bebout is wrong about the Colorado tax system, CO does have a severance and ad valorem tax on mineral properties and mineral production.

    Cheyenne, Wyoming

  5. Larry Wolfe August 11, 2017 at 12:54 pm #

    Andrew: thanks for this great story! Regarding increasing the assessment ratios I hope that your readers understand that changing the residential and commercial rate from 9.5% to 10.5% is a little more than a 10% increase in taxes that will be paid. The math for a $200,000 home is – $200,000 times 9.5% (.095) times 75 mills (avg. mill statewide, .075) equals $1425 in tax owed. Increasing the ratio to 10.5% results in this tax – $200,000 times times .105 times .075 equals $1575, a $150 tax increase. The same math applies to increasing the industrial ratio from 11.5% to 12.5%, but of course it is actually less than a 10% increase.
    One reason I have supported increasing the residential and commercial ratio is that it does not add significantly to the tax burden on the mineral industry, and residential property tax rates in WY are very low by comparison to other states. And of course it is people, you and I, who need to support the education system, which is where most of the ad valorem taxes go (more than 60%). The commercial rate applies generally to the real property, buildings, furniture and other personal property of small businesses. Larry Wolfe

    Cheyenne, Wyoming

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