Lawmakers want to rewrite a law that has allowed energy companies to earn millions of dollars by holding and investing tax revenue owed to the state, while school districts and counties often borrow in anticipation of payment.
A legislative committee last month voted to sponsor a bill that would require mineral companies to pay state ad valorem property taxes on a monthly basis instead of twice yearly. Proponents say it would help smooth out cash flow for school districts and counties, which sometimes borrow money or run short on cash as they wait for the mineral tax revenue to come in.
The current ad valorem tax schedule, which has been in place for decades, allows mineral companies to pay property taxes in two lump sums each year. For example, ad valorem taxes calculated for the 2014 calendar year are due Nov. 10, 2015, and May 10, 2016.
In some cases, property taxes on a ton of coal mined on Jan. 1, 2014, might not be paid for a full 22 months. That time lag allows oil, gas, and coal companies to hold onto that money for a full year or more, during which they can invest the money as they see fit — potentially earning tens of millions over time.
Former energy lobbyist Larry Wolfe, a proponent of the bill, estimated coal companies could be making upwards of $3.8 million each year because of the lag in tax collections, and oil and gas could be earning even more.
Meanwhile, the School Foundation Program routinely takes out short-term loans in August to pay for school district operations around the state as the fall semester begins.
At its Nov. 20 meeting in Cheyenne, the Joint Interim Revenue Committee approved a draft bill to adopt the monthly ad valorem tax payment schedule on vote of 8 in favor and 5 opposed. As currently written, the bill would go into effect in 2019. However, the bill faces opposition — particularly from the coal industry, which often has a receptive ear in Cheyenne.
The bill was first developed and approved by the Task Force on Mineral Taxes. Lawmakers on the task force voting for the measure included Sen. Michael Von Flatern (R-Gillette), Rep. Michael Madden (R-Buffalo), and Rep. Tom Reeder (R-Casper). Sen. Ray Peterson (R-Cowley) opposed the bill, along with former coal industry lobbyist Marion Loomis, the only citizen member of the task force to oppose the bill.
Oil and gas split from coal
Several oil and gas companies support the measure, primarily because it would simplify the valuation of minerals and the administrative work that comes with paying taxes on thousands of wells scattered across the state.
The Wyoming Mining Association, which represents coal, trona and other solid mineral interests, opposed the bill. The association has concerns about the schedule for phasing in the new monthly payment system.
“The system on how we are taxing solid minerals is not broken,” said Jonathan Downing, director of the Wyoming Mining Association. “Let’s keep it simple, and keep it the way it’s been.”
Downing said a group of mining companies will meet this week to review the draft bill to decide whether they will continue to oppose the measure.
Former energy lobbyist helped draft the bill
One of the chief proponents of the bill is Larry Wolfe, a Task Force on Mineral Taxes member and former energy industry lobbyist with Holland & Hart in Cheyenne. For him, the bill is about looking for efficiency in tax collection, particularly at a time when the state is facing a revenue crunch. The state has already moved severance tax collection to a monthly schedule, and moving ad valorem taxes to the same schedule will streamline the process.
“If people are really concerned about the budget, one thing you should do is pass a bill like this,” Wolfe said. “Every single month there is going to be money flowing into counties’ coffers, whereas before you were as much as 22 months behind, and at least 10 months behind. It’s no more complicated than that.”
In his view, Wyoming’s tax system has for decades given the “time value of money” to mineral companies, who can make a return on money while waiting for tax deadlines.
“There is this very fundamental notion that money today is worth more than money a year from now,” Wolfe said. “Why have we decided to have a system in place for 30 to 40 years that basically deprives the county of the value of that money for a very long period of time?”
Just how much money is at stake is unclear, Wolfe said. Judging internal rates of return on company investments is difficult and relies on many assumptions. But the bill would take that investment opportunity away for mineral producers.
“I’ve gotten no death threats yet,” said Wolfe of his support of the bill. “If I am going to do what I promised to do when the governor appointed me, to listen to everyone’s views and try to do things that make a difference, I can’t worry about whose individual ox is being gored.”
Click here to see a preliminary bill draft that the Revenue Committee debated on Nov. 20.
Flickr Creative Commons photo by Aaron Hockley.