UPDATE: This story has been updated since publication to include a description of House Bill 220 – National Retail Fairness Act, a tax bill introduced Tuesday with support from a large group of prominent lawmakers. -Ed.
Legislative leaders in coming weeks will test the Legislature’s and the public’s appetite for changes in the state’s tax structure.
House leadership celebrated passage of a statewide lodging tax last week, but that’s just the first step of many that fiscal analysts say Wyoming must make to escape its dependence on the energy industry and insulate state budgets from the booms and busts that come with it.
The leaders of both the House and Senate hope to begin to “modernize” the state’s revenue system by removing a host of exemptions to the state sales tax and indexing the fuels tax to inflation.
The leadership of both political parties in both legislative chambers have also signed onto a bill imposing an income tax on large corporations that do business in Wyoming’s retail and food services sectors — like Walmart or Applebees. The measure will raise an estimated $45 million that would be dedicated to education.
Meanwhile individual lawmakers and committees have suggested tax increases on cigarettes, property and wind.
The lodging tax was likely the easiest of the proposed measures to pass. Lawmakers had worked on it for two years, and it targeted visitors to Wyoming over residents. The tourism industry supported it.
Other bills have yet to be heard and lack similar industry support. A property tax hike that could raise significant funding for education still has not been assigned to a committee, despite an early endorsement by Speaker of the House Steve Harshman (R-Casper).
With the backing of House leadership, the sales tax reform bill could be the next significant tax increase to stand a fighting chance in the chamber. Down the hall, Senate President Drew Perkins (R-Casper) is also a proponent of the proposal, House Bill 67 Sales tax revisions.
The bill significantly increases revenues to local governments, adding an estimated $33 million to their revenues annually. The bill cuts the total revenues to the state by $3.1 million per year.
Any measure that taxes residents broadly and raises greater revenue are apt to engender stiff resistance from a cadre of anti-tax conservatives in both House and Senate, industry lobbyists, the leadership of the state Republican party and other party factions.
Along with Harshman, Perkins pitched the sales tax bill as “broadening and lowering” the sales tax. The bill lowers the sales tax while also imposing it on a variety of purchases that are currently exempt. The goal, both men say, is to position the state to capture tax dollars from emerging industries if economic diversification efforts succeed.
The sales tax proposal will help local governments, which get a share of the revenues generated in their communities. But it does not address public school funding concerns.
House Bill 220 – National Retail Fairness Act would help fill education’s coffers. The bill was introduced Tuesday and would raise $45 million a year for school funding through a seven percent income tax on large box stores and corporate restaurants based out of state.
Sponsored by Rep. Jerry Obermueller (R-Casper), the bill would apply a seven percent tax on the income of corporate vendors in the retail, accommodation and food services sectors. The bill limits the new tax to large, out-of-state corporations that sell to Wyoming residents by imposing the tax only on companies that have more than 100 shareholders.
House sponsors include Harshman, House Majority Floor Leader Eric Barlow (R-Gillette), House Majority Whip Tyler Lindholm (R-Sundance) and House Minority Floor Leader Cathy Connolly (D-Laramie) and Revenue Committee Chairman Dan Zwonitzer (R-Cheyenne) along with other prominent House members.
In the Senate, the previously prominent tax opponent Sen. Eli Bebout (R-Riverton) is a sponsor, along with Senate President Drew Perkins (R-Casper), Senate Revenue Committee Chairman Cale Case (R-Lander) and other members of Senate leadership.
State GOP Central Committee lobbies against all tax increases
Some legislators oppose tax reform on principle, saying the state’s government is still too big and opaque. They concur with the Wyoming GOP’s lobbying against any new taxes — broadening and lowering or otherwise. Unlike industry lobbyists and the public, however, state GOP officials enjoy access to the Republican closed door caucus meetings at the Legislature.
The party has made opposing new taxes a top priority. It passed another resolution against new taxes at its Jan. 12 meeting, stating that “the current economy can no longer sustain the fiscal irresponsibility of our State Government.”
Sixteen members of the House voted against the lodging tax on final reading Jan. 17. The party’s state central committee gave the bill a thumbs down, as well. It passed regardless and now heads to the Senate.
Thus far, significant revenue raisers such as the sales tax revision bill and House Bill 68 School funding revenue, a property tax increase with the potential to raise significant money for public schools, have yet to be heard. Some of those debates could begin this week.
Harshman is shepherding the tax bills carefully. Though the new House Revenue Committee appears friendly towards revenue bills, some tax legislation is being sent to other committees. The House Appropriations Committee will hear the sales tax bill this week instead of the House Revenue Committee despite the measure being developed by the Joint Revenue Committee before the session.
The House Appropriations committee is headed by a Harshman ally, Rep. Bob Nicholas (R-Cheyenne), and populated by experienced lawmakers. They will likely face a stream of opposition from lobbyists on Tuesday night seeking to keep their industries’ exemptions intact.
“It’s just spreading the workload a little bit and spreading the expertise,” Harshman said Friday afternoon when asked if there was a strategy behind his committee choices.
Harshman has not yet assigned to any committee either the property tax bill or a bill to tie Wyoming’s fuel tax to inflation costs. The latter would generate more money for the Wyoming Department of Transportation.
House Revenue Committee Chairman Dan Zwonitzer expects to receive the property tax bill soon. Spreading tax bills to other committees creates more time for taking public testimony, Zwonitzer said.
“I have a plethora of bills presenting different options coming to my committee,” Zwonitzer (R-Cheyenne) said. “I’m thankful Speaker Harshman is sending some tax bills to other committees.”
At least one more revenue bill — possibly a tax on large corporate businesses — is in the works but not yet public. The potential sponsor was mum Friday about what could be in the bill. Bebout told WyoFile that Rep. Jerry Obermueller (R-Casper) will sponsor a measure to capture revenue from large corporations that do business in Wyoming, similar to an idea Bebout has floated during interviews in the past for taxing big-box stores like Walmart.
The bill will have broad leadership support, Bebout said.
Obermueller declined to specify what was in the bill, which he said could become public this week. “It’s not ready for prime time,” he said Friday, falling back to an old legislative cliche.
Also on Friday, Harshman suggested more tax bills could be in the works. “I hear there’s a few percolating out there,” he said.
Lodging tax a first, easy step
When the statewide lodging tax passed its final vote on the House floor 44-16, House leaders sent a release within minutes to mark the occasion.
Republicans in the House were “delivering on one of the Majority’s promises to modernize the tax structure,” the Jan. 17 release said, “without increasing taxes on Wyoming families.”
A press release trumpeting a tax increase — even a tax directed largely at out-of-state residents — is a rare communique from Wyoming’s conservative legislature, but House leadership is continuing to make its case for new revenue streams.
The legislation, House Bill 66 Lodging tax, earmarks three-fifths of the revenue it generates to the Wyoming Office of Tourism, which promotes travel to the state. That provision made it both popular with the tourism industry and with budgeters who want to see the agency’s costs removed from the state’s general fund. The remaining revenue will be distributed to local governments for promotion of tourism.
The Legislative Service Office estimates the revenue raised from the bill will come to $19.5 million a year for the Wyoming Tourism Account. That will free up an equivalent amount in the General Fund for lawmakers to use elsewhere.
Property tax would return state to 1990s levels
The property tax increase would add three mills to industrial and residential property taxes each year from 2020 to 2022 for a total of nine additional mills in 2022.
A mill is the amount of tax levied on each thousand dollars of a property’s value. So a nine-mill increase on a $200,000 home would equate to $1,800 in new tax payments each year. But homes in Wyoming are assessed at just 9.5 percent of their market value, as determined by the local county assessor. So the owner of the $200,000 home would be assessed on a valuation of $19,000. At that rate, the nine-mill increase equates to an extra $171 in tax payments a year in 2022.
The tax increase would raise an estimated $33.5 million in 2021, around $68.5 million in 2022 and $104.7 million by 2023, according to LSO estimates. All the new revenue would go to K-12 school funding.
The bill is a return to property tax levels that were last seen in the 1990s, before a series of lawsuits filed by school districts against the state. The litigation led to the removal of local government authority to assess optional property tax mills for schools. When the Wyoming Supreme Court decided all schools had to be funded equally the local option taxes were eliminated, according to news articles from 1998.
Sales tax will hit food purchases
If past efforts to remove sales tax exemptions on many Wyoming industries are any indicator, the House Appropriations Committee will face a packed house when it hears the sales tax revision bill Tuesday evening. The bill would remove exemptions for a wide swath of services, from corporate accounting services to the purchase of equipment for data processing centers.
It would also remove a sales tax exemption from food purchased at grocery stores, which advocates for Wyoming’s poor pushed through the Legislature in 2006. Taxes on food purchases are largely regressive — they impact people with low incomes hardest, since the poor spend a higher percentage of their income on food. The exemption, however, took a chunk out of budgets for Wyoming’s towns and cities, which proponents for local governments say was never replaced.
The LSO’s current fiscal estimate — beginning at $33.1 million in 2020 and increasing incrementally as the years go by — only includes consideration of the removal of sales tax exemptions on food, manufacturing machinery and the purchase or rental of equipment for data processing.
Under former House Revenue Committee Chairman Mike Madden, now retired, the Revenue Committee tried to tackle sales tax exemptions several times during the interim. Madden argued they do not accomplish their goal of enticing economic development while causing Wyoming to miss out on millions in revenue.
Each time the committee met to consider the exemption list, lobbyists from the various industries who would have to pay more taxes attended to make their industry’s case for keeping the exemption. Their arguments usually carried the day.
Thus far in the 2019 Wyoming Legislature, it’s unclear if any organization will lobby against the removal of the sales tax exemption on groceries.
Severance tax cuts
Amidst all the tax-raising talk, some lawmakers want to lower taxes on the energy industry. There are two bills proposing to lower the state severance tax on coal and provide a tax holiday for uranium miners. In both cases bill sponsors say the efforts would lift up struggling industries.
House Bill 139 Uranium taxation rates is sponsored by Rep. Don Burkhart (R-Rawlins) in the House and Sen. Eli Bebout (R-Riverton) in the Senate. It would exempt the uranium industry from severance taxes until 2034. The bill would impose a “conditional severance tax” if the market price per pound of non-enriched uranium exceeds a certain level.
Last year, lawmakers killed an effort by Bebout and others to create a severance tax break for oil production, which Bebout argued market forces demanded to keep Wyoming’s oil industry competitive.
Proponents of the uranium tax holiday are expected to make similar arguments when that bill comes up this week.
Lawmakers have also killed prior efforts by Rep. Tim Hallinan (R-Gillette) to lower the severance tax on coal, which he is again proposing this session with House Bill 167 Severance tax on coal. The bill would lower the severance tax rate for surface coal by a half percent and cost the state around $13.5 million a year, according to the LSO. Hallinan has sponsored the bill in the last two legislative sessions without success.
If lawmakers have demonstrated in the last two years that they’re reluctant to lower severance taxes on any particular branch of the mineral industry, they’ve also been reluctant to increase taxes on newer forms of energy production.
The one major energy industry that doesn’t extract minerals from beneath Wyoming earth and thus face a severance tax is wind farms. Today, wind energy in Wyoming is taxed at a dollar per megawatt. The wind energy industry will face another attempt to raise that amount this year, and unlike with past efforts, there appears to be more appetite from lawmakers and leadership to debate the subject.
House Bill 96 Wind energy production tax, sponsored by Rep. Scott Clem (R-Gillette) in the House and Sen. Cale Case (R-Lander), would add another four dollars per megawatt-hour to the tax. LSO estimates the increase would add $8.1 million to the General Fund in 2020, and around $17.2 million a year beginning in 2021. The estimate projects the amount of wind energy production predicted through 2022.
Cigarettes, chew, and booze
“Sin taxes” may again have their day on the Wyoming House floor, with House Revenue Chairman Zwonitzer sponsoring bills to increase the tax on tobacco and drop the tax paid by out-of-state wine shippers.
House Bill 218 Tobacco tax would increase the price of a pack of cigarettes by $1, raising the tax per pack from $0.60 to $1.60. It would also raise the tax on snuff and cigars. All told, the higher tobacco tax would add $31.8 million a year to the General Fund and raise $4 million a year for local governments.
Zwonitzer’s second bill, HB186 Out-of-state shipments of manufactured wine-tax, would lower the tax on wine by four cents a shipment. The LSO say it has not had time to estimate the fiscal impact of the bill.
Bills to raise the tobacco tax and taxes on alcohol have engendered lengthy, and often lively, debate. Last year, an attempt by House Minority Floor Leader Cathy Connolly (D-Laramie) to amend a tax on liquor into the budget bill late one night on the House floor led to a memorable rejoinder by then-Rep. Bo Biteman, an anti-tax lawmaker who is now in the Senate.
“I guess it’s fitting we’re ending with booze since we’ve been spending like drunken sailors all day long,” Biteman said. The amendment failed.
This story was emended Jan. 22 to include details about HB220. It was corrected to reflect the assessment of taxes on wind power generation on a per megawatt-hour basis. — Ed.