Joint Revenue Committee Report, Part 2
By: Pete Obermueller, Executive Director
The bulk of the Revenue Committee meeting in Saratoga was devoted to Wyoming’s current tax structure and a couple of different tax related proposals of interest to counties. To start off the discussion, LSO offered the presentation linked here regarding Wyoming’s tax structure compared to some surrounding and similar states. It’s interesting data for you to look at at your leisure. There is one error on the slides that indicates South Dakota has no corporate income tax, but it does have a targeted one, which means Wyoming is the only state left standing without a corporate tax of any kind.
In a bit of a strange twist, the Joint Revenue committee took a break from discussing the revenue situation to hear from several industry representatives on an economic development tool they would like to see implemented in Wyoming. Commonly known as tax abatements, the idea is to allow local governments (counties, cities, towns, school districts etc.) the ability to enter into a negotiated contract with a private firm to abate property taxes for a pre-determined, possibly legislatively mandated, period of time. The goal of the abatement is to help entice a major project into a county that would otherwise not be built. The county gets the benefits of sales tax, jobs created, and whatever other revenue agreed to in the contract until it expires when the full mill levies kick in. I’ve linked here the short white-paper presented to the committee.
Tax abatements are very different from sales tax exemptions. First, sales tax exemptions happen at the state level, counties have no say other than to lobby for their removal or addition. Local abatements, on the other hand, are contracts negotiated between the Commissioners and a developer to establish how much will be abated; how to take care of roads, emergency services, etc. In other words, the abatement is agreed to by both parties and is limited only by the creativity between parties. Tax exemptions, at least in Wyoming, appear to be very permanent, whereas tax abatements in other states are statutorily limited to a number of years.
Sen. Wasserburger: How have other state’s local jurisdictions used tax abatements? What is the typical length of time?
Answer: It is a commonly used tool in other states. Mississippi has a voluntary abatement for enhanced oil recovery projects. Texas uses it for recycling plants. The time frame is never more than 10 years, some are 5 years. Essentially they are whatever the two parties decide and is allowed by law.
Rep. Connolly: I am concerned that local governments would use abatements and then come to the state asking us to backfill the loss of revenue.
Answer: We heard this morning about the pressures faced at local governments. What we are trying to offer is a means to grow the economy rather than just talk about tax increases or budget cuts. This is a new tool that local governments in Wyoming do not have.
Sen. Peterson: What about the schools? They are the lion’s share of the mills in the counties and I can’t imagine they would be okay with the county abating their property taxes.
Answer: Some states exempt the schools, others allow the schools to negotiate with some limits. Wyoming could certainly create some limitations, particularly on the constitutional mills that could not be abated. Still, it’s important to know that we’re not talking about abating taxes currently paid, so it’s no loss to anyone. Locals were getting zero and they still are, plus whatever they’ve negotiated so it’s a net benefit.
After this discussion there was some further testimony from various stakeholders. Park County Assessor Pat Meyer testified that the idea should be moved forward for further discussion. Carbon County Commissioner Leo Chapman testified that he was concerned the abatement might mean county roads would not be adequately taken care of. Sweetwater County Commissioner Doc Wendling testified that he would like to see an economic development tool in the hands of counties.
On Friday the discussion was dominated by the topic of an entirely new tax in Wyoming called the Gross Receipts Tax (GRT). Linked here is a primer on the GRT, but essentially it is a tax paid by the seller not the consumer. As a product is sold along the supply line, a low rate tax is imposed at each step. Five states currently have a GRT, and all of them have some nexus test to assess the tax on companies with a nexus to the state. Three other states have repealed their GRT. Estimates for Wyoming indicate that at a .26% rate a GRT could generated between $90 and $100 million annually.
Rep. Obermueller: Is a GRT considered an income tax for purposes of our Constitution?
Answer: That depends upon its construction. If it looks more like a sales tax it is probably okay.
Rep. Connolly to LSO legal staff: Is it your legal opinion that the GRT violates the US Constitution’s Commerce Clause?
Answer: Again it depends upon its construction. If it were designed to capture only revenue from out-of-state businesses then a legal challenge is likely and would probably succeed.
Rep. Connolly: Would the Department of Revenue need to hire additional people or create a new division to administer a GRT?
Answer (Dept. of Revenue): It depends upon the complexity. A GRT would dramatically increase the number of vendors that pay taxes in the state, and we may need to hire additional temporary workers just to handle that increased load. However, if the law created a lot of exemptions and deductions, or if we needed to do significant audits it would require more staff.
Sen. Case: Can we consider a GRT that would broadly apply, but would only be imposed on businesses that are not already paying some other tax to any level of government, or ensure it only applies to vendors at a certain threshold? Would that reduce the level of burden on the Department?
Answer: It could be set up that way. Other states have done it that way. The manpower issue is really a question of audits and enforcement.
There was a great deal of testimony following the initial presentation. As you might expect on any tax increase proposal, all testimony was opposed to a GRT. In general this testimony argued that a GRT is too complex and it would hamper business growth and development in Wyoming. Many simply argued that before we impose a new tax, we should cut spending. In the end the committee voted – on a split voice vote – to direct LSO to put together a matrix of possible scenarios Wyoming might follow in drafting a GRT bill. The committee will take up that matrix and decide to craft legislation or not at their fall meeting.
Finally, co-chairman Peterson announced that they will likely take up several bills that increase nearly every form of tax we have in Wyoming – property, sales, cigarette, beer, etc. – and vote on them one by one. He reminded everyone that they have been charged with presenting options to raise significant revenue. They are the Revenue Committee, not the expenditure committee. Rep. Obermueller reminded the committee that at the close of FY16 Wyoming had a total accessible savings (in four separate accounts, not just the rainy day fund) of approximately $2.8 billion. At the end of FY17 that number will have shrunk to about $1.8 billion. The state has spent about $1 billion of its savings and will deplete it entirely very soon at that rate.
On that happy note, the committee adjourned.