By David Peck
Tasked with coming up with new sources of revenue to fund state government in a time of declining revenue from the oil, gas and mineral industries, the Wyoming Legislature’s Joint Revenue Committee has found tough sledding as it works bills that would produce more income for the state.
Sen. Ray Peterson, R-Cowley, chairman of the Senate Revenue Committee, said the Legislature’s Management Council, led by Senate President Eli Bebout, R-Riverton, and Speaker of the House Steve Harshman, R-Casper, directed the Joint Revenue Committee to come up with options for $100, $200 and $300 million in additional revenue during the interim, depending on where the state’s revenue stream ends up as the budget session of the legislature nears.
“That could be done in two ways, through diversions or through additional taxes, so that was our mandate, and that is what we went to work on,” Peterson said in a recent interview.
The management council gave the committee two extra meeting dates during the interim, Peterson said, and the committee has met for 10 days already, with one more two-day meeting scheduled for late January.
“At the last meeting we voted on some of the bills we’ve been discussing and gathering information on throughout the interim,” he said. “We decided as a committee to make it a step-by-step process, and our first thought was to improve our system of sales tax collections, diversions, efficiencies, those type of things, that are presently in our statutes, things that we’re doing right now. We’re working on that still. Then we looked at, finally, additional taxes.”
Sales tax collection
As a small businessman and an advocate of broadening the tax base, Peterson is hoping that a bill passed during the 2017 legislative session to collect sales tax on Internet sales will survive legal challenges and prove to be a strong source of revenue for the state.
He said the Wyoming bill was based on a South Dakota bill that has been challenged in federal court in its state of origin and is working its way to the Supreme Court.
“That was the goal all along, to get it back to the Supreme Court,” Peterson said. “About 20 years ago the Supreme Court had the Quill decision and ruled in favor of Quill, saying sales tax would be really cumbersome to collect in all of the taxing districts in the states for mail order office supplies.
“We thought it was time to revisit that with the increase in Internet sales, and Wyoming copied a bill that was passed in the South Dakota legislature the year before. So we tagged onto that. In the meantime, just before we got out of the session, Amazon volunteered to pay that sales tax.”
Asked if Amazon’s decision helps the state’s case, Peterson said it should.
“I think so,” he said. “With computers and databases and programs and applications they can certainly handle any type of a tax structure that states have. We’ve been trying to unify our sales tax with surrounding states as far as what to tax. We’ve gotten it to where it’s easy to understand, and I think there’s probably 23 or 24 states that have already signed up for the Streamline Sales Tax effort.”
Peterson said Dan Noble, director of the Wyoming Dept. of Revenue, estimated initially that the online sales tax would generate some $20 million to $30 million in additional revenue, but based on the voluntary payments so far, he later said it would be even more.
“We want to make sure our sales tax is being assessed fairly and evenly and equally across the board,” the senator said. “So we looked at exemptions, and we looked at taxing services.”
One of the first bills the Joint Revenue Committee considered, Peterson said, dealt with taxing services like attorneys, surveyors, engineers, hairdressers, barbers, cable television and more.
“It’s still in the discussion stages, and we actually had a bill,” he said. “We received a lot of testimony in our meeting two weeks ago in Cheyenne from attorneys, surveyors and engineers saying it would just be a terrible thing. They have the same concerns that we do as a retail industry that have been paying the 4 percent sales tax, saying they’ll have to pass it on to their customers. We know that. That’s what we do (in retail).”
He said he has received “a boat load” of emails from a variety of service industries saying a sales tax on services would be “a terrible idea.”
“Here’s my overall view of sales tax,” Peterson said. “In Wyoming it’s a sick tax right now in the fact that our revenue streams have continually been on the downturn with sales tax; we’ve been generating less and less. That’s due to a number of things: the downturn in our minerals but more importantly the online sales that are happening.”
Another bill the revenue committee has discussed relating to sales tax would increase the sales tax from 4 percent to 4½ percent.
“My concern with that is that we’re going right back to the same companies that are paying 4 percent right now,” the senator said. “We’re exempting some, so we’re picking winners and losers as a state government – who we tax and who we don’t tax. I question the fairness of that. I throw out the challenge flag in saying before we increase the sales tax, we need to take a really hard look at who we’re exempting and who we’re not. And should those people who have been exempted start paying their taxes.”
He said he doubts whether a sales tax on services would pass this session, but it will be on the revenue committee’s radar during the next interim and address some of the concerns the service providers have.
“There are so many exemptions on the books,” he said. “I don’t think it’s fair that we go right back to the same people paying the 4 percent now and say we’re going to raise you another half percent.”
Other revenue sources
Turning to revenue generation, Peterson said the committee has discussed increasing the ability of local government to enact optional sales taxes, but a bill to do so “wasn’t ready for prime time” and was not approved by the committee. He said Sen. Cale Case, R-Lander, has pointed out that local governments are depending more and more on state funding for their operations rather than locally generated revenue.
“More and more revenue, more and more financial help for local governments and school districts is coming from the state rather than being generated within that county,” Peterson said. “More and more help is coming from the state level through SLIB, through the business council, through direct distribution, you name it, and we’re becoming more and more dependent on the state’s revenue. He (Case) was concerned about that. So this was an effort to try to give some of that ability or authority back to the locals to help themselves. But that bill wasn’t quite ready and went by the wayside.”
Also discussed was a 1 percent statewide leisure and hospitality tax, similar to a lodging tax, in order to generate revenue from visitors to the state to help with the budget shortfall. He said the bill has the support of the hospitality industry, and Bebout has suggested a statewide tax on lodging only, so that local people eating at a restaurant wouldn’t be affected. One idea is to give all of the revenue to the Dept. of Tourism and get that agency off the general fund, he said. He said the tax would generate an estimated $26-30 million to support tourism efforts in Wyoming.
The committee “held over” three bills until the January committee meeting, Peterson said, to “see what kind of a (revenue) hole we’re dealing with” once the CREG report on oil and mineral revenue is released: the half cent increase in the sales tax, the sales tax on services and a bill increasing property tax.
A broader tax base
There are actually two property tax bills, Peterson explained. One would increase the property tax assessment rate on all property except minerals by 2 percent, which Peterson said would begin to meet one of his goals: to move Wyoming away from being so dependent on the mineral industry for its revenue and place more of the responsibility on citizens. He pointed out that minerals are currently taxed at a higher rate than personal property, commercial property or agricultural property.
“I’ve always said we’ve got a problem in Wyoming with our tax structure in that up to 70 percent of our revenue is derived from minerals and only 30 percent from the rest of the population through sales tax or property tax,” he said. “This addresses somewhat my concern of trying to level up that playing field a little bit as far as valuation of property and what they’re taxed on. That’s why minerals were excluded in that.
“I think it’s a step in the right direction. It’s going to need more participation by our citizens. If that bill were to pass out of committee and go before the legislature, that’s going to be a big one. That’s going to generate quite a bit of money for the state.”
Peterson pointed out that the legislature has an investment portfolio of more than $19 billion in various funds and rainy day accounts that generate interest revenue to decrease the demand on citizens before increasing property or sales taxes.
“I don’t know what else the state of Wyoming can do,” he said, “besides going back to the people and saying, you know, our boom and bust cycle is a direct result of our 70 percent dependency on minerals. The frustration as a legislator is you try to budget two years in advance based on estimates on commodities that are market driven. It’s crazy. We’ve gotten pretty good at it, but I think I’d be just about as lucky by putting on a blindfold and throwing a dart at a wall and saying that’s our budget.”
That guessing game leads to the kind of budgeting problems the state has faced over the last two years, Peterson said, and interest from the investment portfolio helps to “level out the glide path” of the boom and bust cycle.
The second property tax bill the revenue committee is considering would be similar to the other bill but increase the property tax in two stages, 1 percent the first year and 1 percent in the second year. Both bills carry a sunset date of Jan. 1, 2024.
Revenue from the two property tax bills would be directed to schools and local government.
Another revenue idea is to eliminate the $8 million cap on transfers to the school capital construction account from mineral royalties, generating $42 million for capital construction. The committee passed that bill, Peterson said.
As for school operations, Peterson said the estimated funding shortfall for schools was $400-$500 million when the session ended in March but is now estimated to be in the $200-$250 million range.
“A couple of these bills, like property tax and sales tax, if they were to pass, we should be OK,” he said, “but those are going to be tough to pass in the House and even more tough in the Senate. The Senate has taken the position that they don’t want any new taxes, period, which put our committee in a tough spot.
“We’re going to fulfill that assignment. We’re going to bring something to the floor, whether it be a committee bill or Mike Madden’s (R-Buffalo, House Revenue Committee chair) and my bill. We’re going to have some options to talk about. I’ve made that loud and clear in every meeting. Our pep talk at the beginning of every meeting is that this is a crappy assignment, but the way the process works is we are the revenue committee and that’s our job, to review everything, from collections to exemptions, anything that generates revenue for the state…Every report that I’ve seen shows that Wyoming is in the bottom 10 of the 50 states in tax burden (to citizens).”
The revenue committee did pass a bill to increase the maximum state profit on sales of liquor and wine from 17.6 percent to 20.6 percent, but a one-cent increase in the tax on each bottle of beer, wine or liquor was killed because of confusion about how the tax would be assessed. Also passed was an increase of $1 per pack in the cigarette tax and an equivalent amount on other tobacco products, but that bill is contingent upon an agreement being reached with the Shoshone and Arapaho Tribes, who control their own cigarette tax rates. The tobacco tax would generate an estimated $30 million per year.
A bill to increase the tax on malt beverages was defeated, he said, adding, “I don’t get it” due to the cost of alcohol abuse in the state. He said the beer tax in Wyoming hasn’t been increased since 1935.
Street and road fund
In an effort to assist local government with infrastructure needs, Peterson said he’s sponsoring a bill to set aside $100 million from the permanent mineral trust fund in each of the next seven years and put it toward a road and street fund. He said 50 percent of the fund would be for small towns, 25 percent for larger towns (5,000 and up) and 25 percent for counties, loaned at a rate of 2½ percent.
He said larger towns have the ability to generate their own funds through sales taxes, but small towns are handicapped because they don’t generate much sales tax.
Under the system, the fund would grow and the money could be loaned out to municipalities and counties and returned in the form of a revolving fund. Eventually, the seed money would be returned to the state as the fund grows and the loans are paid back. He said the program would mean the state would be investing in Wyoming communities.
“It’s a win-win,” Peterson said, noting that the initial investment would small compared to the state’s $19 billion investment portfolio but huge for Wyoming towns.