Revenue Committee eyes tax exemptions

Better reporting needed on sales tax incentives

The Wyoming Legislature's Joint Revenue Interim Committee met last week in Buffalo. The agenda included wind taxation, taxation of ag lands, and possible adjustments to the formula used to calculate severance taxes owed by coal producers.

But a discussion at the end of the meeting went to the heart of an issue close to the heart of the ESPC: the use of tax exemptions (or tax expenditures) to provide incentives to spur economic development. We’ve argued for years the no one knows if they work and the Legislature tends to ignore evidence that they don’t work.

It’s also worth noting that with no corporate or personal income tax and low property taxes, Wyoming already presents a favorable tax environment for businesses looking for new sites. Businesses should pay their way when they move here and rely upon basic local services such as water, sewer, streets, and public safety.

At the end of Friday’s meeting of the Revenue Committee, Senate Chairman John Hines reminded the committee that its Priority #1 for the interim is "consideration of overall tax policies and tax initiatives which impact state economic development."

Put another way, the committee was directed to analyze tax breaks intended to spur the economy and create jobs. In Wyoming, this generally means giving an industry a sales tax exemption. For example, the sales tax exemption on purchases of manufacturing equipment is intended to encourage more manufacturing in Wyoming. No one knows if it works, but the exemption was extended again last session. The legislature already receives three reports on different exemptions each year, but according to Sen. Cale Case, the reports requested don't give the information needed.

"They're not useful to answer the question," he told the committee.

The reports, he said, don't demonstrate whether the tax exemption influences behavior to a degree that would not occur without the exemption.

Erin Taylor of the Wyoming Taxpayers Association told the committee that her organization has been part of a group, including Dan Noble, director of the Excise Tax Division in the Department of Revenue, and Buck McVeigh, the administrator of the Economic Analysis Division of the Department of Administration and Information, that has met to discuss the needed analysis of the data that has been collected. "Are we getting the bang for our buck?" she asked.

She noted the Wyoming Business Council (WBC) has $125,000 to conduct an analysis. But Case warned about "the fox in the henhouse thing," indicating the WBC has a conflict of interest.

The WBC long has advocated for various exemptions because they consider them necessary tools or “incentives” to attract companies to Wyoming.

Sen. Drew Perkins suggested the state should hire a respected national consultant to do the evaluation.

Dan Noble, head of the Department of Revenue’s Excise Tax Division, said he will contact other states to see what they have done to evaluate similar policies. He said that a recent report he has read notes that "sales tax holidays" (offered by some states prior to the opening of public schools or other reasons) are popular, but no one knows if they work.

He said that in internal consultations the department decided to answer two basic questions about tax exemptions:

1. What does the exemption cost the state (and local governments, which share in revenues)?
2. What do we get for it?
   

Chairman Hines asked Noble and Taylor to present a report at the committee's October meeting or as soon as possible otherwise.

Case jumped in to say, "This is a really important area. The Legislature has not done a good job of providing leadership on this."

The Joint Revenue Interim Committee has a budget of $35,000 for its work prior to February's budget session. Noble said the working group will determine the next steps and tell the committee if it needs more resources to do the work.