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.

Child care and the state

Wyoming people want basic regulation of child care

State oversight of home child care providers protects children, more than a dozen child care providers and the people who need their services told the House Labor Health and Social Services Committee hearing Wednesday evening.

The witnesses, including child care providers from Cheyenne, Douglas, and Powell, opposed a proposed bill that would have exempted some home child care providers from state certification.

The legislation, House Bill 239 – Child caring facilities-certification, exempted home child care operations from state certification requirements if they do not accept any state subsidies for providing the care. Sponsor Rep. Lorraine Quarberg (R-HD28, Thermpolis) said she introduced the measure after a Big Horn basin family violated state law that says home care providers can not care for more than two unrelated children unless their business is certified by the state.

Quarberg said there are trustworthy people who can provide such care without certification by the state.

But advocates of child care regulation said the state certification and licensing processes assure parents that at least minimal safety rules would be met. Opponents argued that providers who choose to operate unlicensed would not have central registry background checks or criminal history background checks.

Those background checks are performed by the state Department of Family Services. Several witnesses at the hearing noted that most parents do not have access to the tools needed to check the background of a potential care giver for their children. Mike McGrady, a Cheyenne attorney, said he had access to investigatory tools as he considered child care providers. “But I didn’t know what questions to ask,” he said. Home care providers are “still a business,” he said, and it makes sense to require them to meet basic standards.

Committee member Rep. Frank Peasley (R-HD3, Douglas) asked several opponents if there is any statistical proof that regulation has reduced problems surrounding child care.

“Did abuse go down?” he asked. It seems, he said, that “the more we regulate, the more problems we have.”

He noted his wife put him through school by “baby sitting” and she did so before the state licensed care.

When Cheyenne police detective Joe Hickerson said background checks would keep people clearly unsuited because of a record of violence against children out of the child care business, Rep. Peasley asked him, “Do you want the state more involved in parenting?”

“Common sense would tell you,” Hickerson replied, that basic background checks will protect children.

“If people have a loophole to go through,” Hickerson told Peasley, “… they will take advantage of that.”

Other providers noted the ease of going through the full licensing process in Wyoming. Licensing, one noted, is a breeze compared to the challenges and difficulties of caring for children.

In her closing comments, HB 239 sponsor Quarberg said she was pleased to hear that licensing is not difficult for people who want to operate a child care business. She said people should be more trusting of neighbors who want to offer care to children.

“We can do background checks, but we can’t check for violent tendencies,” she said. Once regulations are adopted, she said, “It is difficult to go backwards. It’s difficult to say we’re not all monsters.”

The committee voted to kill the bill 3-6.

Nay votes were cast by Reps. Joe Barbuto (D-HD48, Rock Springs), Rep. Bernadine Craft (D-HD17, Rock Springs), Gerald Gay (R-HD36, Casper), Keith Gingery (R-HD23, Jackson), Matt Greene (R-HD45, Laramie), and Hans Hunt (R-HD2, Newcastle).

Chairman Elaine Harvey (R-HD26, Lovell) joined Reps. David Miller (R-HD55, Riverton) and Peasley in voting YES for the bill.

Taxing the wind power industry

Taxing the wind power industry to assure that the industry pays it way and that counties have the resources needed to deal with the impacts of wind farm industrialization was considered by the House Revenue Committee Wednesday morning and again in the afternoon.

Rep. Tim Stubson (R-HD56, Casper) and Sen. Drew Perkins (R-SD29, Casper) offered a taxing scheme that would permanently exempt wind projects from the sales tax but impose a $3 per mega-watt-hour tax on power generated by wind turbines. As they presented HB 191 – Wind power taxation, the sponsors suggested a major amendment substantially changing the scheme to finance an impact fund as it generates revenues for the state and counties. Their plan , they said, eliminates potential state sales tax revenues now but ultimately generates greater revenues to the state.

That prospect provided little solace for Carbon County Commissioners Terry Weikum and Jerry Paxton. They said the county’s quality of life has been harmed by wind projects there that have been built recently under state laws that exempt those projects from the sales tax. Without the tax, the county does not have the resources needed to deal with damages to roads, demands for more law enforcement, and increased drug problems in rural communities like Medicine Bow, according to Paxton and Weikum.

The commissioners said existing law, which will lift the sales tax exemption on wind farm construction Jan. 1, 2012 and impose a $1 per mwh power generation tax, would provide resources to deal with the expected impacts of projects now on the drawing boards. The projects would be subject to local-option sales taxes. They worry that the Stubson-Perkins proposal may not leave them in as good a position to deal with new wind power construction projects.

The ESPC noted that other energy industries pay property, sales and severance taxes. The wind power industry should pay property, sales and MWH taxes.

The vote:

The committee approved HB191, as amended with regard to distribution of the tax revenues.
Ayes: Chairman Pat Childers (R-H50, Cody); Representatives Greg Blikre (R-H53, Gillette), Patrick Goggles (D-H33, Ethete), Owen Petersen (R-H19, Mountain View), Clarence Vranish (R-H49, Evanston).
Noes: Representatives Rita Campbell (R-H34, Shoshoni), David Miller (R-H55, Riverton), Mark Semlek (R-H1, Moorcroft)
Excused: Rep. Mike Madden (R-H40, Buffalo)

Elsewhere Wednesday

The House Labor Committee also approved a bill that advocates contend will require the Workers’ Compensation Division to use a guide to rating physical impairments that is more fair to injured workers than the guide now used by the division. (House Bill 232 – Workers’ Compensation impairment ratings)

In Committee of the Whole, the House killed HB131 – Tip sharing. Opponents said the bill unfairly required employees to surrender tips to a pool that then could be used by employers to meet the legal requirement to bring other tipped employees up to the federally required minimum wage of $7.25 hour from the tipped minimum wage of $2.13/hr.

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Second week ends on low note

What part of “Equality State” don’t legislators understand?

The Senate Judiciary Committee today approved SJ 5 - Defense of marriage – constitutional amendment. The proposal would amend the Wyoming Constitution as follows: “A marriage between a man and a woman shall be the only legal union that shall be valid or recognized in this state.”

Testimony on the bill, which opened Wednesday and was continued this morning, was similar to that presented just days ago in the House Education Committee on HB 74 - Validity of Marriages.

HB 74 specifically provides that marriages between more than two parties are void (e.g., polygamy). This topic also came up in today’s discussion of SJ 5, when three senators, Bruce Burns (R-SD21, Sheridan), Larry Hicks (R-SD11, Baggs) and Chairman Drew Perkins (R-SD29, Casper) wondered aloud why opponents of the proposed amendment talked only about same-sex marriages and not polygamy.

Linda Burt, executive director and lobbyist for the Wyoming Chapter of the American Civil Liberties Union (an ESPC member group), explained that the proposed amendment violates the U.S. Constitution’s Equal Protection clause. She said the proposed law restricts the right of two people of the same gender to marry; however, state law does not burden the rights of two people entering marriages involving a man and a woman.

The prohibition against polygamy applies to everyone, regardless of whether a plural marriage is composed of men and women, only women, or only men. Since it is applied evenly, the prohibition against polygamy does not violate the Equal Protection clause, Burt said.

The committee adopted an amendment proposed by Sen. Leland Christensen (R-S17, Alta) who said he hoped to give some latitude when it comes to property owned by a gay or lesbian person.

The bill originally said:

"A marriage between a man and a woman shall be the only legal union that shall be valid or recognized in this state."

The Christensen amendment substitutes the following language:

"Only a marriage between a man and a woman is valid or recognized in Wyoming. Any other relationship shall not be valid or recognized as a marriage or the substantial equivalent thereof by the state or any of its political subdivisions."

The ESPC intends to check with several attorneys to see if the language does provide the latitude Sen. Christensen intended. One attorney consulted in the Capitol said he did not see how, since the language explicitly prohibits any political subdivision, which would include the courts, from acknowledging a homosexual couple's relationship as a legal civil union or other legal construct.

Senate Judiciary Committee Chairman Perkins, Sen. Hicks, and Sen. Christensen voted for SJ 5. Sen. Burns and Floyd Esquibel (D-S8, Cheyenne) voted against it.


More Equality next Monday …

The House Minerals, Business and Economic Development Committee will take up HB 94 - Illegal immigration, at 7:30 am. The bill mirrors Arizona’s controversial measure.


Tax exemption, anyone? No data required …

The House Revenue Committee today took up HB 143 - Manufacturing tax exemption. The bill continues a sales and use tax exemption for purchases of manufacturing equipment that was originally enacted in 2004 over opposition from the ESPC.

The exemption was set to sunset at the end of 2010, but was extended for a year by the 2010 Legislature in order to study how the exemption might be changed to better accomplish its original purpose of encouraging the creation of manufacturing jobs.

Although the ESPC was not successful in blocking passage of the exemption in 2004, we successfully advocated for the first annual reporting on the costs of a tax exemption. The 2010 report shows:

• manufacturing jobs as a percent of total Wyoming employment has declined since passage of the exemption;
• the absolute number of jobs ticked up only slightly and then contracted significantly with the recession;
• the benefits offered to full-time employees in the manufacturing sector are comparable to those in other sectors of the Wyoming economy, but the benefits offered to part-time employees are less than in other sectors; and
• the exemption primarily has benefited the state’s refineries, which upgraded equipment and claimed the exemption. In 2010, for example, a refiner claimed $128 million in exempt purchases, and $138 million the previous year.
  

The total lost tax revenue from this exemption is approximately $53 million, or about $10 million a year since it was enacted.

The Wyoming Business Council, Cheyenne LEADS/Wyoming Economic Development Association, and several manufacturers spoke in favor of retaining the tax exemption. None of them provided any concrete data about jobs created or sustained for this $53 million investment.

Proponents repeatedly stated that the tax exemption is needed as a recruiting tool for economic development, although why Wyoming, without personal or corporate income taxes, also needs a manufacturing tax exemption to compete with other states remains a mystery.

In addition to going over the report, the ESPC questioned the fairness of a tax policy that provides a sales and use tax exemption for one sector but not another, especially in the absence of any additional revenues from economic development the exemption was supposed to generate.

Rep. Mike Madden (R-H40, Buffalo) successfully amended the bill to apply only to purchases of equipment to manufacture a new product line or expand capacity. A further amendment by Rep. Dave Miller (R-H55, Riverton) included equipment to “lower emissions.” Pollution control equipment already is exempt from property tax so, if ultimately passed, this provision will mean that pollution control equipment – an ordinary part of doing business in this day and age – will not be taxed at all.

The bill passed the committee on a 6-2 vote. Chairman Pat Childers (R-H50, Cody) and Representatives Greg Blikre (R-H53, Gillette), Rita Campbell (R-H34, Shoshoni), Miller, Owen Petersen (R-H19, Mountain View), and Clarence Vranish (R-H49, Evanston) voted yes. Representatives Madden and Mark Semlek (R-H1, Moorcroft) voted no. Rep. Pat Goggles (D-H33, Ethete) was excused.

Senate Revenue Committee

Sales tax bill targets internet purchases

Fight with Exxon continues; two tax breaks OK'd

By Sarah Gorin

In its last meeting of the 2010 session, the Senate Revenue Committee quickly worked several bills in its small committee room crammed with lobbyists.

The Senators voted 3-2 to approve House Bill 29 Taxation of specified digital products. It imposes a sales tax on such digital products as downloaded movies, songs, ringtones, etc. that become the permanent property of the user.

The bill is intended to put internet vendors on the same plane as a brick-and-mortar seller of the same product. For example, if you buy a DVD at a store in Wyoming, you pay sales tax, but you might not if you buy the same thing over the internet.

The ESPC favors the bill. Failing to tax these products essentially creates a new exemption in Wyoming’s tax statutes. Senators voting for HB 29 were Chairman John Schiffer (R-S22, Kaycee), Grant Larson (R-S17, Jackson), and Drew Perkins (R-S29, Casper).

Cale Case (R-S25, Lander) and Marty Martin (D-S12, Rock Springs) voted no.

ExxonMobil's wilting glare

Next on the agenda was House Bill 78 Natural gas – taxation. It addresses a subject many hoped to hear no more of after the 2008 Legislature finally passed a bill incorporating a new method of valuing producer-processed natural gas. But last November, the Wyoming Supreme Court – in a case brought by ExxonMobil Corporation – ruled that Wyoming’s laws are not clear on a point central to the litigation, which concerned production from ExxonMobil’s LaBarge-Shute Creek operation, and that ambiguity must be resolved in favor of the taxpayer.

As a result, the amount ExxonMobil owed in severance taxes was reduced.

House Bill 78 was an attempt to clarify the law, but it went down amidst heavy lobbying from ExxonMobil lawyers and some doubt as to whether it was better to go ahead with a bill or to wait while ExxonMobil and the Wyoming Department of Revenue negotiate.

The ESPC favored the bill on the grounds that having legislation would put more weight on the negotiations. The topic likely will be included in interim study for the Joint Interim Revenue Committee (between the end of the current session and the opening of the 2011 Legislature).

Chairman John Schiffer and Sen. Cale Case voted for HB 78.

Sens. Grant Larson, Marty Martin, and Drew Perkins voted no.

Tempting tax breaks

The committee took up two bills proposing tax exemptions. House Bill 44 Taxation of property used for economic development, proposes a property tax exemption for “property used for economic development” – that is, land owned by a community economic development organization,

House Bill 67 Data processing center - sales/use tax exemption, will exempt purchases of computers and other equipment needed for large data-processing centers. Legislators have been told that a one such center is poised to locate in Cheyenne. Advocates for the bill say the sales tax break is essential to bring it to Wyoming.

It seems rather odd that despite the state’s dismal revenue picture, the majority of legislators seem unable to quit proposing and enacting tax exemptions. Some believe that the exemptions will attract businesses that will generate other tax revenues. But Wyoming already offers an advantage: it does not have corporate or personal income taxes – unlike most of the states it is “competing” with.

The ESPC believes it is highly unlikely that state and local governments will end up with more money as a result of a sales tax exemption.

The ESPC also is concerned about the state’s current inability to quantify most of its tax exemptions and exclusions so that lawmakers and the public can evaluate whether their cost is worth it. Consequently, the ESPC advocates for the addition of reporting requirements to each tax exemption bill.

The Senate Revenue Committee unanimously adopted an ESPC-offered reporting amendment to HB 44, It then passed the bill.

Chairman John Schiffer and Senators Grant Larson and Marty Martin voted for the measure.

Senators Cale Case and Drew Perkins voted no.

Senator Larson noted that he would bring a floor amendment to tighten the definition of a qualifying community economic development organization.

A Wyoming "clawback"

House Bill 67, the data processing center exemption, already had a reporting requirement. It also includes an initial attempt at a “clawback” provision – that is, the company claiming the tax exemption must show that it has not only purchased a certain amount of equipment, but also that it is generating (or will generate) an appropriate number of jobs for the size and stage of the development of the center.

If it cannot show appropriate job creation, the exemption recipient will be liable for the tax.

While this clawback probably could be constructed more strongly, the ESPC commends this line of thinking, which represents a first in Wyoming tax policies.

Chairman John Schiffer and Senators Grant Larson, Marty Martin, and Drew Perkins voted for HB 67. Senator Cale Case voted no. Again, Senator Larson indicated he would bring a floor amendment, this time defining “qualifying equipment.”

Sarah Gorin conducts policy research and lobbies the Wyoming Legislature for the ESPC.

Workers' compensation reform

Senate passes Workers Comp bill

Rejects unfriendly amendments, then passes bill unanimously, 30-0

Acknowledging that Wyoming’s injured workers deserve better treatment, the Wyoming Senate Monday passed a bill improving death benefits to surviving family members and extending and increasing temporary total and permanent total disability benefits.

The Senate passed the bill unanimously, 30-0. The House similarly approved the bill on a unanimous 60-0 vote.

Injured workers, the AFL-CIO, the Wyoming Trial Lawyers Association, the ESPC worked for nearly 18 months to bring the need to improve the care extended to people hurt on the job to the public’s attention. (That's a photo of Les Vasey of the Laborers' local and AFL-CIO Executive Secretary Kim Floyd, above.)

The advocates’ mantra was short:

“No one should go broke because they went to work one day and got hurt.”

The Joint Labor, Health and Social Services Committee took the question up during last year’s interim between legislative sessions. The committee conducted several hearings, then hammered out legislation that will make things better for people aimed at changing the state’s treatment of injured worker

In Monday’s action, the senate rejected two deleterious amendments; one proposed by Sen. Charles Scott and a second proposed by Sen. Drew Perkins. Both senators represent districts that include parts of Casper.

Scott proposed an amendment that would have rejected part of the bill that requires the Workers’ Compensation division to pay its fair share of litigation costs when it claims up to 33% of the settlements won in successful third-party lawsuits filed by injured workers.

The Perkins amendment would have reduced the age limit under which children of workers killed at work are eligible for survivor benefits.

Neither amendment garnered much support. Each was defeated on a voice vote. (Once again, here is the need for taking roll call votes on amendments. In the official record, there’s no telling who supported and who opposed the suggested changes.)

In its consideration of the House bill, the Senate added several amendments:

1. Allows injured workers seeking vocation rehabilitation to attend a private technical school as well as a community college or UW.
2. Allows workers’ comp coverage of single proprietorships with just one employee.
3. Changes the appropriation to set aside $100,000 for a single new position in the Office of Adminstrative Hearings* rather than $200,000 for two positions. Appropriates $50,000 for a study of OAH procedures aimed at making it technologically current. The amendment also requires the Worker’s Comp division and DOT to split those costs 55% - 45%.

The bill has been referred to the House for concurrence. It still could get hung up there, however, the ESPC and its allies believe none of the differences truly endanger ultimate passage of the bill.

House Bill 54 Workers’ compensation amendments will:

• Increase dependent children’s, death and permanent impairment benefits;
• Provide a minimum and extend the duration of temporary total disability benefit;
• Provide an annual cost of living adjustment to permanent total disability benefits;
• Extend the maximum duration of vocational rehabilitation benefits;
• Extend the period over which death benefits are paid;
• Limit the time for the Workers’ Compensation Division to recover overpayments;
• Revise the criteria for, and distribution of, employer premium credits;
• Authorize companies with as few as two employees to obtain coverage under the system;
• Require the state to pay a fair share of the costs of litigation when covered workers recover damages from third parties;
• Require the division to reconsider claims if an injured worker’s failure to meet a procedural deadline is the fault of the worker’s attorney;
• Authorize and appropriate $100,000 for one additional position in the Office of Administrative Hearings and $50,000 for the cost of investigating the acquisition of a case management system capable of accepting and receiving electronic filings and which includes a time management system.
  

Monday March 2 was a good day for Wyoming's workers and their families. Please send thanks to your legislators, especially those on the House and Senate Labor committees, for their efforts on the behalf of injured workers. The bill did not deliver all the reforms needed in the system. The ESPC still believes the division needs more case workers and needs to treat workers and employers fairly and equitably.

Also, here's a thanks to all the journalists who wrote about this issue, but a special thank-you to Dustin Bleizeffer of the Casper Star-Tribune. Reporter Bleizeffer demonstrated great devotion to workers and the state that needs them by writing many stories about the system and its flaws.

Campaign contributions reined in …

The House Monday amended Senate File 12, the proposed bill to increase the limit on campaign contributions from individuals from $1,000 per election (the primary and general count as separate elections) to $2,400 per election, the same as the federal individual contribution limit.

The amendment applied the increased limit only to statewide races (governor, secretary of state, auditor, treasurer, and state superintendent of public instruction), not to legislative or local races.

The amendment, sponsored by Rep. Mary Throne (Democrat from Cheyenne) and co-sponsored by Rep. Amy Edmonds (Republican from Cheyenne), focused the argument that campaign contribution limits should bear some relationship to the cost of races.

Contributions at the $2400 level are not necessary for legislative and local races, they argued, and it’s better for candidates to have to appeal to a larger group of people for the funds they need to campaign.

The principal argument against the amendment (and for the bill) seems to be “inflation.” It seems odd that some legislators are very concerned about inflation cutting into campaign contribution levels, but not other amounts set in statute – like minimum wage for tipped employees, for example.

Senate File 12 is on third reading and final passage Tuesday morning. Please contact your legislators and ask them to keep the amendment and, if it is removed on third reading, to oppose the bill.

Helium property tax goes to Gov. Dave

Also on Monday, the HB 287 Helium - property tax won final approval when the Senate adopted a Joint Conference Committee report that the House approved last Friday. The measure imposes property taxes on helium, putting taxation of that very valuable gas in line with property taxes levied on the extraction of other minerals in Wyoming.

The finished bill awaits signing by Gov. Dave Freudenthal.



*Briefly, OAH is the board that reviews contested Workers’ Comp cases and contested actions by the Department of Transportation on driver’s licenses.

ESPC researcher Sarah Gorin and Marcia Shanor of the Wyoming Trial Lawyers Association contributed to this report.