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.

Tax committee attracts big crowd

What to do about revenues in a declining economy


It was standing room only at Tuesday’s meeting of the Interim Joint Revenue Committee in Cheyenne. Topic: What to do about state revenues in the face of a declining economy.

While there was no shortage of lobbyists, there was a shortage of good data for the committee to work with.

Sarah Gorin of the Equality State Policy Center and Erin Taylor of the Wyoming Taxpayers Association opened the day with a presentation on sustainable tax policy. One item they suggested – the creation of a tax expenditure report (which would show revenues the state is missing due to tax exemptions and exclusions) generated some interest from members of the committee.

It turned out in a subsequent presentation from the Department of Revenue that the Department had begun efforts to quantify revenues lost from tax exemptions. Unfortunately, the data were woefully incomplete, mainly because taxpayers don’t have to apply for tax exemptions – they simply don’t pay. Consequently, it’s very difficult to collect data that doesn’t have to be reported in any way, especially if (as in this case) county governments are involved as well as the state.

Good data are essential to good decision-making. We constantly hear that government should be “run more like a business,” and no business would make decisions involving millions of dollars without any data. Although there is reluctance to spend more while revenues are down, investing in a state employee or whatever it takes to accurately collect and analyze relevant data to inform legislative decisionmaking would be a good move. Wyoming taxpayers deserve it.

Two committee members asked the Legislative Service Office to draft bills to remove tax exemptions for some industry operations and property, according to reporting by Joan Barron of the Casper Star-Tribune.

Rep. Mike Madden of Buffalo wants to eliminate tax exemptions granted industry for underground mining equipment, pollution control equipment and fire protection, the story reported.

But Sen. Cale Case of Lander disputed the report that he seeks to eliminate tax exemptions for private schools, charitable and religious organizations and fraternal organizations.

Sen. Case said he asked for a bill that would require an annual application process to qualify for property exemptions for religious entities, non-profits and private schools. He believes the process would generate useful data about the exemptions.

"This is an effort to consistently determine the impact and appropriateness of the tax exemption for entities that have a broad range of activities and property interests -- some of which should properly be taxed," Sen. Case wrote in an email message. Examples of these "mixed entities" include churches that have taxable rental property or schools that operate a retail store open to the public.

"I am not aware of any member of the revenue committee suggesting that the property tax exemption for these entities be removed," Sen. Case wrote.

Colorado TABOR evangelist offers 'help'

Independence Institute economist Barry Poulson, an evangelical proponent of Colorado’s Taxpayer Bill of Rights known as TABOR, laid out his vision for limiting state government before the committee Tuesday afternoon. Barron reported Poulson's presentation in Wednesday's Star.

One hopes that the members of the Joint Revenue Committee will talk with their legislative colleagues in Colorado to learn how that piece of reactionary 1990s anti-government activism has adversely affected public schools, higher education, road maintenance, fire and police protection and other basic services.

Many of the state’s business and community leaders view TABOR as deeply flawed, limiting the Colorado’s ability to invest in its own future.

TABOR applies to all levels of government, from weed and pest districts to the state legislature. It limits tax increases to a formula based on population increase and the consumer inflation rate.

That might work if everything stayed the same in the world. But Colorado in the 1990s was a young state. Its demographics have changed with the aging Boomer population. Health care costs have gone up at a much higher rate than the consumer price index.

Parents with children in some rural public schools have been forced to hold fund-raisers to buy text books and other school essentials.

Things got so bad in Colorado that voters in 2005 approved a referendum to loosen the strict spending limits TABOR imposes for five years. Even with that, Colorado faces a troubling future. As in Wyoming, revenues have declined, continuing to erode the state’s ability to deliver essential services. Some economists there predict that general fund revenues will not return to 2007 levels even by the end of 2012-13.

Sarah Gorin contributed to this post.