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.

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.