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.

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.

Joint Minerals Committee drops tax breaks for coming "Clean Coal" facilities

WASHINGTON, D.C. -- We're here in the nation's chilly capital attending the State Fiscal Policy conference sponsored by the Center on Budget and Policy Priorities, and reading about plans to unveil the rehabilitated Star Spangled Banner tomorrow at the American History Museum.

With all the patriotic feelings stirred by the story behind that flag that flew over Fort McHenry Sept 14, 1814, it somehow was particularly gratifying to get an email message from Wyoming announcing that the Joint Minerals Committee has dropped proposed legislation extending tax breaks worth millions of dollars to the coal industry.

The Powder River Basin Resource Council's Shannon Anderson also represented the ESPC at the meeting. She sent news from the meeting about the committee's decision to pull the bills back. (They still may show up in the Revenue Committee at some point.) We knew these measures could cost the state, but Shannon reports that an official with DKRW, the company with plans to build a coal-to-liquids plant in Carbon County, said the exemptions could reduce the company's tax bill by $125 million.

These tax cuts should be considered equivalent to a state appropriation. The state would, in effect, invest these tax revenues in the plants, socializing a substantial portion of the private risk but, unlike the private investors, with no hope for enjoying a share of the profits the factory eventually will generate.

We know this is only a temporary victory. The taxes will be back, in whole or in part, in some other form. Casper Star-Tribune reporter Dustin Bleizeffer covered the meeting for the newspaper. He reports the idea could come back as an amendment to existing state law that grants property tax exemptions to pollution control equipment installed at power plants operating in the state.

Here's Bleizeffer's report, which you also can read at the trib.com website:


Clean coal tax exemptions stall

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter

The future of several proposed tax breaks for clean coal facilities is uncertain, but the legislation will likely get booted from the Joint Minerals,Business and Economic Development Interim Committee to the Joint Revenue Committee.

One of three bills that, together, would slash virtually all state and local taxes on such facilities could reappear as an amendment to an existing 2005 law that cut sales and use taxes for pollution control equipment added to coal-fired power plants.
Despite the shuffling, it may be too late to settle a number of concerns about the so-called clean coal incentive package in time for the 2009 legislative session.

"I do really want to do anything to help [clean coal development], but our time frame is too short and would do a disservice to the legislative process," said minerals committee co-chairman Sen. Grant Larson, R-Jackson.

The minerals committee heard testimony Wednesday in Casper from DKRW Advanced Fuels chief executive Jon Doyle. His company is developing the $2.5 billion Medicine Bow Fuel coal-to-gasoline plant in Carbon County. In September, the committee asked Doyle to research and draft legislation for possible incentives

Wyoming could offer to all potential clean coal developers in order to remain competitive with other coal-producing states.

In response, DKRW hired a Wyoming tax attorney to draft three bills. One would cut sales and use taxes. Another would cut ad valorem taxes. The third would cut severance taxes. As proposed, the legislature would revisit the tax exemptions no sooner than 15 years after commencement of operations.

Several committee members said that, for fear of losing a clean coal project to another state, they were willing to rush all or part of the package through.

But committee member Rep. Jeb Steward, R-Encampment, said adopting one or all of the tax exemptions would shut off a revenue stream that local communities -- and the developer itself -- would need to provide the public services for such a project.

"I'm from Carbon County, and clearly we're in an area that's depressed economically and looking forward to this project moving forward," Steward told Doyle.

"How is it in the best interest of your company to remove the ability of these local governments and the state to generate revenues to provide the services so you would have thriving communities?"

Steward went on to question whether adopting tax exemptions would not only curtail services but create an inability to provide a work force to sustain the industry 40 or 50 years into the future.

Doyle, and Holland & Hart attorney Larry Wolfe, who authored the bills, both admitted that if the state adopted the tax exemptions it would still have to figure out how to deal with the impacts of such large industrial developments. However, they were instructed to provide incentives that would already fit within Wyoming's constitution, so they looked to tax exemptions that have already been granted to other industries.

Committee member Rep. Debbie Hammons, D-Worland, reiterated the committee's support of clean coal development, but said slashing all potential tax revenue from such facilities may be too much.

"What these bills appear to say to me is that any coal facility, for the next 15 years, the state wouldn't receive taxes on them. And I think that's a tremendous burden to the state," said Hammons.

Shannon Anderson of the Powder River Basin Resource Council said tax breaks do not equal an investment in clean coal development. Her written testimony to the committee suggested that the "value-added" notion of refining coal in Wyoming would be lost if those facilities are not taxed.

Anderson spoke to the committee and said if state and local taxes are a deal-breaker for a $2 billion-plus facility, then it has bigger financial problems than just taxes.

"If the company can't make it with state taxes, then there's a larger economic problem that these bills won't fix," said Anderson.

ESPC opposes tax breaks for clean coal plants

Once again Wyoming's "struggling" coal industry seeks to escape paying taxes by convincing our legislators that it needs tax breaks as incentives to develop the new technology that will keep its product viable in a world dealing with global warming and climate change.

The ESPC believes that Big Coal, like other businesses, should not evade its social responsibilities. The state is a great partner for the coal companies, and is actively engaged in developing carbon sequestration laws that will promote the viability of fossil fuels like coal. And Wyoming has committed huge sums of money to new research at the University of Wyoming to find ways to keep fossil fuels in the nation's energy mix for the forseeable future.

That partnership should continue. But the industry should not be allowed to pick the state's pocket by taking away the tax revenues it needs.

You can see the news release we issued Monday by going here.

Here's a copy of a memo sent to the Legislature's Joint Minerals Committee offering our comments on legislation the committee will consider tomorrow, Nov. 19.

TO: Members of the Joint Interim Minerals, Business and Economic Development Committee
FROM: Sarah Gorin and Dan Neal, Equality State Policy Center

We regret that, due to conflicts with other events, we will be unable to attend your meeting in Casper on November 19. We are sending this message to:

(a) express support for the continuation of the Clean Coal Task Force (09 LSO-0070.W7 – Clean coal task force); and

(b) encourage you to approach the three proposed tax exemption bills in a businesslike manner. These proposed bills include:

1. 09LSO-0262.W3 – Clean coal facility-tax exemption;
2. 09LSO-0263.W3 – Clean coal facility-coal taxation;
3. and 09LSO-0264.W1 – Clean coal facility-sales and use taxes) in a businesslike
   

We agree that the future marketability of Wyoming coal is a critical issue, primarily because coal production currently provides substantial revenues to state and local governments. The hope is that development of clean coal will extend Wyoming coal mining jobs and coal-generated revenues long into the future.

But therein lies the logical problem with the proposed tax exemptions. If clean coal facilities are built but not taxed, and coal consumed in these facilities is produced but not taxed, Wyoming largely has lost the benefit of moving to clean coal. Since Wyoming does not have an income tax, even the creation of additional coal-based jobs will not have a significant effect on restoring the tax base.

Most of the public debate on the development of clean coal technologies has focused on the need for investment, and Wyoming has taken steps in this direction by establishing the School of Energy Resources and the Clean Coal Task Force, which help attract funds for clean coal research.

Investment is not the same as granting tax exemptions. Investment requires thoughtful evaluation of alternatives, weighing the likelihood of success of various avenues of research and development. The recipients of the investment are accountable to the investors for performance. This is why the Clean Coal Task Force is the way to go.

Tax exemptions, on the other hand, compel other taxpayers to invest in the exempt activity whether they choose to or not. A tax exemption is a governmental expenditure just as surely as an appropriation, because it “spends” revenue either by giving it up (along with the programs or services the revenue would have funded) or by shifting taxes to other taxpayers. This type of involuntary investment is yet another example of the recently prevalent practice of socializing risk while privatizing profit.

Moreover, the recipient of the tax exemption has no accountability to the other taxpayer/investors. What if equipment is purchased, not taxed, and left to sit? What if a plant is partially built and then put on hold or abandoned? Bad experiences in other states have led to the creation of so-called “clawbacks” and other attempts to recover lost tax revenues when the recipient of a tax break fails to deliver.

The proposed tax exemptions also beg the question of who will bear the costs of impact litigation if clean coal plants are built, since the legislation clearly anticipates that these will be large industrial facilities.

If no sales and use taxes are paid, how will local governments fund the services needed to serve the expanded population?

If no property taxes are paid, what will fund the schools? (Remember that fifteen years is

longer than one class’s journey through its entire K-12 education.)

If no severance taxes are paid on the coal consumed, what replaces the revenues to the earmarked accounts, most of which provide essential services?

One answer could be that the Industrial Siting Council will order the applicant to supply funding to meet these needs; historically, taxes paid (or to be paid) by the applicant have been taken into consideration when calculating impact mitigation payments. In the absence of tax payments, presumably impact mitigation payments would be proportionately higher, in which case one is left wondering why the tax structure was not left in place to begin with.

Alternatively, there is the unpleasant and irresponsible possibility of simply leaving local governments and school districts high and dry.

A businesslike approach to income and expenditures would entail a careful evaluation of expected benefits (and the likelihood of achieving those benefits) before foregoing income. In this particular case, taxes on nonrenewable resources are Wyoming’s bridge to the future, a future with coal we still can use along with a more diversified energy portfolio.

We urge you to hesitate before burning that bridge. We are unaware of any independent assessments suggesting that clean coal development will be affected -- much less driven -- by state tax policies. We therefore suggest that before taking action on these potentially substantial tax exemptions, the committee secure the services of a qualified, financially unrelated third party to assess developments in the clean coal industry, investigate and evaluate the impact of Wyoming state taxes on development decisions, estimate the revenue losses if tax exemptions are granted, and propose alternative sources of revenue.

Thank you for this opportunity to comment.

(Note: Formatting of this memo was adjusted to make it easier to read on this blog.)