CHEYENNE – Monday was a bad day overall for new taxes in Wyoming, as lawmakers killed several bills and punted others to January.
The Wyoming Legislature’s Joint Revenue Interim Committee met in Cheyenne to discuss a number of proposals to address budget deficits in advance of the 2018 budget session, which convenes Feb. 12. The committee has been tasked with identifying $100 million, $200 million and $300 million annually to offset deficits in state government operations and K-12 education funding.
In a state largely averse to taxes, the committee’s work to identify avenues for generating revenue is anything but easy. Following a downturn in the state’s mineral markets – which make up around 70 percent of its revenue – starting in late 2014, cuts to education and state agencies have been felt across Wyoming. Though 2018 looks brighter than the last two years, the state continues to face an uncertain economic future and must decide whether to reduce spending or implement taxes to pay for service Wyomingites are accustomed to.
Lawmakers are exploring a variety of options for generating funds, including taxes, diverting savings and giving local governments new tax options.
During its meeting Monday – perhaps the most consequential meeting of any in the interim – a number of proposals were struck down, with bills increasing taxes on tobacco and alcohol surviving the day. One that would have allowed municipalities to implement their own taxes on a local level also failed on a 7-7 vote, while two bills to divert savings to pay for immediate needs both passed.
Sen. Ray Peterson, R-Cowley, committee co-chairman, is certainly not anxious to raise taxes on a broad or specialty level. He said it’s good to know Wyoming’s revenues might be in a place where it’s not necessary to make sweeping changes during the 2018 session. But still, Peterson worries that if lawmakers don’t act to change the tax structure in a meaningful way now, it might never happen.
“My point is we’ve got to address the problem in the long term,” he said. “My biggest fear is the good times will come back and we’re saved again. … That 70-30 (revenue ratio weighted to minerals) is what I’m trying to address, because if we can’t do it now in these tough times, when can we do it?”
Of five bills related to taxes on alcohol and tobacco – so-called “sin taxes” – more failed than passed.
A draft bill that would increase the tax rate on tobacco products from 60 cents to $1.60 on, for example, a pack of cigarettes passed by an 8-6 vote. Those advocating for retailers that see a substantial portion of their income from tobacco products lined up to argue it placed an unreasonable burden on small business owners. Many also argued against what they saw as an attempt at social engineering.
“From our perspective, this is behavioral taxonomy that fails to recognize the retail and consumer realities,” said Mark Larson, representing the Wyoming Petroleum Marketers Association.
Those in favor of the tax argued the potential behavior modifying effects were a positive, citing Wyoming’s increased rates of smoking, especially among young people. Rep. Dan Furphy, R-Laramie, made his case that it was prudent to tax tobacco products to make up for the costs Wyoming residents pay for the consequences of the products’ use.
“I think this bill is just to help recoup some of our costs,” he said. “(A 2016 University of Wyoming study) indicates that we, as nonsmokers, are incurring direct costs of $240 million per year. … This bill, if it generates $24 million, is a drop in the bucket compared to our costs for subsidizing tobacco use in our state.”
Another bill that would increase the maximum state profit on sales of liquor and wine from 17.6 percent to 20.6 percent also passed, but two other taxes on alcohol products and sales failed. One that would have added a one cent tax to bottles of beer, wine and spirits failed as the committee’s consensus was that it was duplicative of the alcohol sales tax previously approved. Finally, a beer tax increase failed for a perceived negative effect on small business owners.
The “big ones”
Peterson and co-chairman Rep. Mike Madden, R-Buffalo, made it clear from the get-go that the big-ticket items – a sales tax on specified services, a sales tax for school construction and a property tax increase – would be punted to a special meeting to convene in January.
Revenue projections released in October have given many in Wyoming reason for optimism, though experts buffered the state’s improved economic performance with predictions a boom likely isn’t coming anytime soon. Another revenue update is scheduled for mid-January. Consultants are also expected to release a report in coming weeks recalibrating the state’s K-12 funding model, which could potentially result in savings.
It was expected Monday’s meeting would result in up or down votes on the tax options. But with the revenue update and K-12 recalibration report in mind, the chairmen said it would be wise to wait before moving forward with the most controversial tax measures.
The property tax proposal would increase the commercial and residential property tax assessment ratio by 1 percent in the first year, and then an additional 1 percent in the second year. It would remain in place until the state’s revenues return to pre-bust levels or until a sunset date in 2024. It’s estimated the measure would raise more than $284 million in the biennium.
A sales tax on specified services – such as communication and legal services – could generate $42 million for the state’s general fund and more than $40 million for local governments.
Finally, the school capital construction sales tax would increase the statewide sales and use tax from 4 percent to 4.5 percent until July 2022, generating $78 million for school facilities.
When giving an overview of his 2019-20 biennium budget last week, Gov. Matt Mead said he did not think new taxes would be necessary in the upcoming session to balance it. Peterson didn’t say that’s a death sentence for the sales tax and property tax bills, but he wants a chance to look at the measures with fresh eyes after the January revenue update and recalibration findings.
The committee also punted on a leisure and hospitality tax draft bill. Many in the tourism and service industries have expressed strong support for the measure. Others lobbied strongly against the bill, arguing the tax aimed at tourists unfairly taxes Wyoming residents traveling and patronizing businesses in the state.
The proposal would impose a 1 percent excise tax on the sale of tourism activities within the state. A tourism activity is defined in the proposed legislation as a sale by any vendor in the North American Industry Classification System (NAICS) regarded as arts, entertainment and recreation, as well as accommodation and food service. This would include promoters of performing arts and sports, museums, historical sites, RV parks, full-service restaurants and bars.
The idea is to establish long-term, self-sustainable funding for promoting tourism – the state’s second-largest generator of tax revenue, second only to minerals – and shift the Wyoming Office of Tourism away from dependence on the general fund.
Not in attendance Monday was Senate President Eli Bebout, R-Riverton, who was invited to sit in on the discussion this week along with House Speaker Steve Harshman, R-Casper. Peterson said it was his understanding that Bebout wanted to bring a proposal for the committee’s consideration that would only raise the lodging tax rate. This, presumably, was to address concerns, for example, that Wyoming residents would be paying more at bars and restaurants to fund tourism promotion.
Until the committee has the opportunity to hear Bebout’s suggestion, it decided to table the draft bill.