Lawmakers review tax structure again
CHEYENNE — With Wyoming facing an annual funding shortfall worth roughly $300 million for its K-12 education system, lawmakers on the Joint Revenue Committee spent much of their meeting Monday reviewing how the state pays for its services, as well as how its economic lynchpins have changed over the past decade.
Wyoming, which has long relied on coal, oil and natural gas industries to pay the lion’s share of taxes in the state, has seen a substantial decline in revenues over the last decade. From the 2013-14 biennium to the 2017-18 biennium, the state’s total operating revenues declined by 20 percent. Revenues have continued to dip since then, by about 25 percent from the 2017-18 biennium to the current 2021-22 biennium. Meanwhile, Wyoming has the second-lowest tax burden for a family of four.
Of course, the topic is not a new one. More than 20 years ago, the Legislature formed the Tax Reform 2000 Committee, composed of lawmakers and other stakeholders, to examine problems and potential solutions within Wyoming’s tax code. Dan Noble, director of the state's Department of Revenue, ran through some of the main takeaways during the lawmakers’ meeting Monday in Riverton.
“Probably, the biggest issue was our tax structure is unstable,” Noble said. “We base, in some instances, more than half of our economy on the price of a commodity, and that creates some issues when you’re talking about volatile pricing of things like oil, gas and coal, particularly oil and gas – very, very volatile.”
Noble said another issue identified by the committee was the regressive nature of Wyoming’s sales tax, at an average rate of 5.33 percent across the state, with a base level of 4 percent. The report found lower-wage families pay a larger share of their incomes on sales tax than higher-end earners, who often spend a great portion of their money on items not subject to sales taxes.
The largest share of Wyoming’s revenues comes from property taxes, of which mineral industries pay a substantial portion. However, the mineral industries make up far less of the total property valuation in the state now than they did a decade ago, dropping from 70 percent of the total valuation in 2009 to 50 percent in 2019.
Committee co-chairman Rep. Steve Harshman, R-Casper, said that decline was largely due to severe downturns in coal production over the past decade. While Wyoming, like other states, uses property tax revenue to fund K-12 education, he said the source of its property values sets it apart from many of its neighbors.
“The difference in Wyoming is minerals pay half our property taxes ... We're always going to have schools, but it's based on a really volatile revenue stream,” Harshman said.
Seeking ways to stabilize the state’s structure, the Tax Reform 2000 Committee outlined several recommendations for elected officials, and the one “that topped the list and didn’t go much further than the list,” Noble said, was to implement a corporate and individual income tax. In its final report in 1999, the committee said such taxes would address the instability Noble mentioned Monday.
“A Wyoming State Constitution provision allows credit for sales, use and property taxes paid during the same tax year from any state income tax due. An income tax that includes this provision makes the Wyoming tax structure more balanced and equitable,” states the report. “Higher incomes would pay a greater portion of the tax, but when all taxes households pay are considered, each level of income would pay approximately the same percentage in state taxes.”
There has been little appetite to pursue either type of income tax in the Legislature, however. Most recently, a proposal to impose an income tax on high-end earners failed in a legislative committee meeting last fall, and a bill from Rep. Mike Yin, D-Jackson, to impose a 4-percent income tax never received a hearing during the general session this spring.
While there has been next-to-zero interest in an individual income tax in Wyoming, a recent study has found that the state’s residents could take on a higher tax burden in some form, whether through income, property or sales taxes.
Conducted by the Wyoming Center for Business and Economic Analysis at Laramie County Community College, that study built upon a legislative staff report that compared Wyoming’s tax structure to neighboring states, using the median rates from that group as a capacity threshold. When factoring in local costs of living, hourly wages and average income levels, those comparisons, as well as ones with other states without income taxes, suggest Wyoming residents could be paying slightly more.
“Average annual wages and median hourly wages for all occupations in Wyoming are higher than the median and mean of surrounding states,” reads the report.
“Although the numbers have slight differences, when comparing Wyoming to all states without personal income taxes, but including those that have corporate income taxes, the overall trend stays consistent,” the report later continues. “Wyoming has higher household income and annual wages than the median values of the comparison group, but slightly lower values for the average. Wyoming’s hourly wages are also higher in both variables, and the cost of living is substantially lower.”
Wyoming Center for Business and Economic Development Director Nick Colsch, who presented the report to the committee Monday, noted the state could bring in substantial revenue by reaching or approaching the tax rates of states that, like Wyoming, lack income taxes. If Wyoming were to reach the median rates of sales, property and fuel taxes in the states without any sort of income tax, it would raise roughly $2.35 billion in the 2023-24 biennium, according to the analysis.
“In our view, there is capacity for Wyoming citizens to bear a higher tax burden,” Colsch said Monday.
There was some pushback to the report’s methodology during the committee meeting. Rep. Chuck Gray, R-Casper, argued the analysis was comparing “apples and oranges” by comparing Wyoming with states that lack the same level of mineral commodities.
But committee co-chairman Sen. Cale Case, R-Lander, said the analysis was a useful effort to provide some direction to lawmakers in the long run.
“We’re well on this trip, (been) well on this trip the last 10 years,” Case said. “We’ve been very much on this trip for the last five years (in which) we’re losing that mineral base. With global warming, concerns about CO2, it’s not going to come back. So, we'd better figure out where we’re going and how we’re going to get there, and I think that’s why this analysis is a good analysis.”
Wyoming Education Association Executive Director Ron Sniffin agreed that the state is "at a crossroads,” with a structural deficit to fund its school system and infrastructure. At the end of Monday's meeting, which was the first half of a two-day committee meeting, he urged lawmakers to consider new revenue opportunities in order to provide essential services to the state’s students and citizens.
“The Wyoming education system simply cannot continue to do more with less,” Sniffin said. “Insufficient streams of stable revenue to fund education all but guarantee that without action, the students of 2024 will not be afforded the same educational opportunities as students today. Wyoming students need your help.”