Wyoming can impose an income tax on out-of-state corporations without increasing those companies’ overall tax load and without driving up consumer prices, state legislative leaders declared Tuesday.
A bill passed by the House Revenue Committee 8-1 Wednesday would raise an estimated $45 million a year with those revenues dedicated to the public schools. Proponents include leading lawmakers from both parties and chambers and they’re making a case that the tax is harmless to Wyoming residents.
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Leadership moved the bill quickly to the floor for a reading on Committee of the Whole and it appeared to have strong support when it passed a voice. It will face two more votes in the House.
Sponsored by Rep. Jerry Obermueller (R-Casper), House Bill 220 – National Retail Fairness Act would apply a seven percent tax on the income of corporate vendors in the retail, accommodation and food services sectors — chains like Wal-Mart, Applebee’s, McDonalds or Macy’s. The bill limits the new tax to large corporations by applying it only to companies that have more than 100 shareholders, Obermueller said.
The bill was introduced Tuesday and heard by the House Revenue Committee Wednesday morning at 7:45, a very quick turnaround compared to other tax bills this legislative session. The $45 million a year estimate could be wrong, said Wyoming Department of Revenue Director Dan Noble, who made the estimate. Noble said he deliberately made a conservative, probably projection of revenues.
The bill is in essence painless for both corporations and Wyoming residents, backers said, because those corporations already pay income taxes in the states where they’re headquartered. The companies will be able to deduct the Wyoming tax from income tax in their home states, the proponents said.
Some businesses are registered in Wyoming as C-corp corporations, the corporate class the bill seeks to tax, but won’t have 100 shareholders, Noble said. “I have a feeling that there would be a lot of them that probably become LLCs in a hurry if this bill passes,” he said. But overall, he said, “my feeling is you’re probably looking at large corporations.”
Wyoming consumers will not be affected because corporations won’t raise prices to make up for the new tax, Obermueller said.
“You’ve got money that is being paid by hard working families in Wyoming that is being taxed in the states where the headquarters of the large corporations are,” Senate President Drew Perkins (R-Casper) told WyoFile during an interview with several of the bill’s sponsors.
“The biggest one that comes to mind — in Arkansas — is paying for roads, schools, whatever, in Arkansas,” he said, in reference to Wal-Mart.
The bill would not tax local business owners who might pay a franchise fee to such corporations for use of the brand name, but instead would only apply to the corporation itself. The revenue generated by the income tax is currently slated for education, though Speaker of the House Steve Harshman (R-Casper) said that could change in the debates ahead.
The bill’s sponsor said the tax would touch many well-known corporate businesses. “Drive up and down Dell Range,” Obermueller said, referring to a Cheyenne boulevard lined by corporate businesses, as occurs on the outskirts of many larger Wyoming towns.
Obermueller said he researched the effect on consumers simply by asking family members in Seattle and Nebraska to check a big-box store’s prices, then checking those against prices in his hometown of Casper.
Washington state assesses a gross receipts tax on corporate sales. Nebraska has a 7.8 percent corporate income tax for businesses grossing over $100,000 a year. Wyoming has neither corporate income nor gross receipts tax, but his family found the same prices in all three states, Obermueller said.
“We get no (price) break for having no tax here,” he said. “We pay the same price because the big box store dumps all of their state income tax into one bucket and allocates it to their customers; so their Wyoming customers are picking up their share of that tax.”
“Other states governments started noticing this and said, ‘Well Wyoming doesn’t tax it. We’re just going to throw it on our return,’” he said. “This bill puts a stop to that practice.”
House sponsors include Harshman, House Majority Floor Leader Eric Barlow (R-Gillette), Speaker Pro Tem Albert Sommers, (R-Pinedale), House Majority Whip Tyler Lindholm (R-Sundance) and House Minority Floor Leader Cathy Connolly (D-Laramie) and Revenue Committee Chairman Dan Zwonitzer (R-Cheyenne), along with other prominent House members.
In the Senate, Sen. Eli Bebout (R-Riverton), known for his ardent opposition to new taxes, is a sponsor, along with Senate President Drew Perkins (R-Casper), Senate Vice President Ogden Driskill (R-Devils Tower), Senate Revenue Committee Chairman Cale Case (R-Lander), Minority Floor Leader Chris Rothfuss (D-Laramie), and two other Senate committee chairmen.
“It’s got a great chance of passing,” Bebout said.
Bebout, Perkins, Harshman, Obermueller and House Appropriations Committee Chairman Bob Nicholas (R-Cheyenne) all spoke with WyoFile in Harshman’s office about the proposal.
Despite the rhetoric, retailers and other Wyoming industry lobbies still oppose the tax.
It’s a “corporate income tax on the biggest retailers in the state,” said Chris Brown, executive director of the Wyoming Retail Association. Many of the biggest box stores across Wyoming are part of his association, Brown said. Big corporate stores contribute millions in property tax and sales taxes, Brown said, and provide thousands of jobs across the state.
Lobbyists accused lawmakers of rushing the bill. They called for a study of the the tax in an effort to slow it down. Most such industry associations consistently oppose any tax increases in Wyoming during both legislative sessions and the period between sessions when committees do their work.
“One of the concerns is this is one heck of a topic,” said Brett Moline, who lobbies fori the Wyoming Farm Bureau. The Farm Bureau consistently opposes tax increases. “I have concerns about how quickly this is going to go through the system.”
Moline called for an interim topic. “Of course, he said, “Wyoming Farm Bureau policy will probably not change.”
Brown, the retailers’ lobbyist, said he wasn’t given enough time to bring representatives of his trade association to the Legislature to testify. Obermueller had given him advance notice of the bill he intended, Brown said, but the bill had posted and moved to committee too quickly.
The Wyoming Petroleum Marketers Association also opposed the bill. In answer to a question from Rep. Dan Laursen (R-Powell), Tom Jones, a former lawmaker speaking for the association, said prices would go up, despite what bill sponsors said about the bill not increasing business price. “Common sense says if my costs go up my prices have to go up,” Jones said.
“The pricing for these large corporations is done on a national basis and its spread over its customer base,” Obermueller said. “That doesn’t need any further vetting to understand.”
“We are business friendly in Wyoming,” Obermueller said. “But business friendly doesn’t mean you always pick up the check.”
Obermueller also pushed back on the idea of waiting for the interim study period, saying it was time for lawmakers to take some action, even if this tax wouldn’t stabilize education funding alone.
“Enough is enough Mr. Chairman,” he said. “We need to find a revenue source for education. This is where we start. Today. With this bill.”
Laursen voted against the tax. Rep. Cyrus Western (R-Sheridan) tried to amend the bill to direct the money to the General Fund instead of education, but the committee voted against his motion. Western will likely propose the amendment when it is considered on the House floor, he said.
Other states tax Wyoming sales
There are 27 states with “throwback” rules, under which states collect tax dollars on business revenues in states without corporate income taxes, according to the National Conference of State Legislatures.
The NCSL has posted a blog on its website that uses Wyoming as an example of a state in which businesses are contributing tax revenue elsewhere:
“If a corporation in Colorado sells into corporate income tax-free Wyoming, those sales will be counted as sales made into Colorado when calculating the sales fraction and the amount of income apportioned to the state,” Jackson Brainerd of NCSL wrote in a blog post.
The proposed seven percent rate imposed by HB220 falls around the middle of corporate income taxes in other states, a deliberate choice, Obermueller said.
In 2018, 44 states assessed corporate income taxes that ranged between three and 12 percent, according to the Tax Foundation, a conservative-leaning think tank. Six states had, corporate income tax rates above nine percent.
Corporations will likely be able to deduct sales and property taxes when they file income taxes here because of deduction rules in the Wyoming Constitution, Obermueller said.
Four states — Nevada, Washington, Ohio and Texas — impose gross receipts taxes instead of corporate income taxes, according to the Tax Foundation. Wyoming and South Dakota are the only states with neither a gross receipts tax or a corporate income tax, according to the foundation.
Obermueller called it a “hidden tax” for Wyoming residents, one they are already paying to other states.
“If every consumer in Wyoming had to fill out a tax return form and send their money to Arkansas, that would get their attention wouldn’t it?” he said. “But it’s just buried in the price of the goods so they don’t notice it.”
Though some lawmakers will oppose any tax on principle, Obermueller argued the Legislature is trying to get its constituents’ money back from other states.
“They’re paying a tax and the only mechanism to get it back is good government and that’s what we’re working here,” he said.
Connolly, Senate Minority Leader Rothfuss and other Democrats like Rep. Andy Schwartz (D-Jackson), an Appropriations committee member, are co-sponsors on the corporate income tax bill. Democrats, Connolly said, “are in favor of a dedicated, robust stream of revenue for education.”
But looking at all the other proposals, and the lack of support for a personal income tax, Connolly said there still wasn’t enough money on the table for long term fiscal stability. “It is a necessary small step that captures tax revenue that really should stay in the state,” Connolly said of HB220, calling it a “partial” solution.