Optional Municipal Tax and How Sales Tax Works in Wyoming

By Philip Baron, MBA

A draft bill presented to the Joint Revenue Committee in July of 2019, would allow voters in a city to approve a sales tax increase (up to 1%) for up to four years. Tax increases imposed for a specific project would expire if they collect the amount of funding needed for the project before the four-year time period.

Right now, Wyoming has a statewide sales tax of 4%. Under current law additional countywide sales tax amounts up to 3% may be levied. Under the proposed legislation the maximum sales tax rate in Wyoming would still be 7%. This proposal would put part of the county portion of the tax under control of a city.

In order to impose additional countywide taxes, residents of a county must put the tax increases on the ballot, and pass them with a majority vote. To put a tax increase on the ballot, a petition to increase the tax must be signed by 5% of the voters in the county or a resolution must be approved by the county government and two-thirds of the city governments in that county. If voters approve of the sales tax, then it can be imposed for up to two years. The tax will be put on the ballot every election year and remain in effect until it is defeated by a majority vote.

An optional municipal tax means that a city could choose to tax itself for a specific project without the approval of the rest of the county. This tax is in the best interest of the city government because it could impose a tax on its residents and would receive all of the tax revenue collected. Smaller cities in that county would receive less tax revenue under a municipal tax than a countywide tax, because the money would no longer go to the whole county.

Right now, 69% of the statewide sales tax goes to the general fund of the state of Wyoming. One percent of this remaining 31% (about 0.3%) is taken out to cover the administrative costs of the tax. The remaining 30.6% of tax money is distributed to the 23 counties in Wyoming based on what percent of the state's population lives in each county.

The counties then divide up the money amongst the county government and the city governments based on what percent of the county's population lives in each city. Then the county government receives an amount based on the percent of the population in that county that does not live in an incorporated city.

The additional countywide taxes are distributed in a similar way. Each county in Wyoming may impose additional sales tax (up to 3%) to fund projects in that county. These can be initiatives such as roads, special projects, or economic development. This money is collected by the Wyoming Department of Revenue and goes back to each county to be distributed.

Each city government receives a portion of the funding in relation to the proportion of the population the city has to the county. The county government receives funding based on proportion of the population the unincorporated parts of the county have in relation to the total population of the county. This money then goes to the counties' general fund.

What Could Change?

A municipal tax would mean that an additional 1% tax increase in a city would no longer go to the whole county based on the population of the communities. This tax is good for the city that gets all of the revenue back and the power to raise its taxes.

People in smaller communities, who may work and purchase items in larger cities, will not receive tax revenue like they would with a countywide tax. In many counties, the larger communities tax revenue subsidizes the smaller communities who may not have many businesses to generate sales tax. A municipal tax will give communities the power to raise taxes for specific projects. It does this at the expense of not subsidizing the smaller communities.