Tax Reform a Better Alternative to Corporate Welfare

The 2015 legislative session created a number of measures that put taxpayers into the risky business of supporting some private companies. It also, in contrast, set up the Minerals Tax Task Force that could turn this corporate welfare trend around. The job of the task force is to study and make recommendations for a fair, viable and simplified system of valuation and taxation for minerals. A lower, simpler tax system that treats each taxpayer equitably is preferable to government picking winners for special handouts while making losers out of taxpayers.

Mineral taxation in Wyoming has a long history. The Wyoming Constitution says minerals will be taxed.

Article 15, Section 3 states:

All mines and mining claims from which gold, silver and other precious metals, soda, saline, coal, mineral oil or other valuable deposit, is or may be produced shall be taxed in addition to the surface improvements, and in lieu of taxes on the lands, on the gross product thereof, as may be prescribed by law; provided, that the product of all mines shall be taxed in proportion to the value thereof.

Thus, the Wyoming Constitution lays out an ad valorum tax for minerals, and until 1969, the minerals industry paid only this ad valorum tax. It is essentially a property tax paid on production instead of land. The state levied its own four-mill tax, with counties levying 12 mills and cities eight mills (10 mills = 1 percent). The ad valorem tax is based on the fair market value of the previous year's mineral production and assessed annually on the owner of real property of record.

The language in the Constitution allows for schools to get in on the deal, and as a result, the mill rate today averages 62.4 mills statewide, or 6.24 percent. In 2014 (based on 2013 production), 23 counties collected $923 million in ad valorum tax revenue.

The severance tax, enacted in 1969, gave the state a one percent severance tax rate on all minerals, replacing the state's ad valorum mill levy. The severance tax is assessed on the taxable value of the current year's production and the operator on the property reports and pays the severance tax monthly. Today, the severance tax rate for oil and gas is 6 percent, 7 percent for surface coal and 3.75 percent for underground coal. This is quite a hike from 0.4 percent allowed under the ad valorum tax system. The severance tax brought in an estimated $889 million in 2014.

So there are two production taxes on minerals – and this makes for complications, both for producers to pay and for government to collect. Although the severance tax is distinct from the ad valorum tax, both are assessed at the point of valuation, which is the point where the production process is complete but before processing and transportation. Although this sounds simple, this is one of the biggest problems with the current system due to the difficulty defining where that point of valuation actually is.

Wyoming's complicated tax system is an anomaly; it is different from that of other states. This means that companies must set up a special accounting system for Wyoming. During discussions at the task force meeting on April 9, 2015, Representative Mike Madden said some taxpayer audits are a result not knowing the ground rules due to the complexity and uniqueness of Wyoming's minerals tax system.

At a fundamental level, a tax system should be easy for industry to pay and government to collect. The minerals tax system is a long way away from that. This task force has the opportunity to simplify collection and valuation, and go back to one tax instead of two. A simpler tax system that reduces costs to private businesses would be a better way to stimulate the economy than handing out tax dollars to the favorites of the day. Wyoming is potentially at the beginning of a wealth creating change. The task force will be looking at options over the next two years.

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The ten members of the task force include four legislators: Representatives Mike Madden (R-Johnson/Sheridan) and Tom Reeder (R-Natrona); and Senators Ray Peterson (R-Big Horn/Park) and Michael Von Flatern (R-Campbell). Governor Mead appointed the remaining six task force members. Three county representatives include: Pat Meyer, Park County Assessor; Robb Slaughter, Sweetwater County treasurer; and Jim Willox, Converse County commissioner. Three industry representatives include: Bobby Rolston, Anadarko Petroleum; Marion Loomis, retired Wyoming Mining Assn. lobbyist, and Larry Wolfe, also a retired lobbyist.