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November 7, 2005
State Capitol, Room 302
Cheyenne, Wyoming
Representative Tom Lockhart
Senator Jayne Mockler
Representative Rodney "Pete" Anderson, Task Force Co-chairman
Mark Quiner, Assistant Director
Don Richards, Senior Research Analyst
Please refer to
Appendix 1 to review the Task Force Sign-in Sheet
for a list of other individuals who attended the meeting.
Representative Lockhart called the meeting to order at 4:00 p.m. The following sections summarize the Task Force Subcommittee proceedings by topic.
The Subcommittee approved the minutes from the September 26, 2005 meeting without objection.
Director Ed Schmidt, Department of Revenue and Casey Parker, Attorney General's Office, provided an explanation of the Department's concerns with the Subcommittee's draft legislation, 06LSO-0167.W3, Intangible property-definitions. (See Appendix 2 for a copy of the draft legislation.) Ms. Parker explained that the Department's concern is essentially with three intangible items: going concern value, goodwill and other similar items. Ms. Parker indicated that these three assets are difficult to value, and the Department's primary concern is with the term “going concern value” which the unitary method is designed to catch. As a result of capturing the value by applying the unitary method, the Department would need to apply a cost method for valuation and the draft's fiscal impact would be to increase, not decrease, revenues to the state.
Alec Vincent, Burlington Northern Sante Fe (BNSF), began his comments by asking whether the inclusion of “going concern” would prohibit the Department's use of the unitary approach. He suggested the exemption should be limited to intangible assets and not preclude the use of the unitary method. Mr. Vincent stated that any contention that the Department cannot use the unitary method would render that statute invalid. Mr. Vincent also urged the Subcommittee to include customized software in the proposed language of W.S. 39-13-105 (j)(iii)(c) for purposes of clarification. He also offered descriptive language that might resolve the Department's concern with the terms going concern and goodwill.
Katrina Basye, Idaho Power Company, stated that the state of Idaho does include goodwill in its statutes as an exemption and the state still applies the unitary approach. She indicated that Idaho does not include "going concern value.”
Don Boehm, Basin Electric Power Cooperative, read a definition of going concern value from an assessment or accounting publication.
Robert Fredericks, Union Pacific Power Company, spoke in support of Mr. Vincent’s testimony.
Bruce Nielsen, Williams Companies, concurred with Mr. Vincent’s statements.
Richard Heltzel, El Paso Corporation, spoke in support of the state’s method of unitary valuation. He suggested that the Department currently conducts annual meetings with industry on the costs of capital and suggested that the valuation of intangibles could be treated similarly.
Ms. Parker stated that the Supreme Court in the RT Communication's decision, indicated that the state could tax going concern.
Frank Anderson, RT Communications, stated that RT Communication currently carries goodwill on the books and would argue in favor of including goodwill as an exempt intangible.
Liz Zerga, Alltel, stated that all intangible assets are exempt under the current law in Wyoming. She suggested that for rate of return regulated entities, especially telecommunications, a large portion of their assessed property captured by the unitary method is intangible property. Ms. Zerga explained that the Department initiated this discussion with a desire to have a better defined list. She added that as she understands going concern, it is the enhancement to value and should be exempt. Ms. Zerga expressed that going concern is an important element for Alltel. She added that it can be separately identified through an appraisal company. She concluded her statements by suggesting that the inclusion of going concern would not prohibit the Department from using the unitary method and that goodwill is included as an intangible, often exempt in many states.
The Subcommittee discussed if there will be a difference between the list of intangibles and what would be and would not be taxable. They reiterated that the charge of the Subcommittee was to arrive at definitions.
Director Schmidt requested the Subcommittee recall the comments by Mr. Tegarden at the first meeting of the Task Force. He asked the Subcommittee, how do you calculate the value of going concern and goodwill? He suggested that there may be a way to use the unitary approach, but then all of a sudden companies may submit a large amount of value under the category of goodwill.
Ken Uhrich, Ad Valorem Division, Department of Revenue, stated that goodwill is technically the difference between the price paid for a business beyond net book value between a willing buyer and willing seller. Without a transaction to measure the value, a lot could be shown as "goodwill."
Wade Hall, Administrator, Ad Valorem Division, Department of Revenue, discussed the varied definitions related to going concern and that conceivably anything above net book value is some sort of going concern attributed to the synergy of those assets operating together.
Stacey Sprinkle, Director of Tax Policy, Verizon Wireless, indicated that enhanced return above and beyond the portion of Verizon's income is related to intangible assets, such as FCC licenses. She suggested that the Subcommittee consider what intangible property should be taxed. If it is taxed, what portion and for whom.
Brenda Arnold, Laramie County Assessor, stated that the Wyoming local assessors support the bill if goodwill and going concern are taken out. The possible litigation that could follow from goodwill and going concern would be a complete change in the taxation in Wyoming. Other industries will progress toward the use of technology as currently experienced in the telecommunications industry. She added that additional issues specific to the telecommunications industry should be taken up as a lengthy study on its own.
Bob Strom, Tax Director, AT&T, stated that when he speaks of goodwill it is as the generally accepted accounting principle according to GAAP, not a catch all. He indicated that AT&T has a goodwill number in excess of $5 billion. The amount changes as the accounting rules change and when a company purchases another company. When he speaks about cost he speaks about replacement cost, not net book value, and he thinks goodwill and going concern, is above and beyond his companies' cost. He urged the Subcommittee to leave both going concern and goodwill within the allowable exemptions.
The Subcommittee then considered all of the testimony and elected to forward a draft to the full Task Force without the terms "going concern" (proposed in W.S. 39-13-105(j)(i)) and "any other similar item" (proposed W.S. 31-13-105(j)(iii)(F)).
There being no further business, Representative Lockhart adjourned the meeting at 5:00 p.m.
Respectfully submitted,
Representative Lockhart Senator Mockler