![[Top]](/images/nav-top.gif)
![[Back]](/images/nav-back.gif)
![[Home]](/images/nav-home.gif)
November 8, 2005
State Capitol, Room 302
Cheyenne, Wyoming
Representative Rodney “Pete” Anderson, Cochairman
Senator Robert Peck, Cochairman
Senator Jayne Mockler
Senator Michael Von Flatern
Representative Tom Lockhart
Representative Layton Morgan
Representative Kurt Bucholz
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.
Cochairman Anderson called the meeting to order at 8:30 a.m. The following sections summarize the Task Force proceedings by topic. Please refer to Appendix 2 to review the Task Force Meeting Agenda.
Representative Lockhart and Senator Mockler summarized the two meetings of their Subcommittee charged with establishing definitions of tangible personal property and intangible personal property. At the first Subcommittee meeting, testimony from the Department of Revenue and other interested parties suggested that more clarification was needed than provided for in the 2004 definitions. The Subcommittee elected to pursue a definition used by the Internal Revenue Service (IRS), which reportedly provides a known, well-defined, stable, and tested list of intangible assets. In the second Subcommittee meeting, additional input was offered on ways to improve 06LSO-0167.W3, Intangible property-definitions. Specifically, the Subcommittee elected to delete “going concern” and subparagraph (a)(ii)(F) which had read “other similar items.” The Subcommittee felt that these items were just too broad, but acknowledged that the telecommunications industry may have a different view on how they should be taxed. Finally, the Subcommittee members recognized that it was charged with providing definitions; however, they also developed exemptions since the definitions are broad and simply outline the characteristics of intangibles. The Subcommittee recommended 06LSO-0167.W4, Intangible property-definitions, to the full Task Force for consideration.
(See Appendix 3 for a copy of the draft legislation.)
Alec Vincent, Burlington Northern Sante Fe (BNSF), General Director of Taxes, expressed his support for the Subcommittee draft but would like to include custom computer software in page three, line nine, after the word “item” by adding “including but not limited to customized software.”
Director Ed Schmidt, Department of Revenue, suggested that “proprietary software” may be preferred to “customized software.” Director Schmidt also expressed concerns with the language “other similar items” used as a qualifier throughout the bill.
Representative Lockhart moved to add the words “proprietary computer software” after “format” on page 3, line 8, and retain the language "other similar items" (not item) after the insertion. The motion was seconded; and it passed.
Senator Mockler moved that on page 3, line 29, after “by” strike “a” and add “an individual or.” Her motion was seconded.
Marion Loomis of the Wyoming Mining Association spoke in favor the motion. Representative Lockhart cautioned against modifying the list too much and losing precedent of prior action. The motion passed.
Director Schmidt indicated that “goodwill” was indeed an intangible, but it is a nebulous term. Director Schmidt suggested that if goodwill was established on a company's books and records it would be easier to determine the appropriate value. He recommended the term be limited to goodwill that appears on a company's books and records. Wade Hall, Ad Valorem Tax Administrator, Department of Revenue, indicated that goodwill could be identified through other items on the list. He recited definitions of goodwill from manuals of assessing, concluding that there is not consensus on what is included in goodwill.
Senator Mockler spoke in favor of further clarifying the term. She suggested that the IRS has probably backed the term up with further limitations and suggested it was not entirely clear what the universe of goodwill includes.
Liz Zerga, Alltel, stated that with respect to goodwill, it is a recognized intangible in other states that apply the unitary approach. She spoke against further clarification of the IRS list.
Senator Mockler moved that on page 2, line 41, the phrase “if it is established and separately identified on a company's books and records” be added after "goodwill". The motion was seconded.
Stacie Sprinkle, Verizon Wireless, spoke against the motion under the same rational as deleting “going concern.” She indicated that there is some portion of goodwill that should be exempt and not just what is identified in a company's books and records. She asked the Task Force to limit goodwill, if necessary, other than through documentation on books and records. For example, she suggested that the generally accepted appraisal standards offer definitions.
The motion passed.
Senator Mockler moved the bill (as a recommendation to the Joint Revenue Interim Committee). The motion was seconded, and it passed.
(See Appendix 4 for a copy of the draft legislation.)
Director Schmidt offered replacement language that the Department of Revenue had developed addressing the same subject. (See Appendix 5.) He then recounted a meeting between the industry representatives and the Department and explained the replacement language.
Director Schmidt commented on whether the industry classifications under proposed W.S. 39-13-103(d)(i) should be subdivided into minor categories or whether major categories should be used. (See Appendix 6 for a classification of state assessed companies.) Next, he explained the rational for proposed language under W.S. 39-13-103(d)(ii), and how the Department might pursue rule promulgation. Finally, he added that a two-year percentage was included since Montana’s law provides that time frame, and the Task Force had directed the Department to use the Montana law as the basis for consideration. Director Schmidt also offered preliminary language for rules on this option and added that it would not be possible to incorporate this option for the 2006 tax year. (See Appendix 7 for a copy of example rules related to the draft legislation and Appendix 8 for a copy of the Montana code and related rules on the topic.)
Next, Director Schmidt and Wade Hall discussed how the percentages could be applied to the total assessment or each indicator of value. Mr. Hall did not know which option would have a higher fiscal impact.
Wade Hall explained the hypothetical fiscal impact of the Department's replacement language using percentages based upon 2004 filings as well as a more direct application of Montana's current law. (See Appendix 9.) He also discussed a similar analysis by minor industry group. (See Appendix 10.) Director Schmidt explained the Department’s rationale for combining all telecommunications companies in one group and offered language in current rules that do not subdivide the telecommunications industry. (See Appendix 11.)
Finally, Director Schmidt suggested that once the Department establishes percentages, the Department would view the percentages as a safe harbor and the Task Force may wish to consider whether that is an appropriate approach for companies not requesting any exemption. Furthermore, Director Schmidt explained that there is an issue whether companies should have the opportunity to ask for more exemption than the percentages allow. He disagreed with providing the opportunity for companies to go beyond a maximum percentage and suggested the point of adopting the "Montana solution" was to keep a lid on total exemptions.
Alec Vincent, BNSF, stated that his company prefers option 2 in the proposed rules (Appendix 7). He also suggested that industry subgroups should be split into minor categories rather than applying percentages at the major industry level. He supported this contention by stating that capitalization rates are currently applied for each minor industry group.
Mr. Vincent added that there is no two-year review actually being carried out in Montana. Therefore, he suggested that industry be given an opportunity to challenge the percentages at their request. In summary, he suggested that a minimum percentage applied to each subgroup with an opportunity for taxpayers to opt out of the minimum percentage. Without an opt-out provision, litigation could result. The imposition of percentages removes some possibility of litigation, according to Mr. Vincent.
Alec Vincent responded to a Task Force inquiry and stated that BNSF fully supports the use of the unitary method and that method is fully supported by state and federal court action in Wyoming to arrive at a market value. He added that the intangible definitions do not violate the unitary principles.
Liz Zerga, Alltel, indicated her client's primary concern is lumping telecommunications industry into one category. She stated that it won’t solve the valuation issue if the state combines cellular telecommunications with other sub-categories of the telecommunications industry. In response to a Task Force question, Ms. Zerga expressed her preference to be assessed at the local level at the 9.5 percent interest rates.
Brenda Arnold, Laramie County Assessor, responded to a Task Force inquiry indicating that Department rule identifies which properties at the local level shall be assessed at 11.5 percent, e.g., refineries, newspapers, etc. Local assessors could take on the assessment of telecommunications companies but there are three options available to use for assessment: the income approach, cost approach, and comparable sales. She also explained that there would be 23 county boards of equalization to which challenges could be made.
Michael Stull, RT Communications, stated that it is important to recognize the value of goodwill.
Frank Anderson, RT Communications, suggested that the value of goodwill is well documented within his company. In response to a question, he indicated that RT Communications does not follow Sarbanes-Oxley requirements but does follow other accounting standards.
Stacey Sprinkle, Verizon Wireless, reiterated that the Montana solution provides some administrative ease and guidance for the Department. She also explained that Wyoming imposes a property tax, not an income tax, and that by taxing intangibles the state is effectively imposing an income tax on some industries. She also explained why cellular telecommunications received more than a 50 percent exemption in 2004 for their intangible property.
Senator Mockler moved to forward the DOR’s replacement option to the Joint Revenue Interim Committee, and the motion was seconded.
Representative Anderson asked whether there was any objection to expanding the industry categories. Seeing none, he directed LSO to include minor industries in the recommended bill.
The Committee discussed whether the two-year review is needed and whether companies should be allowed to opt out of the percentage schedule. The Committee directed LSO to include the review in even numbered years, and the motion to recommend the bill to the Joint Revenue Interim Committee passed.
(See Appendix 12 for a copy of the draft legislation.)
Senator Mockler moved 06LSO-0170.W1 for purposes of recommendation to the Joint Revenue Interim Committee. The motion was seconded, and it passed.
(See Appendix 13 for a copy of the draft legislation.)
In response to a Task Force question, Director Schmidt indicated that the Department of Revenue did not prepare rules for tax year 2005. Senator Mockler moved the bill with one technical change - amend the word “provided” to “accepted” on page 3, line 23.
The motion was seconded and the Task Force approved 06LSO-0169.W1, with amendment.
Senator Mockler directed that the report of the Task Force to be prepared by staff indicate that the Task Force did not get to the last three items of their charge.
There being no further business, Cochairman Peck adjourned the meeting at 11:40 a.m.
Respectfully submitted,
Senator Peck, Cochairman Representative Anderson, Cochairman