Committee Meeting Information

June 12^th and 13^th

Casper Game and Fish Office

Casper, Wyoming

 

Committee Members Present

Senator Jim Anderson, Co-Chairman

Representative Rodney "Pete" Anderson, Co-Chairman

Senator Cale Case

Senator Kit Jennings

Senator Jayne Mockler

Representative Mary Gilmore

Representative Tom Lubnau

Representative Mike Madden

Representative David Miller

Representative Mark Semlek

Representative Tom Walsh

Representative Dave Zwonitzer

 

Committee Members Absent

Senator Tony Ross

Representative Ken Esquibel

 

Legislative Service Office Staff

Mark Quiner, Assistant Director

Don Richards, Senior Research Analyst

Dean Temte, Legislative Analyst

Josh Anderson, Research Associate

 

Others Present at Meeting

Please refer to Appendix 1 to review the Committee Sign-in Sheet
for a list of other individuals who attended the meeting.

Call To Order (June 12, 2007)

Co-Chairman Representative Anderson called the meeting to order at 8:30 am.  The following sections summarize the Committee proceedings by topic.  Please refer to Appendix 2 to review the Committee Meeting Agenda.  The Committee had a moment of silence for Senator Thomas.

 

Title 39 Overview

Mr. Mark Quiner and Mr. Don Richards of the Legislative Service Office (LSO) made a presentation concerning Title 39 of the Wyoming Statutes.  Mr. Quiner provided a handout to the Committee (see Appendix 3 for a copy of the handout) which included the index to Title 39.  Mr. Quiner explained that the first 10 chapters were previously repealed or reserved.  Thereafter, the chapters contain one tax per chapter.  Mr. Quiner explained that each chapter is organized in the same way, with sections 1 through 12 of each chapter analogous to each other chapter in the title which makes each tax easier to navigate.

 

Mr. Don Richards of the LSO continued the presentation on Title 39.  Mr. Richards provided a handout of his presentation to the Committee (see Appendix 4 for a copy of the handout).  Mr. Richards explained some of the principles of tax policy.  He suggested that taxation should be efficient and generally not encourage or discourage consumption (excluding sin tax). Mr. Richards suggested that there are principles to evaluate both horizontal and vertical and that taxes could be related to the benefit received and the ability to pay.  There can be no income tax  under Article 15, Section 18 of the Constitution without appropriate offsets.  He explained that property taxes come mostly from minerals and that most of the money goes to education or to the counties.  Other taxes include severance taxes, approximately 2/3 of which are from natural gas, sales and use tax, gasoline taxes, sin taxes (liquor is in title 12 not title 39) and inheritance taxes.  Mr. Richards also stated that it is important to consider who really pays a tax, the customers, the owners of capital or labor.  Other revenue sources include interest, federal mineral royalties, common school land income, fees and federal funds.  Mr. Richards then went through a comparison of Wyoming to other states.  Wyoming has no income tax, a comparatively low state sales tax, a low gasoline tax, middle cigarette tax and the lowest beer tax.

 

Mr. Richards then provided a handout that explained some of the exclusions from Wyoming taxes (see Appendix 5 for a copy of the handout).  Most services are excluded from tax except for those that are improvements to property.

 

Mr. Quiner provided a handout that highlighted some of the significant statutory changes since 1977.  See Appendix 6 for a copy of the handout.

 

Mr. Ed Schmidt, Director of the Department of Revenue, stated that the state's assessed value is still increasing.  He explained that assessed valuation is a lagging indicator and that if value is actually decreasing it takes awhile to show up in the appraised value.  There is a dichotomy with the taxpayers, they want value to be appraised low for tax purposes but high for selling.  He also explained that while Wyoming's property tax collections look high based on population, much of the burden is not borne by the citizens but more by the extractive industries.

 

Co-chairman Senator Anderson questioned if there was anything that could be done to promote and capitalize on uranium.  Representative Miller responded that uranium permitting is a very slow process but uranium demand is increasing rapidly.

 

Natural Gas Valuation

Patrick Day, of Holland and Hart on behalf of Exxon Mobil, gave a handout to the committee regarding the valuation of producer-processed natural gas (see Appendix 7 for a copy of the handout).  He stated that in producer-processed gas, the person who owns the gas also owns the production and processing facilities.  The issue is the value of the gas before you process it because the gas is not marketable when it leaves the ground according to Mr. Day.  Mr. Day stated that it costs a lot to construct the processing plants and that it is necessary to figure out how much value is added by the processing and transportation of the gas.  Mr. Day described that there was a major legislative change in the valuation of producer-processed gas after the year in which the then existing statute resulted in no taxable value for the gas produced by Exxon.  The Legislature prohibited the netback method and set out four options to value producer processed natural gas.  Mr. Day described the four methods.  First is comparable sales at the well which is never used because producer processed gas is not sold as raw value.  Second is comparable value, which considers what a 3^rd party charges for the processing and transportation of the gas.  Third is netback, which derives taxable value by deducting costs from sales.  The debate is what costs do you deduct, including how much to allow for a return on investment, for example.  The fourth method is proportionate profits which creates a ratio that results in a percentage.  The proportionate profits method will never have a zero value.  Mr. Day stated that the fact that proportionate profits may result in a different value does not make it an incorrect method because it is designed to work differently.  Mr. Day stated that the Wyoming Supreme Court has already answered many of the questions related to the current statutes and that it may be advisable to minimize change in order to avoid future litigation or controversy.

 

Senator Mockler provided a report from the Producer Processed Natural Gas Subcommittee.  She stated that the draft that was prepared by the LSO was based on 2006 House Bill 43.  It included a 10.25% rate of return and many of the requests of the draft presented to the Subcommittee were submitted by the Petroleum Association of Wyoming.

 

Mr. Craig Grenvik of the Department of Revenue stated that there is not generally an arms length contract in producer-processed natural gas.  Rate of return or return on investment is meant to act as a simulation of an arms length contract.  Mr. Grenvik also stated that there may be an issue with equipment used in production and suggested that if equipment is not in use it should not be incorporated in costs of production.

 

Mr. Schmidt stated that the 10.25% rate of return was based on a review of what would be an acceptable rebate of return and could be high or low.  He also stated that the 12 to 18% rate of return as suggested by the industry was picked from another portion of statute that is punitive in nature.

 

Mr. Bruce Hinchey of the Petroleum Association of Wyoming addressed the Committee and suggested that they leave proportionate profits in the statute as an option.  Mr. Grenvik suggested that the result of leaving in proportionate profits in the statute would be that the Department of Revenue would be forced to use that method for the next three years for certain taxpayers.

 

Chuck Greenhawt of Questar addressed the Committee and stated that they were not expecting utility like returns and would expect much greater returns if they were able to produce this gas in a third party transaction.

 

Co-Chairman Representative Anderson invited the industry and the Department to make amendments to the draft prepared by the LSO for the next meeting, particularly focusing on what the rate of return should be and what should be included in the capital investment.

 

Representative Cohee addressed the Committee and suggested that the previous efforts in this area were unsuccessful because they were uncomfortable to various interests even though the sides are not too far apart.  Representative Cohee suggested that the issue is one of fundamental fairness and pointed out that the gas, before it is severed, belongs to the people of the state.  He suggested then that the Committee should consider not only fairness to the producer but also fairness to the people and that it is important to settle the issue for stability.

 

Mr. Schmidt stated that there were six main issues:  1. Return on investment.  2. Declining asset vs. gross capital investment.  3. Issues with transportation.  4.  Retirement of assets.  5. Overhead costs.  6. Floor/minimum fair market value.

 

Ms. Sarah Gorin of the Equality State Policy Center addressed the Committee and stated that changing the value does effect the tax burden, but the issue is fairness of valuation.  According to Ms. Gorin, if the revenue is too much or too little, then the Legislature can change the tax rate.  Ms. Gorin also suggested that the Committee should not be arbitrators between the Department of Revenue and industry.  The Department, as experts, should be given precedence and that it should be acceptable for the Department and industry to come back without an agreement.

 

Mr. Hinchey stated that there were 6 issues that industry was concerned about.  1. Return on investment/rate of return (10.25).  2. Gross capital investment v. declining asset.  3. Overhead costs.  4. Minimum/floor.  5. Proportionate profits remaining in the statute. 6. Effective date of any changes.

 

The Committee then discussed a bill draft and decided that they were not ready for a draft.  Senator Mockler said that they could go through the draft prepared by LSO and add the draft prepared by the Petroleum Association of Wyoming and any compromise then the Committee can pick any option or none if the Committee does not like any of them.

 

Call To Order (June 13, 2007)

Co-Chairman Representative Anderson called the meeting to order at 8:30 am.

 

Motor Vehicle Transfer

Mr. Dan Noble of the Department of Revenue addressed the Committee on the current issues concerning motor vehicle transfer.  The current situation gives an opportunity for people to not quite follow the law.  There are many motor vehicle titles around the state where the sales tax has not been paid on the vehicle transfer.  The Department can issue assessments and, if they are not paid, can obtain a lien against the vehicle.  Also, if someone says they cannot pay the tax, the Department puts them on a payment plan.  Mr. Nobel stated that the Department gives them a year to pay and charges statutory interest.  There is no payment plan for registration, only sales tax.

 

Ms. Marsha Allen of the Wyoming Auto Dealers Association said that dealers have historically opposed collecting the tax and that while having the dealers collect sales tax may fix some problems, it may cause new ones.  For example, if the tax is collected as the point-of-sale it will be financed.  Then the buyer will be "upside down" in their loan.  This may encourage out of state sales where the buyer would have a 45 day leeway to pay the tax.

 

In response to a question, Mr. Nobel said that roughly a third of the states collect at point of sale.  Mr. Nobel opined that the state should have the dealers collect the tax at the point of sale.  He noted that taxes on motorcycles are collected in that way, and it would put them on equal footing with auto dealers.

 

Ms. Julie Freese, Freemont County Clerk, stated that she could not believe that state money is used to go out and collect tax.  Constituents are not happy about the runaround and are surprised about the amount of the sales tax.  Ms. Freese stated that the state cannot collect the tax after three years. Ms. Freese provided a handout about sales tax in Freemont County (see Appendix 8 for a copy of the handout).  If the car is repossessed or wrecked before the tax is paid, the buyer does not want to pay sales tax.  Motorcycle dealers already collect taxes at the point of sale, according to Ms. Freese.

 

Ms. Renea Vitto, Natrona County Clerk, said that she is in support of dealer collection of the sales tax.  She stated that Natrona County is holding 3000 titles where sales tax has not been paid.

 

Senator Case moved that a bill be drafted that would prohibit the Department from providing payment plans for sales tax on vehicles.  The motion was seconded and it carried.

 

Senator Case moved that a bill be drafted that would require the purchaser to pay the sales tax at the point of sale.

 

Senator Mockler clarified the motion to require point of sale collection for sales tax from a dealership, but 45 days for those who buy privately.  The motion was seconded and it carried.

 

Food Tax

Mr. Nobel discussed a teleconference where he asked food venders to report certain information to the Department regarding equitable redistribution to the counties.  The major issue is that the data is not captured.  When food became exempt there was no need to keep records.  Vendors cannot tell the Department what the tax collections were or would be.

 

Co-chairman Representative Anderson suggested that the Committee should recommend to the Joint Appropriations Committee that they extend the same backfill with an increase of 10% as a placeholder until population data is obtained.

 

Senator Mockler said that it is important to back this up with data to show the appropriations committee that it is considered.

 

Mr. Noble asked if the Committee wanted specific option taxes included and Co-chairman Senator Anderson said that it would be ok to exclude specific option taxes.

 

Revenue Forecast

Mr. Dean Temte of the LSO addressed the Committee regarding the forecasted revenues for fiscal year 2007.  General Fund revenues are ahead of projections, however, natural gas prices are dropping, according to Mr. Temte.  Mr. Temte provided a handout to the Committee (see Appendix 9 for a copy of the handout).  According to Mr. Temte, since natural gas is a large part of the state's revenue, the State should be close to the projections after both the other revenue factors and natural gas prices have been accounted for.  He noted that the state would likely not have as large of a carryover as in previous years.

 

Next Meeting

Co-chairman Senator Anderson set the next meeting for Thursday, September 27 and Friday, September 28 in Cheyenne.

 

Meeting Adjournment

There being no further business, Co-Chairman Senator Anderson adjourned the meeting at 11:20 am.

 

Respectfully submitted,

 

 

 

 

Representative Rodney "Pete" Anderson, Co-Chairman

 

 

 

 

 

 

 

 

 

Appendix		Appendix Topic		Appendix Description		Appendix Provider
1		Committee Sign-In Sheet		Lists meeting attendees		Legislative Service Office
2		Committee Meeting Agenda		Provides an outline of the topics the Committee planned to address at meeting		Legislative Service Office
3		Title 39 Handout		Organization of Title 39		Legislative Service Office
4		Presentation on Taxation		Presentation on Wyoming Taxation and Title 39		Legislative Service Office
5		Tax Exemptions		Research Memo on Wyoming Tax Exemptions		Legislative Service Office
6		Statutory Changes		Significant Statutory Changes Affecting State Taxation		Legislative Service Office
7		Value Adding Activities		Producer processed Natural Gas – Value adding activities		Patrick Day, Holland and Hart
8		Freemont County Titles		Freemont County Titles being held until sales tax paid.		Freemont County Clerk
9		Natural Gas Prices		List of Natural Gas prices		Legislative Service Office