Joint Revenue Committee Minutes

Committee Meeting Information

August 7 and 8, 2008

George Amos Building

Gillette, Wyoming

Committee Members Present

Senator Jim Anderson, Co-Chairman

Representative Rodney “Pete” Anderson, Co-Chairman

Senator Cale Case

Senator Kit Jennings

Senator Tony Ross

Representative Ken Esquibel

Representative Tom Lubnau

Representative Mike Madden

Representative David Miller

Representative Mark Semlek

Representative Tim Stubson

Representative Dave Zwonitzer

Committee Members Absent

Senator Jayne Mockler

Representative Mary Gilmore

Legislative Service Office Staff

Mark Quiner, Assistant Director, Dean Temte, Legislative Analyst

Matthew Sackett, Research Analyst, Josh Anderson, Staff Attorney

Other Legislators Present

Senator John Hines

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.

Executive Summary

The Joint Revenue Committee met for two days in Gillette, Wyoming. The Committee heard testimony on coal valuation and directed staff to draft a bill on that topic. The Committee heard testimony on helium valuation. The Committee heard testimony on tobacco tax and directed staff to draft two bills on that topic. The Committee heard testimony on vendor collection fees and directed staff to draft a bill on that topic. The Committee also heard testimony on property tax relief and discussed requesting permission from management council to further pursue that topic.

Call To Order (8/7/2008)

Co-chair Senator 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.

Coal Valuation

Mr. Ed Schmidt of the Department of Revenue stated that the Department would present an overview of coal valuation and discussion about a proposal for change. He noted that the Department was not offering the proposal necessarily with an endorsement but it is worth a discussion.

Mr. Craig Grenvik of the Department of Revenue made a presentation to the Committee on coal valuation (see Appendix 3 and 4 for a copy of the presentation). Mr. Grenvik stated that there is an issue whether the direct cost ratio should be set in statute or whether the status quo should remain. He noted that there are two components in coal valuation and that it is necessary to determine fair market value at the point of valuation, not when sold and then subtract a cost component to get down to the taxable value of the coal.

Mr. Grenvik described some of the valuation terminology related to coal valuation. He noted that "gross product" refers to what portion of the mineral is taxable and not the total quantity removed. He noted that the "gross products/ad valorem tax" is a tax collected by the counties in lieu of a tax on land and that severance tax is a state tax. Mr. Grenvik noted that the fair market value is the same for gross products tax and severance tax.

Mr. Grenvik noted that the point of valuation is the mouth of the mine or the top of the ramp and that the coal goes on after that point to the processing facility where it is crushed, stored and loaded out.

In response to a question, Mr. Don Coovert noted that the reason that the top of the ramp was chosen is primarily constitutional and that it was originally written in the context of an underground mine. Mr. Coovert noted that everything was patterned around the concept of a mining claim and did not include processing.

Mr. Grenvik noted that transportation and processing costs after the point of valuation are removed from the value of the gross product. He also noted that crushing, no matter where it occurs, is deductible as a processing expense. He noted that an "exemption" is a certain volume of the mineral that is not taxable such as federal, state or tribal royalties and coal consumed prior to sale for treating or processing coal from the same mine.

Mr. Grenvik noted that the current method for coal valuation is the proportionate profits method. Mr. Grenvik noted that conceptually it runs counter to fair market value and that as expenses increase, so does the taxable value. He noted that similar producers can have different burdens and that the overburden ratio increases mine expenses and the tax burden.

In response to a question, Mr. Grenvik noted that the proportionate profits method is very complex and audit intensive and that not all companies are set up to deal with that method of valuation. He noted that one of the biggest problems is errors in reporting due to the complexity of the system. Mr. Grenvik noted that the complexity of the valuation has led to a lot of litigation.

Mr. Grenvik stated that in going forward, one suggestion would be to set two taxable value ratios in statute, one for high btu coal and one for low. He noted that this system would have pros and cons. He stated that under the proposed change there would be no need to worry about the point of valuation and that fair market value would be more of a driver. He noted that this would help bring equal treatment among the taxpayers and would be far more efficient to verify.

Mr. Grenvik noted that constitutionally there is precedence in that trona, sand and gravel are treated in a similar way. He noted that the Legislature could set the value to any value it determined was fair.

Mr. Marion Loomis of the Wyoming Mining Association provided a handout to the Committee (see Appendix 5 for a copy of the handout). Mr. Loomis stated that they share all of the concerns expressed by the Department of Revenue and that if the Legislature were to set a ratio it would give certainty to the valuation process. He noted that in the current system if there is a great deal of investment on the surface it drives the formula down, while investment in the pit drives the ratio up.

Mr. William Hartzler of Foundation Coal explained the handout provided by Mr. Loomis and stated that it showed some of the inequity of the proportional profits method in that the taxable value can change based solely on a business decision.

Mr. Loomis stated in light of those fluctuations there was a question as to whether it was the correct way to value the mineral or whether there was a way to make it more simple and resolve all of the litigation.

Mr. Coovert noted that the current system was a compromise at the time but the situation now includes increasing volatility issues that were not foreseen at the time.

In response to a question, Mr. Schmidt noted that the Department was not necessarily advocating the ration number that was in the presentation and that they would like to have a way to revisit the ratio after a certain time. In response to a question, Mr. Grenvik said that they do not necessarily support that number because they have yet to see the results of ongoing audits which could affect their data.

Mr. Schmidt noted that the goal of the Department was to try to give an unbiased opinion of what the issues are and that while they like the idea of having a simple method and less lawsuits they were not advocating to throw out the whole system. He noted that he was concerned about how to go about setting what the rate will be and including a mechanism to come back and look at the rate after a certain time. He stated that it would be worth looking at some factors that would adjust the ratio number up or down.

Ms. Sara Gorin of the Equality State Policy Center provided a handout to the Committee (see Appendix 6 for a copy of the handout). She noted that the proportionate profits method came as the result of coal lobbying in 1990. She noted that the state has seen significant reductions in the taxation of coal and that she thinks the proposed change would operate as a cap. She noted that no method is going to be perfect and that if the Legislature is going to fix the ratio there will be a big fight over what the number will be. She noted that the benefit in decreased staff time and litigation may not be worth a potential decrease in revenue.

Ms. Shannon Anderson of the Powder River Basin Resource Council noted that coal is a limited resource and urged the Committee to consider the impacts that the revenue from the coal can make. She stated that litigation related to coal probably will not stop regardless of the valuation method and asked the Committee to consider the potential benefit of coal on the state.

In the afternoon, the Committee toured the Belle Ayr coal mine outside of Gillette.

Call to Order (8/8/2008)

Co-chair representative Anderson called the meeting to order at 8:30 am.

Coal Valuation Continued

After discussion, the Committee requested staff to work with the Department of Revenue to draft a bill with a fixed cost ratio for coal valuation. Co-chair Representative Anderson noted that it would be appropriate to leave the factor blank and that the Committee could discuss what factor to amend into the draft bill.

Helium Valuation

Mr. Schmidt noted that the bill took effect after session but that the detail would not come until the end of the year. In response to a question, Mr. Grenvik noted that any appeals would be in valuation which would not occur until next February to April.

Tobacco Tax

Mr. Dan Sullivan provided two handouts to the Committee (see Appendix 7 and Appendix 8 for a copy of the handouts). Mr. Sullivan noted that there are separate taxes on cigarettes and other tobacco products (OTP). He noted that with cigarettes the tax is sixty cents per pack no matter the price. He noted that round can chewing tobacco, which is 80% of OTP, has an ad valorem tax of 20%. Mr. Sullivan noted that the category has exploded and that while the state may get sixty cents from the expensive brands it would get less money from inexpensive brands.

Mr. Sullivan stated that it would be appropriate to go to a weight based tax system, such as fifty cents an ounce. In response to a question, Mr. Sullivan noted that the current policy favors the cheaper brands in the market and that if the tax is done on weight base with cigarettes and if that is the correct way to tax, then it should be with other tobacco products as well.

Ms. Lori Urbigkit of R.J. Reynolds noted that the smaller brands represent only about two percent of the sales and that the net difference to the big brands would be zero while other brands would see an 80% to 200% increase. She noted that this change would hugely benefit the largest seller.

Ms. Erin Taylor of the Wyoming Taxpayers Association provided two handouts to the Committee (see Appendix 9 and Appendix 10 for a copy of the handouts). Ms. Taylor noted that the Association would support a change to a weight based tax based on sound principles of tax policy, not for one company or another.

Ms. Loretta Wolf of the American Heart Association provided two handouts to the Committee (see Appendix 11 and Appendix 12 for a copy of the handouts). Ms. Wolf noted that ad valorem is superior to weight based tax and stated that neither advantages revenue or usage. She noted that the proposed change to weight based tax may increase the cost on the lower priced products but it would hold harmless the expensive brands. She noted that the majority of consumers want to use the more expensive products. She stated that she would suggest a floor for the tax.

After additional discussion, the Committee requested staff to draft two bills. One bill to treat OTP similar to cigarettes with a tax of 60 cents per unit of weight. The second bill is an ad valorem tax on all nicotine products unless there is a tax on the basis of weight or unit that will provide equal or more revenue with an exception for nicotine cessation products.

In response to a question, Mr. Dave Picard provided a handout comparing the companies that produce moist snuff tobacco (see Appendix 13 for a copy of the handout).

Vendor Collection Fees

Ms. Lynn Birleffi of the Wyoming Retail Association provided two handouts to the Committee on vendor collection fees (see Appendix 14 and 15 for a copy of the handouts). She noted that in some other states vendors are permitted to keep a fee for collecting sales tax, usually around 3%. Ms. Birleffi noted that if a vendor sells a game and fish license they can keep a percentage. She stated that she would like to request that the Committee draft legislation so that the issue can get analysis from the Committee and the Department of Revenue. Ms. Birleffi noted that this would compensate businesses for their administrative costs in collecting the tax and noted a study which indicated that there was a cost to the vendor of 2% to 13% because the collection of sales tax is more complicated than one may think.

Ms. Taylor noted that the Wyoming Taxpayers Association does support vendors keeping some type of collection fee. She stated that sales tax is a large portion of state revenue and that this could help increase compliance in collection of the tax.

After additional discussion the Committee directed staff to draft a bill for vendor compensation based on the bill last submitted on this issue and with a provision that if the tax is not paid to the state on time the compensation would go away, similar to the Arizona statute.

Property Tax Relief

Mr. Schmidt provided a handout to the Committee on property tax relief (see Appendix 16 for a copy of the handout). He noted that in the assessment of property value, while it is computer driven as much as possible, it is an art, not a science. He noted that the Department determines value and the Legislature determines the tax. Mr. Schmidt stated that mass appraisal is necessary because there is no such thing as absolute value and some houses will be above or below where they are appraised.

Mr. Schmidt noted that there were several options that could be considered for relief on property tax. One option would be to lower the assessment ratio. He noted that under that option there would be a substantial revenue loss and that the ratio would apply to all homes whether wealthy or poor. Mr. Schmidt noted that another option would be some type of homestead exemption which could exempt the first $3000, $5000 or $10,000 worth of value. He noted that another option would be some type of circuit breaker which would shut off the property tax for low income, such as if the property taxes exceed a certain percentage of the household income.

Mr. Schmidt noted that the Department is projecting 2.5 times the number of successful applicants to the property tax refund program due to the changes to the program from last session. He noted that the Department made a significant effort to advertise the program and that it appears to have helped and that it is a hands on program which helps them get other benefits as well.

Ms. Taylor provided two handouts to the Committee on property tax (see Appendix 17 and 18 for a copy of the handouts). She noted that there was an outline of all the programs that the Taxpayers Association had put on its website. She noted that she did not have an advertising budget but tried to get the information out there and that the Taxpayers Association wants to be a resource.

Mr. Joe Evans of the Wyoming County Commissioners Association provided a handout to the Committee (see Appendix 19 for a copy of the handout).

Co-chair Representative Anderson stated that it may be appropriate to ask for permission from Management Council to pursue that topic and to add an extra day in case the Committee would need it to talk about property tax relief. Co-chair Senator Anderson noted that it would be appropriate to request permission to pursue the topic in the time already available to the Committee.

The Committee set the next meeting for Cheyenne in mid November between the 10^th and the 21^st.

Meeting Adjournment

There being no further business, Co-Chairman Representative Anderson adjourned the meeting at 12:00 pm.

Respectfully submitted,

Senator Anderson, Co-Chairman Representative Anderson, Co-Chairman

Appendix	Appendix Topic	Appendix Description	Appendix Provider
1	Attendance Sheet	Attendance Sheet	Legislative Service Office
2	Agenda	Agenda	Legislative Service Office
3	Coal Valuation	Coal Valuation Study	Department of Revenue
4	Coal Valuation	Coal Valuation Study	Department of Revenue
5	Coal Valuation	Coal Valuation Presentation	Mining Association
6	Coal Valuation	Mineral Taxation Report	State Policy Center
7	Tobacco Tax	Youth Usage Studies	Dan Sullivan
8	Tobacco Tax	Other Tobacco Products Tax	Dan Sullivan
9	Tobacco Tax	Smokeless Tobacco	Taxpayers Association
10	Tobacco Tax	Cornerstones of taxation	Taxpayers Association
11	Tobacco Tax	Moist Snuff Tobacco	American Heart Association
12	Tobacco Tax	Through with Chew	American Heart Association
13	Tobacco Tax	Companies who produce moist snuff tobacco	Dave Picard
14	Vendor Collection Fees	State comparison of vendor fees	Retail Association
15	Vendor Collection Fees	Issue brief	Retail Association
16	Property Tax Relief	Property Tax 2008	Department of Revenue
17	Property Tax Relief	Property Tax relief options	Taxpayers Association
18	Property Tax Relief	State comparison of tax relief programs	Taxpayers Association
19	Property Tax Relief	Residential property change by county	County Commissioners