Lawmakers’ checklist when considering sales-tax exemptions

Last week in the Forum we dove into tax issues. That’s because all of us have to, these days, like it or not. Wyoming is in the midst of a budget crunch, and that means we have to examine not only spending but revenue — and that means taxes.

Well, it’s not over, folks. Here’s more on taxes this week. It’s a complicated topic, and just one dive won’t do it. You’ve got to spend some time on the details.

The Legislature’s Joint Revenue Committee is meeting this week in Buffalo, on Thursday and Friday, Sept. 22 and 23. One of the issues members are going to examine is sales tax exemptions.

Rep. Mike Madden of Buffalo, the co-chairman of the committee and a PhD economist, wrote a nice summary of the tax exemption issues for the  Forum last week,. Here’s what he said:

Tax exemptions have developed over the years purportedly to provide economic incentives to certain industries and businesses. From an economic perspective they are really tax appropriations. That is, exemptions work the same way as taxing an industry and subsequently appropriating the money necessary to pay the industry back an amount equal to the original tax.

That’s what he said. If we start talking about tax exemptions, we have to realize that we’re really talking about appropriating money to whoever gets that exemption — we’re really talking about spending.

That’s pretty important. And it’s millions of dollars in “spending,” via tax exemptions, that we’re talking about here.

And let me tell you, the people who get those expensive exemptions like them. They like them a lot. When I was a freshman legislator, I got some enlightening instruction on how disastrous it is for any legislator to start hacking away at exemptions. I checked off on a list of exemptions I thought were inappropriate, or in some cases unconscionable. And when the list got out — you’ve never seen so many people come unglued.  I learned a lot then — not to mess with exemptions! But, were they justified from either a private enterprise perspective or from a public policy view?

So here we go: this week the Forum is about tax exemptions. And, I think we have some good people on board to help clarify the issues — or at least bring them into high relief for us.  

In the piece below, the Wyoming Taxpayers Association has provided a handy guide, really a checklist, to what legislators, and all of us, need to think about when we eye the possibility of installing or cancelling a tax exemption.

The Taxpayers Association is an interesting bunch, formed in the late 1930s as an heir to an organization founded by the then-president of the Wyoming Stock Growers. Since then, as mineral taxes were added to the state’s tax structure, mineral companies have been part of the membership. The group’s goal is to promote efficient and effective government through fair analysis of spending and tax policies, getting that information out to everyone who’s interested.

The WTA’s current head is Buck McVeigh, who previously served state government for more than three decades. The last 14 years of that was as administrator of the Wyoming Department of Administration and Information, Economic Analysis Division, and as the executive branch co-chairman of the state’s Consensus Revenue Estimating Group that forecasts state revenue. For me, and anyone else who’s been in the Legislature, Buck has always been the go-to guy when asking about what’s really going on with state revenues. He knows more numbers than any legislator in the last five sessions.

We’ve posted here, for the Forum, WTA’s guide to thinking about tax exemptions. It provides a great parallel piece to the other item in this week’s Forum, Sarah Gorin’s essay on tax exemptions. Read them both, and you’ll be armed to understand an important part of the tax debates ahead.

— Pete Simpson

The Wyoming Taxpayers Association checklist:

by Buck McVeigh

For this checklist the Wyoming Taxpayers Association asks “Is there a justified need for the exemption and is it fiscally prudent.”

What does Wyoming gain?

Are the jobs meaningful and wages sufficient to support discretionary spending?

Are there ancillary businesses/industry that will emerge due to the location of the new industry? What benefits are associated with the ancillary development?

Does the exemption result in new jobs for Wyoming residents and/or bring new people to the state?

Are salaries sufficient to create new sales tax revenue through discretionary spending?

Does the absence of the exemption hurt Wyoming’s tax base?

Companion piece: Sales tax exemptions gnaw a hole in revenues.

Does the industry in question currently provide a meaningful tax stream for Wyoming or the county in which it operates?

Do existing Wyoming products become less competitive in the marketplace in the absence of the exemption?

Does Wyoming lose jobs in the absence of the exemption?

Can state and local governments operate in a fiscally prudent manner without the income associated with the exemption?

Does the exemption create equal and uniform tax liabilities/benefits upon similarly situated taxpayers?

Does the exemption disadvantage one taxpayer over another?

Does the exemption result in expansion of the state and/or county’s tax base?

If the exemption is for a new industry sector, what taxes will the new industry pay?

How do the new taxes compare to the amount of the exemption?

Do tax burdens (i.e. education/local services) outweigh the tax contribution?

Is the exemption stable and predictable?

Is the exemption visible, accountable and auditable?

How will the benefits of the exemption be measured and who has accountability for documenting the benefits?

What reporting is required?

What provisions are in place to rescind the exemption if the projected benefits are not achieved? Sunset provisions? Claw back provisions?

Read Capitol Beat Checking in on tax issues