Lawmakers have finalized a pair of bills designed to guard against delinquent and unpaid mineral-production taxes and strengthen the ability of local governments to collect those debts in the event of mineral-industry bankruptcies.
The House Revenue Committee on Feb. 4 tabled a placeholder bill, Senate File 45, with both the House and Senate in favor of advancing Senate File 60 – Monthly ad valorem tax revisions-2. Both bills codify previous legislation mandating that ad valorem taxes assessed on the value of mineral production be paid on a monthly basis rather than the current twice-yearly schedule.
SF 60, which the Legislature passed Feb. 5, charts a quicker transition to monthly payments than SF 45.
Lawmakers also passed Senate File 41 – Tax lien enforcement-amendments, another “clean up” bill to remove language from previous legislation that might have inadvertently limited county options for foreclosing on assets to recover losses from unpaid mineral-production ad valorem debt. The bill is the culmination of efforts to better prioritize local governments within the hierarchy of bankruptcy creditors.
“The tax lien enforcement work that we’ve undertaken these last few years will ensure that when these companies do go into bankruptcy, local governments are held as harmless as possible through that process,” Wyoming County Commissioners Association Executive Director Jerimiah Rieman said. “The efforts on the ad valorem side are intended to ensure we can see issues and address them much sooner than under the current system today.”
Both bills will go to Gov. Mark Gordon for his signature.
Mounting tax delinquency
Since 2015, a series of coal industry bankruptcies have left counties in the lurch with tens of millions of dollars in unpaid ad valorem taxes. The ad valorem tax is assessed on the value of mineral production at the time of sale.
Because the revenue helps fund various county and municipal operations, the unpaid taxes have resulted in a major hit to local governments. However, the biggest portion of mineral-production ad valorem revenue — more than 70% — is distributed to fund schools statewide.
In 2019, the ad valorem mineral-production tax generated an estimated $665 million, according to Wyoming Department of Revenue data. Rieman’s organization estimates that Wyoming saw a delinquency rate in ad valorem mineral-production tax collections of about 10% in that year, he said. That trend has continued since 2016, related to coal industry bankruptcies.
Campbell County, the heart of coal production in the state, has seen more than $90 million in delinquent payments in the decade from 2009 to 2019.
Statewide, portions of delinquent ad valorem payments have been paid up, while some have been written off and others are under settlement for eventual payment.
Moving to monthly payments
Shifting mineral producers to monthly ad valorem payments eliminates a lag time of up to 18 months from the actual sale of minerals to when the tax payment on those sales comes due.
Under the old still-active system, county treasurers assess a company’s previous year’s mineral production to calculate the ad valorem tax bill, then collect that amount in two separate payments — typically in May and November of the assessment year. But that lag time puts counties — and beneficiary school districts across the state — at risk of attempting to collect from a company that has filed bankruptcy.
One glaring incident was the Blackjewel bankruptcy. The company was up to date on its monthly state severance tax payments, but filed for bankruptcy on the day before its next ad valorem payment was due in July 2019.
“That was a deliberate attempt to evade having to pay that tax,” Rieman said.
Shifting to monthly payments requires a complex formula of stepping up the pace of ad valorem assessments while requiring extra payments until, over a period of several years, mineral producers will pay the tax on a monthly basis — just as they currently do for state severance taxes. The transition period is intended to avoid creating a cash flow problem for mineral producers, the vast majority of which have paid their ad valorem taxes on time.
Wyoming’s goal in this effort is to align ad valorem payments with monthly state severance tax payments to simplify the process — a design that mineral industry associations have coalesced behind. The Legislature began looking at the issue in 2015, and in 2019 formed the Select Committee on Coal/Mineral Bankruptcies.
State vs. counties as collectors
The plan, solidified under SF 60, also moves the duty of collecting ad valorem payments from individual counties to the Department of Revenue, at an estimated cost to the state of up to $700,000, according to DOR Director Dan Noble. That estimate may be adjusted downward, according to Noble.
Shifting the duty to collect from counties to the state has been a major point of contention for at least one lawmaker.
“This was a function that the state assigned to the counties to pay for out of their general property tax collections,” Rep. Chuck Gray (R-Casper) told fellow lawmakers in a House floor discussion. “If we’re going to transfer this to the state, I don’t think it should be an unfunded mandate [to] the state side.”
Gray sought to amend SF 60 to mandate that counties pay the DOR the cost to collect mineral production ad valorem taxes, and apply a penalty if a county fails to do so. “If a county fails to provide payment under this section, the department may retain the county’s share of taxes collected under this act until the amount owed by the county under this section is collected by the department,” the amendment read.
A House committee rejected that amendment.
Those opposed to the amendment noted that counties assess and collect a lot of taxes that are eventually distributed statewide, and that the lion’s share of the mineral production ad valorem tax in particular is distributed to school districts statewide.