A silver bullet. (Ed Schipul/FlickrCC)

The legislature’s budget and fiscal staff recently prepared a very novel one-page document that merits the attention of every Wyoming lawmaker and citizen. 

Wyoming Estimated Tax Capacity” asks and answers a seemingly simple question: How much additional revenue could Wyoming raise if its tax rates equalled, on average, those of adjoining states? 

The question may be straightforward enough, but calculating an answer required an extensive review of tax policies in neighboring states and an equally rigorous comparison with Wyoming’s. Sales and use taxes, property taxes and income taxes were all taken into account. 

Not surprisingly, Wyoming currently has the lowest rates in each tax category among the states considered — Montana, North Dakota, South Dakota, Nebraska, Colorado, Utah and Idaho. This means (in the economic language used in the document) that we have “excess tax capacity” among all of these types of taxes. 

To figure this out, investigators determined the tax rate for each type of tax in each of the comparison states, put them all together, found the median and compared that median to Wyoming’s current rate. For example, the median sales and use tax rate in these adjoining states was found to be 6.86%, when state and local rates were both accounted for. In contrast, Wyoming sales and use tax rate was found to be 5.34% or 1.52 percentage points below the median of all compared states. 

This difference is what the analysis defines as tax capacity. It then calculates how much revenue is associated with this excess tax capacity. In fiscal year 2023, this added sales and use tax revenue would amount to $245 million for state and local taxing entities or about $169 million per year for the state alone.

To be clear, all of that additional government funding would come just from bringing the sales and use tax rate up to the regional median. The types of transactions to which such taxes apply is not accounted for in that figure. 

Wyoming’s sales and use taxes are applied very narrowly thanks to a long list of exemptions. The Legislature attempted to broaden the sales and use tax in 2018 by ending some of those exemptions. Wyoming statutes currently shield numerous commodity sales, purchases of manufacturing and large data storage facility equipment and most services from taxation. Over the last four or five decades, consumer habits have slowly changed such that now, 60% of purchases consist of services and about 40% are goods. Four decades ago, these percentages were reversed. This means that the sales tax base, as applied to commodities, has significantly eroded over the decades.

The added revenue that would accrue to the state if the tax statutes mirrored the range of services taxed in South Dakota would equal $262 million compared to the $169 million without broadening. 

The authors of the document performed a similar analysis for property taxes. It turns out that on average the Wyoming residential property tax rate is .68% of fair market value, while the regional median is about .95% — a difference of .27 percentage points. 

If Wyoming’s residential sales taxes were at the median of neighboring states, it would produce an estimated $178 million in additional revenue in  FY 2023. 

Parallel calculations of tax capacity associated with commercial and industrial property were also included in the analysis. Wyoming likewise has lower commercial and industrial property tax rates. 

The added tax capacity amounts to nearly $200 million in additional revenue in FY 2023. Together, the added tax capacity of the property taxes from residential, commercial and industrial classes would add to $378 million per year or nearly $800 million for a biennium — more than is needed to close the structural deficit in the education foundation program. 

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As for income taxes, the median highest-bracket tax rate among comparison states is 4.95%. Since Wyoming presently has no income taxes the comparison is pretty easy. Every dollar generated by a tax at the median rate counts as fresh capacity. 

Using the structure and methodology reflected in House Bill 147 – Wyoming income tax act (a failed measure from last session that was reconsidered by the Joint Revenue Committee in November), the added tax revenue calculates to about $150 million per year for the individual income tax. This bill limited the individual income tax to income above $200,000, meaning the vast majority of Wyoming earners would pay zero income tax. An additional $14 million would be generated if a corporate income tax was considered using the same methodology. 

All told, the analysis produced in this enlightening document holds two important positive findings. First, if Wyoming captured the tax capacities identified above, the added revenue would more than eliminate the state’s structural fiscal deficit. In fact, the total increase in revenue generated would add to over $1.6 billion per biennium. 

Second, by meeting in the middle, i.e raising some of these potential revenues while also making some of the cuts proposed by Gov. Mark Gordon, Wyoming could both balance its fiscal affairs and maintain its long-held standing as the state with the lowest taxes in the region.

Michael Madden served 12 years in the Wyoming House as a Republican representative from Buffalo, including seven years as chairman of the House Revenue Committee. He is an economist and holds a doctorate...

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  1. There are many reasons that Wyoming has the least amount of people in the Union. Start raising the taxes on working class people and they will just go elsewhere. Wyoming’s pay/salaries, weather, nor services will attract more people here. Higher taxes on the working class, small businesses, and such will just drive our population lower and then where will revenues come from?
    Sales and use tax primarily paid by the working class.
    Property tax- just drastically increased in my area because of Coloradoans buying 2nd and 3rd homes here. They bring nothing positive to our area but raise the property taxes
    Income tax- please tell me how establishing an additional tax is going to help the working class citizen in Wyoming? Sure, rich people may then have to pay some of an income tax or they will just pay an accountant or lawyer to find every loophole possible to get out of it.
    Everybody brings up WYDOT expenses and yet most of the traffic I see in our state comes from out of staters. I would definitely support a toll type of usage “tax” on I-80 and/or I-25 with an EZ-Pass style of pay that gives state residents a huge discount.

  2. Better yet a one sentence solution………………….

    Cut back on out of control government spending.

  3. I will not disagree that we need some level of tax reform and more than likely an increase in taxes – across several revenue generating line items. However, I think you will get more support for increasing the revenue line item when you flush out all the waste and sacred cows this state has.

    – 48 School Districts? We have schools in this state that have more students than these districts. With the technology we have today, there is no need to have that much overhead to continue to maintain a bloated administration.
    – Personal property taxes for businesses. There is no exemption in this state for those with small amounts of property so we spend hundreds of dollars at the government level and small business level to file paperwork with the state so you can collect $20. The old adage “spend a dollar to save a nickel” comes to mind.
    – Another good example. I paid my property taxes for a piece of equipment I own this week. The Treasurer’s office gives me a piece of paper that I take across the hall to the Assessors office to verify I paid the taxes so Assessor’s office can give me a second piece of paper that I take back to the Treasurer’s office to pay my $6 fee to get my Special Mobile sticker for 2021 that has to be on my equipment.
    – Do any of you advocating for an income tax understand the related costs associated with adding more government employees and administration of said tax? Do any of you understand the burden to comply with that tax? While it is easy to shift the tax burden to a smaller segment of society, there is a cost that cannot be ignored……or maybe it can be ignore when you just look at the tax on the surface.

    That’s just a short summary of many regulatory and ancient nickel and dime taxes and fees we have in this state and nobody willing to tackle true tax reform – or seriously tackle the spending problem we have in this state. There are many other hurdles and road blocks – Education funding is one that has significant hurdles because of constitutional requirements – so Education can continue to spend because we have a constitutional mandate to spend – 2nd highest per capita in the US at $18,000 +/- per student

    Lastly I leave you with this. While it is popular to advocate for an income tax those with $200,000 of income, you might want to understand the tax burden already imposed at the Federal level.

    – The top 1% of individual filers – adjusted gross income of $540,000) paid 40% of all US income taxes in 2018.
    – The highest 5% of individual filers – adjusted gross income of $218,000) paid 60% of all US income taxes in 2018
    – The highest 10% of individual filers – adjusted gross income of $152,000) paid 71% of all US income taxes in 2018 while bringing in 47.66% of all individuals adjusted gross income for the year.
    – The bottom 50% of filer paid 2.94% of the Federal income tax in the US. I am not sure what the number is now, but 47% of the US pays not Federal income tax.

    Those numbers do not include the state income tax burden across the country which can go from 3-4% all the way up to 13% in some of the high tax states. So while the $8,000 you want to impose on the family earning $200,000 may not see like a lot, that family is already contributing 70% of the income tax burden in the country and now you want to put more burden on them to carry the state. Keep in mind that many small businesses are pass thru entities, the business earnings flow directly to the individual to be taxed at that level – so the individual is not putting $200,000 in their pockets but paying the taxes for that small business. In effect, you just imposed $8,000 on small business that could use that $8,000 for investments in equipment, infrastructure, working capital. A majority of the time the earnings of that small business are retained by the business so it can continue to grow.

  4. Great article by Mike. No one likes paying more taxes but no one wants to live in a third rate state with crumbling roads poor underfunded schools either. The numbers don’t lie and it looks like it is coming time for us all to pay for the services we benefit from. Campbell, Sweetwater, Converse and a few others have carried this state with their resources and labor for a long time. Some of the most fervent anti taxers come from counties that under our current tax structure are basically non contributors. I’ll pick on my home county, Sheridan, and give you Senators Kinskey and Biteman. You would think men of such “true conservative” stature would want to pay their fair share but Sheridan county, with no mining and a very few producing wells in the far eastern reaches doesn’t contribute its fair share to our tax base. If Wyoming is coal, oil and gas then their community isn’t Wyoming. You have to give credit to Kinskey for advocating economic diversification, but Mike Madden in a previous article pointed out that under our current tax structure any new business not in the extractive industries is a burden on our state. Therefore projects like Kennon and Weatherby, with their buildings the state paid for with their monies from the energy sector, are a drain on our economy under our current tax structure. How does that make any sense? You pay for businesses to relocate to or expand in Wyoming to the detriment of our bottom line. It is a broken system to say the least, and it is time we stop electing out of touch people from the outfield to solve an ever increasing problem.

  5. An excellent article. I would appreciate how Mr. Madden would measure our state constitution’s role (and impediment to) in closing our budget gap.

    §011. Uniformity of assessment required.

    (iii) All other property, real and personal.

    (b) The legislature shall prescribe the percentage of value which shall be assessed within each designated class. All taxable property shall be valued at its full value as defined by the legislature except agricultural and grazing lands which shall be valued according to the capability of the land to produce agricultural products under normal conditions. The percentage of value prescribed for industrial property shall not be more than forty percent (40%) higher nor more than four (4) percentage points more than the percentage prescribed for property other than minerals.

    §018. Full tax credit allowed against any liability arising from a tax on income.

    No tax shall be imposed upon income without allowing full credit against such tax liability for all sales, use, and ad valorem taxes paid in the taxable year by the same taxpayer to any taxing authority in Wyoming.

    §019. Mineral excise tax; distribution.

    The Legislature shall provide by law for an excise tax on the privilege of severing or extracting minerals, of one and one-half percent (1 1/2%) on the value of the gross product extracted. The minerals subject to such excise tax shall be coal, petroleum, natural gas, oil shale, and such other minerals as may be designated by the Legislature. Such tax shall be in addition to any other excise, severance or ad valorem tax. The proceeds from such tax shall be deposited in the Permanent Wyoming Mineral Trust Fund, which fund shall remain inviolate. The monies in the fund shall be invested as prescribed by the Legislature and all income from fund investments shall be deposited by the State Treasurer in the general fund on an annual basis. The Legislature may also specify by law, conditions and terms under which monies in the fund may be loaned to political subdivisions of the state.

  6. Wyoming has enjoyed some of the lowest taxes in the nation for decades due to taxation of the extractive industries ( coal, oil, gas, CBM, trona, uranium, bentonite, helium ) which has subsidized each and every Wyoming citizen something like $1400 to 2500 per year. Only Alaska citizens have benefitted more from extractive industry taxes. In other words, we’ve been walking in tall cotton for many years but the financial benefits of the extractive industries cannot last forever.

    Look around, we have some of the best highways of any state in the nation -second only to North Dakota. The State’s infrastructure ( municipal water and sewer systems, irrigation improvements, libraries, fair grounds, community colleges, massive improvements at the University of Wyoming, the State capital renovation, high schools, etc. ) have primarily been funded by extractive taxes. During the good times, Wyoming invested heavily in infrastructure anticipating when the downturn would come and now it has – but we are benefitting now from wise decisions made in the previous decades. We should be thankful for the financial benefits we enjoyed for the last 40-50 years and not complain about a return to normality ( higher taxes ).
    How about the Wildlife Trust Fund?? Another wise investment made when times were good and the cash flowed. Don’t forget that by taxing the extractive industries, we were essentially exporting our taxes to tax payers in the consuming states thereby lowering our taxes by $1400 to 2500 per person per year.
    If I remember right, we got a new high school in Thermopolis – along with approximately 12 other communities – paid for by the State of Wyoming due to extractive industries taxes.
    I won’t complain when the legislature finally raises taxes since I have benefitted greatly for the past 45 years and I realize it. Be thankful for what we have.

  7. I will state this it is time we all paid the Bill. For those who say Wyoming pays too many taxes, you might want to look at those surrounding States; you can find that on a site, http://www.avalara.com. Wyoming is a haven for the rich, and they are truly buying you out of house and ranch, not to mention public land. Wyoming has not had a real modernization of taxes since 1930. Time to think about the future, for sorry, the fossil fuel industries are fading, and the Corporations own your politicians along with Congressional Backing. I support taxation done correctly, as Utah did in 2006.

    1. Correction Ken :
      Actually, Wyoming’s tax code was totally rewritten c. 1968 , spearheaded by State Senator Bob Frisby , R-Park , a bank VP from Cody . It was he who came up with the three tier Property Tax for instance…Minerals assesed at 100 percent, residential and commercial property assessed at 9 percent of its market value , Ag land virtually nada. That was the year that Wyoming went broke and had less than $ 100 in the General Fund. Also the year that the Permanent Mineral Trust Fund was gestated.
      NOTE : it was Republicans that did the tax overhaul , in a generally tax increasing upward direction…

      1. About that “ag land nada”: there might be an opening to evaluate if indeed it is primarily agriculture that generates income from that land. If instead it is oil/gas leasing, etc., then a different tier is in order. Likewise, if the primary value is controlling grazing leases or access to public land for hunting or recreation (or bank loans…) that could be a separate tier.

        This is the time to start looking for the tax loop holes instead of creating an even more regressive tax structure.

  8. Mr. Madden,

    Thank you for your thoughtful analysis!

    While no one can reason with extremists, it is clear that a modest increase in Wyoming’s excise tax rate, combined with a modest increase in property taxes, will minimize the need to make even more extreme cuts in spending. The extremists’ refusal to consider any tax increases whatsoever is nothing more than blind allegiance to corporate greed and party politics.

    They want everyone to be happy eating cake, I suppose.

  9. His report makes sense to me. We need to generate revenue to support services and businesses in our state. Like in any budget, there needs to be a balance between expenses and revenue. The state also needs to trim “fat” in top heavy salaries and waste.

  10. Restructuring our tax system makes sense. Stan Hathaway did it. We just don’t have any mineral bases handy at this time, so will have to look elsewhere. I agree with lots, in Madden’s article.

  11. T-A-X is a 4 letter word to most of the Republican legislators in Wyoming. That proficiency of political mathematics tells all you need to know…

    Next topic: Magical Thinking

  12. One does not need to be an economist (Madden is an economist) to understand that the state has reached the tipping p0int on economic sustainability. Those contending that there is still waste in state agencies will never support a tax increase so they continue this mindless refrain. However, Madden dangles the carrot of compromise by suggesting that the Governor’s cuts can work in tandem with nominal tax increases to salvage programs that are truly the appropriate role of government. A balance must be struck somewhere during the next session if Wyoming will is to capitalize on the #1 business tax environment without eviscerating the very community programs that are part and parcel to the state’s economic diversity future promise. Madden continues to be a voice of reason in Wyoming’s economic future discussions. Unfortunately, the voters sent a resounding message last election by voting in legislators whose mission is to prevent balancing tax reform while offering no solutions of their own.

  13. The “Tax Capacity” report Mike writes about provides valuable insight for fiscal strategy. However, it needs to be accompanied by a similar one-page analysis that compares the “per capita tax cost” to taxpayers of current and proposed tax rates with surrounding states,
    The second report would be harder. But without it, we’re focusing on revenue generation (i.e., taxing) but not the cost taxes impose on taxpayers,. Knowing both sides of the fiscal equation would be an excellent starting point for the road ahead.

    1. An analysis for individual average tax burden based on what Madden outlines above should not be too hard to calculate. Here’s my rough sketch, which may be inaccurate and I welcome corrections.

      Given the scenarios below, a person earning $61,000 and spending $30K a year and owning a $200,000 home would pay about $996 more in property + sales and use taxes annually, or about $83 more per month than currently. (That’s based on no income tax, $152 more sales tax per $10,000 in spending, and $270 more property taxes pre $100,000 in property value, broken down below.)

      If an income tax were implemented as written in HB 147, those making less than $200,000 a year would pay no income tax. That’s most people in Wyoming. If you earn more than about $177,000, you’re in the top five percent of all earners in Wyoming. Still, the proposed 4 percent income tax wouldn’t kick in until you make $200,000 income, and it would amount to $8,000 in annual income tax, or about $666/month.

      About 71% of Wyoming people own their own homes, so they would be subject to increased property taxes. If you rent, the increased property tax would be on your landlord, who could presumably pass that on to you. An increase of .27 percent in taxes would be $22.50 per month totaling about $270 more in annual taxes per $100,000 in property value. On a $200,000 house, that would be $1,900 per year in property taxes with a .95% tax rate vs $1,360 at a 68% rate, or $540 more annually, which works out to $45 more in monthly tax. The median home price in Wyoming is about $230,000.

      I won’t make an estimate on commercial and industrial property tax rates…. Suffice to say that much of Wyoming’s industry is extraction-based, with the majority of taxes on production being paid by out-of-state consumers and rate payers. That said, many local Wyoming based businesses would see increases, but the majority of the revenue would come from the big players.

      For the increased sales tax. For every $10,000 in spending, you’d be taxed $152 more annually, or $686 at the 6.8% rate versus $534 at the current 5.34% rate (this is a 4% base state rate and additional tax that varies based on location and fifth penny taxes, lodging district taxes, etc). The median income in Wyoming is about $61,000. Allowing for housing and federal/state taxes and savings, let’s say you spend $30,000 per year subject to sales and use tax. At current rates (without taking into account current exemptions on food and prescriptions, etc.), a person spending $30,000/year is paying $1,602/year in sales and use tax at the 5.34% rate. At the 6.8 percent rate, your annual tax would be $2040, and the increase sales and use tax would be $456 dollars annually, or about a $38/month increase.

      At core, all these discussions boil down to how much people believe in paying taxes to get public services like roads, schools, healthcare, prisons. In Wyoming one reason this conversation is really hard to have because most people rarely think about fiscal realities and how much it costs to have public services, and where those funds come from. Instead the conversation is based in political philosophies and mythologies. There are some who think public services should be cut down to the bare minimum, and that there is a lot of waste in government. Some just don’t like the idea of taxes at all. Others think public services are valuable and we should pay more for them.

      In general, Wyoming people are not paying much in state taxes on an individual level, because we’ve created policies to shift the taxes onto the extractive mineral industries and rely significantly on federal dollars to fund state spending. That’s kept more money in individuals’ pockets, by having other means to pay the way for state services. It’s also helped to create state investment accounts that somewhat smooth out the revenue streams. The downside to the current structure is volatile tax revenues and boom and bust government spending. Broadening tax revenue sources could smooth out the boom and bust patterns of state spending.

      I kind of imagine it like going out to dinner, and someone comes up and says, let me get most of that bill for you. Maybe you’re only paying $10 for a $30 meal, and the generous benefactor shows up **almost** every time you try to pay, until sometimes they don’t, and the bill falls entirely on you. Do you like the this arrangement, or is it too chaotic? What does it do to your sense of providing for yourself? Does it affect what you decide to order off the menu?

      The longer the revenue crunch goes on, the closer Wyoming may get to addressing these questions.

      1. thanks for taking the time to put a breakdown of numbers out there.

        rough estimates or not, it’s beneficial to see even fuzzy numbers put into use.

      2. Nice analysis. The reality in Wyoming is for that $30 meal, you are only paying $3. For a bunch of conservatives, the irony of a highly subsidized welfare system is surely lost. Those ridiculous “no tax” pledges conservative legislators are forced to sign are the best example of failed ideology- let’s not provide public services (cut state spending) but let’s continue to subsist on the teat of the extractive industry. Why is that hypocrisy lost on the far right?
        And how is it good for the people of Wyoming to continue to rely on a dying industry?
        If the legislature really cared about working families and the people of Wyoming, they would hold open, transparent forums to discuss tax reform, identify the services that the state will no longer provide if taxes aren’t increased, and ask the people of Wyoming what they are willing to pay for. It’s arrogant for them to make assumptions without seeking broad based, informed community input.

    2. John Jenkins, for a look at how Wyoming currently compares to other states’ tax rates and policies, I recommend this link at the Tax Foundation – https://taxfoundation.org/state/wyoming/
      If you select one of the tax tabs and scroll down, you’ll see analysis and also helpful maps that rank our state and every other state. It’s a fascinating resource for seeing where we are right now, and suggests how we might improve our situation.

      The most interesting data point, in my view, is that Wyoming burns the candle at both ends by having neither income tax, nor significant property tax (apart from that charged to the energy/minerals sector). The states whose property tax rates are as low or lower than Wyoming all HAVE an income tax. Our sister states WITHOUT income tax all have significantly higher residential property tax rates.

      For me, the takeaway is that Wyoming leaves a lot of money on the table. We could raise taxes and still be a low-tax state. By being near the very bottom, we aren’t taking care of ourselves.

  14. Madden again lifts a light to help legislators see.

    Unfortunately, too many of our senators and representatives don’t want to look.