(and How Lawmakers Chose It from Among Severance Taxes, an Income Tax, Gambling and a Lottery)
Roberts, Phil (2004) “A History of the Wyoming Sales Tax and How Lawmakers Chose It from among Severance Taxes, an Income Tax, Gambling, and a Lottery,” Wyoming Law Review: Vol. 4: No. 1, Article 4.
Available at: https://scholarship.law.uwyo.edu/wlr/vol4/iss1/4
By Phil Roberts
Professor, University of Wyoming Department of History and editor, Annals of Wyoming. The author holds a Ph.D in history from the University of Washington (1990), and J.D. from the University of Wyoming College of Law (1977). He has been a member of the Wyoming State Bar since 1977.
I. CONSTITUTIONAL CONVENTION PROPOSAL FOR
A SEVERANCE TAX, 1889 ………………………………………………….158
II. WYOMING AND THE FEDERAL INCOME TAX AMENDMENT …160
III. SEVERANCE TAX PROPOSED AGAIN, 1923-1924 ……………………… 164
IV. CONSIDERING NEW TAXES ………………………………………………………..173
A New Governor Faces Old Challenges …………………………………………. ……..174
The Special Committee …………………………………………………………………. ……..181
The Committee Deliberates and Reports ………………………………………… …….187
The Special Session of 1933 ……………………………………………………………………193
V. PROPOSALS FOR TAXATION ……………………………………………………….211
A State Lottery …………………………………………………………………………….. ………222
Legislature Authorizes Full Gambling and Governor Vetoes …………….. …..224
The Sales Tax Passes ……………………………………………………………………………..228
VI. THE FUTURE OF WYOMING TAXATION …………………………………. 241
For the first 45 years of statehood, Wyoming state and local governments depended almost entirely on funding from property taxes. During that time, however, Wyoming decision-makers considered various other methods of taxation ranging from severance taxes on minerals (1889 and 1924), a lottery, taxation of legalized gambling, and even an income tax (1933). Finally, in 1935, when funding of government services was strained nearly to the breaking point, the legislature adopted the sales tax. This article describes the politics of the tax questions and how, but for unusual circumstances, any of the alternatives might have predated the sales tax and, indeed, might have made the sales tax unnecessary. The article concludes with an analysis of the adoption of the sales tax and what implications that decision had on Wyoming government funding for the twentieth century and for the future.
Structural changes in a tax system may have the most long-lasting impact on a state’s financial situation of any legislative action. During the 1920s and 1930s, nearly every Western state moved away from tax systems relying on property to either a sales tax or an income tax. The impact of the choice remains with these states today. Most states in the West opted for a state income tax. At least two, Washington and Wyoming, adopted a sales tax instead. In Wyoming, the income tax never gained voter or legislative approval. In the early 1930s, the state’s economy was suffering and revenues were in short supply. After protracted discussions over means of financing government at all levels, the legislature passed the sales tax in Wyoming as a “temporary emergency measure” in 1935.1 The sales tax became a part of the state’s revenue picture only after various forms of taxation were debated in two regular sessions and a special session of the Wyoming legislature.
I. CONSTITUTIONAL CONVENTION PROPOSAL FOR A SEVERANCE TAX, 1889
Before the legislature chose a sales tax, Wyomingites debated the merits of a severance tax on minerals. During the constitutional convention in 1889, a delegate introduced a “coal tonnage tax.”2 The delegate was Laramie. lawyer Melville C. Brown who served as President of the twenty-five-day session drafting the formulating document for state government.3 ….
V. PROPOSALS FOR TAXATION….
By most indications, Wyomingites had become conditioned to the sales tax and hostile to the idea of an income tax. The economy was improving and the legislature apparently felt the revenue crisis of the early 1930s had been solved through passage of the sales tax and an accompanying use tax. At a time when most of the surrounding states were opting for income taxes as a means of “broadening the tax base,” the Wyoming legislature had made a choice that was to have a long-term impact on state funding and an enduring legacy to future governors and state legislators, even into the next century. ….
VI. THE FUTURE OF WYOMING TAXATION
On November 5, 1974, Wyoming voters approved an amendment to the Wyoming Constitution making it extremely difficult to establish a state income tax.702 The amendment does not outright prohibit an income tax as some people believe. The section reads: “No tax shall be imposed upon income without allowing a 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.” 703
Since 1969, when Wyoming finally adopted a severance tax on minerals, state government remains heavily dependent on the two “legs of the tax stool”–sales taxes and severance taxes.” 704 For as long as fossil fuels remain central to American energy needs and the estimated coal and other mineral reserves in Wyoming are accurate, the state can expect to receive substantial revenues from minerals. The severance tax, unpopular with out-of-state owned mineral companies, is a novel state “export.” Little of the tax is paid by Wyoming residents. Instead, the costs are paid by the many out-of-state users of the final product produced by the mineral. In the case of the mineral produced in greatest abundance, coal, the ultimate electricity consumers in midwest or southwestern states are paying just a few mills in each monthly bill they receive from the power companies burning Wyoming coal. Unless another means of assessment is used, however, Wyoming will receive only a tiny percentage of the delivered value of the particular product. The tax on coal, for instance, is paid on the value as determined at the mouth of the mine-not at the delivered price charged at the final destination.” 705 The shipping costs to distant destinations are substantial and these are not considered in assessing the tax. Given that shipping costs for the coal far outweigh the production costs, Wyoming receives far less per ton than the shippers, mostly absentee-owned railroad corporations. Mineral companies concerned about the competitive impact of the severance tax on out-of-state sales need to look for ways to reduce shipping costs, perhaps through developing greater competition for transport.
Unless the sales tax rates are raised so substantially that Wyoming buyers no longer purchase goods or make purchases elsewhere, the sales tax will remain an important (and probably popular) means of taxation.706
Critics correctly point to the sales tax as one of the most regressive forms, particularly given that Wyoming law does not exempt food and other essentials from sales tax. Despite the absence of exemptions for “essentials,” numerous other “loopholes” are included in the sales tax laws. By reexamining the numerous exemptions attached to the sales tax law in 1935 and later, the legislature could increase revenues with relatively little impact on most citizens.
Property taxes in Wyoming remain relatively low, in comparison to neighboring states. Property taxes historically have been assessed for the needs of local government and school districts. With the increasing costs of education and the equalization decisions of the Wyoming Supreme Court, passage of a set statewide levy earmarked for the schools may be necessary. Likely, the increased valuations of homes in “vacation spots” like Jackson Hole, Cody, Saratoga, and elsewhere, and increasing values on mineral production properties, will offset any need for increased tax rates on property.
Higher values of real property, more severance taxes gained from greater production of minerals, and continued collections of sales taxes ought to allow Wyoming government to balance budgets well into the future-but it will not be without conflict. Without population gains, greater demands for minerals, or better employment opportunities for Wyomingites, the costs of maintaining state services are bound to increase into the twenty-first century.
But increased population brings with it a quandary. The taxes generated by minerals are not tied to population. With the addition of more and more residents, those already living in Wyoming gain a smaller percentage of benefit from every severance tax dollar the state earns. Increases in the other major form of tax revenue, the sales tax, are dependent on either increased rates or greater consumer spending. For more sales tax revenues, more population (or more tourism) is desirable. Thus, the two “legs” are in conflict over the crucial question of growth or “development.” One of the greatest challenges for future political leaders will be to try to balance the needs for growth with maintenance of the “Wyoming way of life”–with the two forms of revenue sources looming in the background.
Unless Article XV, section 18, of the Wyoming Constitution, is changed to eliminate the offset of all other taxes, Wyoming citizens would be foolish to adopt an income tax. Given the off-set provision, out-of-state mineral companies would be the biggest winners from an income tax on Wyoming residents, but so would owners of extremely expensive homes. Given this reality, one can expect future efforts by mineral interests and wealthy homeowners to get the Wyoming legislature to pass an income tax while, at the same time, they will insist that the constitutional Article XV set-offs remain in place.
An income tax may come to Wyoming (if Article XV, section 18 were amended), but only if the sales and property taxes increase to levels most voters find onerous. Further, an income tax may come if alternative energy sources make fossil fuels obsolete, cheaper alternatives are found for trona, and mineral extraction becomes less competitive with sources in other states or nations. In the view of this writer, that day is far in the future.
BACKNOTES
1. The sales tax provisions in Wyoming law are found in Wyoming Statutes, Title 39, Chapter 15. See Wyo. STAT. ANN. § 39-15-101 et seq. (LexisNexis 2002). Even with the extensive revisions made in 2001, much of the language replicates that from the “Temporary Emergency Sales Tax Act of 1935,” although the direct origins are in the 1937 act that made the sales tax permanent. The issue of constitutionality was raised in Walgreen Co. v. State Board of Equalization. 62 Wyo. 288, 166 P.2d 960 (Wyo. 1946), rehearing denied, 62 Wyo. 336, 169 P.2d 76 (Wyo. 1946). Wyoming is unique in the West for having the sales tax adopted by the legislature and not through an initiative or constitutional amendment. Through an initiative measure in 1932, the first choice by Washington voters was for an income tax, but the Washington State Supreme Court declared it unconstitutional. Only then did the legislature adopt the sales tax. See PHIL ROBERTS, A PENNY FOR THE GOVERNOR, A DOLLAR FOR UNCLE SAM: INCOME TAXATION IN WASHINGTON (2002).
2. JOURNAL AND DEBATES OF THE CONSTITUTIONAL CONVENTION OF THE STATE OF WYOMING 637 (1893) [hereinafter JOURNAL AND DEBATES].
3. MARIE ERWIN, WYOMING BLUE BOOK 541 (Virginia Trenholm ed., vol. I, 1974).
….
698. Id. T. A. Larson suggested another reason for Miller’s defeat was his inability to reduce gasoline prices despite considerable assertions during his previous campaigns that he would accomplish such a task.
Id. 699. Introduction, Reading and Reference of Bills, H.R.J. Res. 7, 25th Leg., Reg. Sess., at 181 (Wyo. 1939). It was referred to the Judiciary and Elections Committee where it stayed for the session.
Id. 700. H.R.J. Memorial 6,25th Leg., Reg. Sess., at 200 (Wyo. 1939).
701. Bills on Third Reading, H.R.J. Memorial 6, 25th Leg., Reg. Sess., at 358 (Wyo. 1939). For the Senate vote, see S.J. Memorial, 25th Leg., Reg. Sess., at 429 (Wyo. 1939).
702. WYO. CONST. art. XV, § 18. House Joint Resolution Twelve was introduced on January 27, 1973, by Representatives Smith, Mulvaney, Meier, Hellbaum, and Simpson. H.R.J. Res. 12, 42nd Leg., Reg. Sess. (Wyo. 1973). The bill passed February 11 on a vote of 52-6, with one excused and three absent.
Id. The Senate passed the bill 24-6 on February 21. S.J. Res. 12, 42nd Leg., Reg. Sess. (Wyo. 1973). The measure was championed in the legislature by Nels Smith, the namesake and grandson of the man who defeated Miller for governor in 1938.
703. WYO. CONST. art. XV, § 18. The 1973 legislature passed the resolution for the amendment; the measure passed on November 5, 1974, and was proclaimed to take effect on December 12, 1974. H.R.J. Res. 12, 42nd Leg., Reg. Sess. (Wyo. 1973).
704. For a recent critique of the state’s heavy reliance on mineral taxes, see SAM WESTERN, PUSHED OFF THE MOUNTAIN, SOLD DOWN THE RIVER 102 (2002).
705. WYO. STAT. ANN. § 39-14-104 (LexisNexis 2003).
706. The use tax is assessed on all goods purchased outside the state and brought into Wyoming. The rationale is to tax goods that are not reachable by sales tax collections. Of course, the enforcement is problematic.