By Nick Reynolds
Via Wyoming News Exchange
CHEYENNE — In the past five weeks, the Wyoming Legislature has examined a property tax, a tax on wind energy, and taxes on hotel rooms, cigarettes and vape products.
None of those taxes, however, have attracted the attention or scrutiny that House Bill 220 – or the National Retail Fairness Act – has managed to draw.
After rushing through the House of Representatives, the effort to introduce Wyoming’s first corporate income tax has garnered the wrath of a cadre of foes, including lobbyists for multi-million dollar companies and Washington D.C. think tanks. That opposition has arisen despite the measure having a significantly smaller impact than any revenue proposal pitched this year, Senate Revenue Committee Chairman Sen. Cale Case, R-Lander, said Thursday night.
The Wyoming Republican Party has come out in opposition of the bill as well, and conservatives across the state — on the ground, in email lists and in Facebook groups — have banded together to speak out against the bill, with one local GOP official testifying in opposition of the legislation on Thursday night.
After three hours of public comment, the Senate Corporations Committee laid back the bill until its meeting on Tuesday, where it will vote to send the bill on to the full Senate.
What does the bill do?
The bill is designed to affect only “big box” stores which, theoretically, would allow the state to recapture “hidden taxes” that are already being absorbed by the companies’ large, interstate income pools, said the bill’s sponsor Rep. Jerry Obermueller, R-Casper. Early conservative estimates place the potential revenue for the state at $45 million a year, though, as Department of Revenue director Dan Noble testified, that figure was a “wild-ass guess” based on the result of corporate taxes in similar, energy-centric states like North Dakota and Alaska.
The system to collect these taxes would cost $10 million to set up and $3 million to maintain, along with $1.5 million for staff – costing essentially 10 percent of the rough revenue estimate annually.
Obermueller – and others in support of the bill – argued the companies they would be targeting already benefit from an unfair financial advantage in numerous regards, including friendlier treatment under the federal tax code and a multi-jurisdictional income model that allows industries to spread expenses across a broad consumer base. This price-setting model – the reason why a Big Mac costs as much in Manhattan as it does in Mills – contains what Obermueller characterized as a “hidden tax,” essentially the combined expense of a corporation’s share of corporate taxes in all 50 states thrown into one big bucket and incorporated evenly in a company’s prices nationwide.
Wyoming – considered one of the most business-friendly states in the country, due to its lack of a corporate tax – has a unique provision in its tax code that would allow companies to essentially write off a significant share of the proposed 7 percent corporate tax rate through property and sales tax credits and other provisions under state law.
“This is not a tax increase on the people on Wyoming,” Obermueller said Thursday. “This is not an increase on small business. This is a tax return bill in its essence.”
Despite this, industry lobbyists argued that the new tax – which after these tax credits are applied, would still likely be lower than that of surrounding states – would cause large companies like Walmart, grocery stores like Safeway and chain restaurants to slash employees, cut hours and decrease their community investment.
In a Thursday night hearing on the bill, the first time it had been considered in the fiscally conservative Senate, the largest conference room in the temporary capitol was packed wall-to-wall with high-priced attorneys, legislative leadership and representatives for groups representing everyone from the Council On State Taxation – a Washington D.C. think tank – to representatives for companies like Walmart and the Wine Institute – a powerful lobby group based in Washington.
In the weeks leading up to the hearing, the bill also garnered the attention of the Koch Brothers-funded group Americans for Tax Reform – which took out a prominent advertising campaign in the Star-Tribune and published a piece in Forbes – and the Tax Foundation, which published an article arguing against the tax.
“Quite frankly, I find it incredibly interesting,” said Senate President Drew Perkins, R-Casper, in an interview Friday morning. “When you look at how much tax this would have on a national organization, it doesn’t even register. National groups represent the people who hire them, and I just find it interesting that we’ve attracted this type of attention when the amount this raises is not a huge amount.”
“And in some respects, I think it’s counterproductive,” he added. “I think people here sort of resent when people fly in here, because a lot of times they act and treat us like we’re country rubes.”
At the crux of the bill is an effort for the state to essentially end the practice of multi-million dollar businesses taking advantage of Wyoming’s friendly tax environment in the context of a national tax system. Since the formation of the Multi-State Tax Commission in 1966, said Obermueller, large corporations with unlimited means have used national price and tax models to calculate recovery costs across a national pool of payers, crushing the competition using massive advantages and “shaking down small towns to their very core.”
For example: a Walmart or an Applebees operating in New York – which has corporate taxes, property taxes, sales taxes and multiple layers of municipal taxes – would objectively have higher operating costs than a store operating in Wyoming. However, the company would calculate its operating costs in both jurisdictions, and set its prices in a way that splits the difference – using math to determine how they can set the lowest, or most effective price to yield the most profit while undercutting the competition – in this case, local businesses, which pay higher taxes proportionately.
“They spread their pricing equally among their customers, and you can infer from that all their costs are distributed across us equally,” said Obermueller. “So the answer is to shift the costs from high-tax states to low-tax states.”
Despite this inherent advantage – as well as a corporate tax rate passed in the federal Tax Cuts and Jobs Act of 2017 that can be up to 16 percent lower than that paid by small businesses – industry voices have called the National Retail Fairness Act “unfair” and discriminatory to multi-jurisdictional retail and lodging chains. Chris Brown, the director of the Wyoming Lodging & Restaurant Association, said one of their biggest issues with the bill is the disparities within the businesses he represents, noting that on Dell Range Boulevard in Cheyenne, while one company would be subject to the tax, another would not, and that the topic should be revisited in the interim. Rep. David Miller, R-Riverton, noted in testimony that one of his town’s largest private employers is one of those box stores, and he was worried about their competitiveness against companies like Amazon, a concern shared by other lawmakers to speak out against the bill.
“I’m not here to defend any corporation, but I’m here because I care for jobs,” said Rep. Tim Salazar, R-Dubois. “And I believe this is a job killer.”
How would it impact industry?
While some lawmakers said that they thought a vote for the first corporate income tax in Wyoming history would hurt their chances for re-election – with Sen. Bo Biteman, R-Ranchester, suggesting they try the bill again in an election year – others doubted that the lines being fed by corporate lobbyists that the bill would cost people jobs or raise prices had much teeth, if any at all.
“Don’t believe it for a second,” said Rep. Pat Sweeney, R-Casper. “We’re talking about companies that are making hundreds of millions of dollars every year. Do you really believe they’re going to pull all those businesses out of the state? No, not realistic. They’re making a profit. It makes no sense.”
Others have countered that the bill – despite the legitimacy of Obermueller’s argument – could have significant impacts on national businesses.
“Yes, retailers frequently have national pricing strategies (though they’re not inviolate and some lean on them less than others), but if already razor-thin margins go negative and price cuts off the table, selection would decline and stores might close,” Jared Walczak, a policy analyst for the Tax Foundation, wrote in a Twitter thread on Thursday. “Grocery stores already often have ~2% margins. Now imagine operating in a very low density part of Wyoming. If taxes cut into those margins, something has to give. Maybe it’s prices, maybe selection, or maybe shuttering marginal stores, a big deal in a low density state.”
Barring the fact that grocery stores and the state’s retail centers operate on a largely regional basis, those who testified Thursday said there were many instances where franchises of large hotel and fast food chains would dodge the worst impacts of the bill. Sweeney, who made his money in the hospitality industry, said that in many instances franchises incorporate as an LLC – rather than a C Corporation – and that the money that goes from the local community and up to corporate are paid through franchise fees that are so concrete, they would likely be unaffected by any new taxes – especially one as marginal as that recommended under HB220.
The bill, however, would have some victims. Alex Klein, vice president of Grand Teton Lodging – a vendor in the national park – said the bill would create a direct, new liability of hundreds of thousands of dollars, making the company likely the most profoundly impacted business in the state. As a national park concessionaire, Grand Teton Lodging is one of the few local businesses that is publicly traded to the degree it would be impacted and, competing with privately-held businesses like Xanterra and Delaware North, will now be at a competitive disadvantage to those vendors, he said.
Because of the national parks’ pricing models under their contract, he said, their price scales are pre-set and they would be at a disadvantage to other places in Jackson that would not be subject to the tax.
“It’s not that we don’t want a corporate income tax – we just don’t want one that puts us as a competitive disadvantage,” he said.
Of the more than dozen to speak against the bill Thursday night, only two – representatives for the Wyoming Education Association and the Wyoming School Board Association – spoke in favor of it. Tammy Johnson, of the WEA, mentioned that schools are often the largest employers in town, and that the money potentially collected by the tax means more good teaching jobs.
“Nobody runs on raising taxes, but I sure hear a lot of us saying we need to broaden the tax base,” said Ken Decaria, of the school board association. “I’m sure a lot of people have told voters that. It’s an easy thing to say, but not an easy thing to implement. And with that in mind, we urge your support on this bill.”