CASPER — Few bills in the Wyoming Legislature the past several years have elicited more controversy — or soul-searching about Wyoming’s future — than the National Retail Fairness Act, a corporate income tax proposal by Casper Republican Rep. Jerry Obermueller. The bill was intended to target big-box stores, shelter small businesses and partially fill an education funding shortfall the state faces heading into next year’s budget season.
Introduced mere weeks before the start of the 2019 session, it initially received a warm reception in the House of Representatives, where all revenue-generating bills must originate. With little fanfare, the bill received 44 votes on third reading before proceeding to the Senate. There, it died in committee after a barrage of negative press from conservative activists and Washington organizations.
Near death in the first meeting of the Joint Committee on Revenue earlier this year, a proposal for a new, broader version of the tax has survived into July. It could very well be on the table for lawmakers in what might be a tense budget-making session in 2020.
According to Obermueller, the bill would allow Wyoming to take advantage of national pricing models used by major corporations like Wal-Mart to generate new revenue for Wyoming.
Unlike many of the 29 states that have passed corporate income tax legislation, however, Obermueller has sought to create a tax that only impacts major out-of-state corporations — rather than home-grown small businesses or independent, high-earning in-state corporations.
“It’s a pretty unique approach,” Obermueller said in an interview last week. “Nobody else is doing it that way, and what makes this approach — I think — better for Wyoming is the distinction between organizing as a small business here — where we won’t subject you to any tax. If you cross that line into the stock exchange and where you strive to leverage your wealth … that’s who we want to get.”
Obermueller has argued large corporations gauge their income and revenues on a national level — putting all their revenues into one big bucket and allowing high-earning stores in places like Scottsdale, Arizona, or East Orange, New Jersey, to pick up the slack for a location somewhere like Worland.
However, some, particularly out-of-state groups like the Council On State Taxation and the Washington-based Tax Foundation, have pushed back on Obermueller’s reasoning, arguing that the implementation of a targeted corporate income tax could fundamentally alter their operating expenses, potentially leading to store closures or job losses.
The windfalls for Wyoming would not be significant in the grand scheme of things but could make a dent in a budget shortfall some have anticipated could result in more cuts to state services. According to a fiscal note for the legislation last year, a corporate income tax could generate at least $45 million for the state’s budget, significantly more if broadened to the degree Obermueller has proposed.
The bill would also create a mechanism to diversify its revenue streams. According to economic modeling, Wyoming’s lack of an income tax as well as other tools, like a property tax, have actually created a situation where job creation creates more expenses for the state, due to an increased demand for services with no taxes to support them.
“With your vote, you will answer whether the global markets who come to Wyoming have any obligation to the public burden,” Obermueller told his fellow lawmakers in a hearing on the bill last week. “If you vote ‘no,’ tell us who should pay for the services the global markets demand?”
Other states have seen significant windfalls from similar taxes. Dan Noble, the director of the state Department of Revenue, told committee members he looked at a system currently in place in Nebraska, which has a graduated income tax.
In all, he said, their tax system generates $258 million a year in tax revenues from major corporations — 60 percent of which was generated by 153 entities.
Even if Wyoming were to pursue a lower tax rate — which it will, once exemptions are taken into account — the pursuit of new revenue sources is becoming much more urgent as Wyoming’s resource-dependent economy begins to crumble.
“We think we might actually be entering a new phase (of our economy),” said Lander Republican Sen. Cale Case, a committee co-chair. “It’s not really boom and bust. It’s that concerns about global warming have begun to cut the heart out of what we produce. It’s not just a cyclical downturn — coal may be gone forever in the next 10 years, and we’re concerned oil might be going the same way. So it’s not about cyclical variation — we might be looking at structural changes that may fundamentally alter where we get our money.”
The proposed 25-page piece of legislation is essentially unchanged from last session’s House Bill 220, which was written in a way to target a certain type of retailer — i.e. “big box stores” — based on something called a NAICS code as well as a specific threshold of shareholders for a business to be taxed.
These provisions, however, created numerous challenges. Some argued the bill as written was discriminatory against a specific subset of businesses and would create a dilemma between publicly traded businesses like McDonalds and corporations like Chik-Fil-A, which is privately owned and would be subject to fewer taxes than the Golden Arches for running a similar business down the street.
However, Obermueller noted that the bill as written would be much broader than the original bill, addressing concerns by groups who found the bill to be discriminatory to certain businesses. Though he noted the bill has its flaws, Obermueller said the legislation would address the majority of problems surrounding the issues while providing as much benefit as possible.
“Is this bill perfect? No way,” Obermueller said. “As a state, we’re subject to national equal protection and commerce clause rules. Perfect protectionism is unconstitutional.”
Under the new proposed legislation, those NAICS codes have been eliminated, making for what Jared Walczak — a Tax Foundation analyst — called a proposal much more in-line with a traditional corporate income tax.
Walczak was critical of other aspects, however. The length of the current bill, at 25 pages, is notably shorter than other states’ corporate income tax codes. This allows for possible oversights like deductions for foreign dividends and the lack of a net operating loss carryback/carryforward provision — a “fairly significant omission,” Walczak said.
“I recognize the strains you are under and why those like Sen. Obermueller and others want to do something to raise revenues,” Walczak said in testimony last week. “We at the Tax Foundation would like to be part of that conversation and, if you want to raise revenues, we would want to be as structurally sound as possible. But if you’re looking at a corporate income tax, which is something the state has tried to avoid, approach it as one and acknowledge it needs to be designed as one.”
One of the biggest dividing lines in the corporate income tax discussion has been the head-spinning concept of “throwback rules,” or a statute passed at the state level used to ensure corporations pay state taxes on 100 percent of their profits — whether those profits are made in or out of the state.
By imposing a corporate income tax, some have worried that Wyoming — which can only tax businesses with a physical presence or “nexus” in the state — could potentially be taxing a business twice.
“You’re not shifting revenue from one state to another,” Walczak said in last week’s meeting. “You are taxing income that is going untaxed now, or you are trying to tax income that is already taxed in other states.”
Obermueller, however, argued his new version makes throwback rules irrelevant and that ample legal precedent already exists to rectify the differences between two states’ tax policies. Even then, he said, it’s not Wyoming’s problem.
“It’s a curiosity rabbit hole we can go down, because they apply differently to every state — some have them, some don’t,” Obermueller said. “We as states define those rules.”
Despite surviving two discussions in Revenue Committee during the interim, its fate as a formal bill is still uncertain. The House of Representatives has proven favorable and, since the end of session, several lawmakers have been shown to be sympathetic to the legislation. But Obermueller is still unsure of its prospects in the conservative Senate, in which many members serve large, ultra-conservative constituencies that might perceive any tax to be a bad tax.
Under pressure from high-powered groups like COST, the Tax Foundation and the Wyoming Liberty Group, which has written several articles opposing a corporate income tax in recent weeks, Obermueller — at this point — is focused on survival.
“My efforts have been focused on how I was going to move this forward and what changes I was going to make,” he said. “So I don’t even think I can answer how I’ll work with the Senate right now. Obviously, I need some help over there, but I haven’t figured that piece out yet. My main focus right now is to, at the very least, keep the topic alive so it doesn’t just fade into history.”