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"Draft Only – Approval Pending"
JOINT REVENUE INTERIM COMMITTEE
Capitol Building August 12 and 13, 2002
Room 302 Cheyenne, Wyoming
PRESENT: Senator Robert Peck, Cochairman;
Representative Pat Nagel, Cochairman;
Senators Irene Devin (August 12), Dick Erb, Rae Lynn Job and Jayne Mockler;
Representatives Rodney "Pete" Anderson, Roy Cohee, Roger Huckfeldt, Doug Osborn, Don Warfield and Jane Wostenberg.
Legislative Service Office: Mark Quiner, Assistant Director; and Mr. Steve Sommers, Budget/Fiscal Manager and Dean Temte, Legislative Analyst.
Others: See Attachment A. for those attending August 12 and Attachment B for those attending August 13.
ABSENT: Representatives Chris Boswell and Phil Nicholas and Senator Irene Devin (August 13 only).
* * * * *
Cochairman Nagel called the meeting to order at approximately 1:00 p.m. The order of the meeting generally followed the prepared agenda (see Attachment C).
Approval of Minutes
After review, Representative Anderson moved the minutes of the previous meeting be approved as written. The motion passed.
Timber Valuation Update
Mr. Allen Black, Administrator of the Ad Valorem Division of the Department of Revenue, provided the Committee with an update on the issue of valuing land with timber. Mr. Black indicated the proposed rules for valuing agricultural land are currently in draft form and have been submitted for public comment. Any special rules regarding the valuation of land with timber have been removed so the previous issue has been resolved. The valuation of agricultural lands will still be based upon the capacity of the land to produce agricultural products.
Telecommunications Tower Company Valuation
Mr. Black provided the Committee with an update on the valuation of telecommunication tower companies. He indicated the Department of Revenue met with the largest company, American Tower Company, and discussed the issue of assessing the valuation of that company. Mr. Black indicated W.S. 39‑13‑102(m) requires the department to value the leased property of any state assessed property. The purpose of tower companies is to lease tower space to telecommunication and other companies. American Tower Company would rather be assessed at the local level, in the various counties in which it operates, by the local county assessor. The department would like another year to work with the assessors on this issue. The department is asking for no action from the Committee at this time.
Ms. Brenda Arnold, Laramie County Assessor, explained a county assessor does have the authority to assess property at the industrial rate of 11-1/2 percent if the property qualifies. She indicated the Federal Communications Commission is providing data to local county assessors on telecommunication towers located within a county. She indicated it is difficult to know where all telecommunication towers are located because many of the sites upon which towers are located are very remote.
Manufactured Housing Inventory Issue
Mr. Black indicated he met with the county assessors and representatives of the housing industry and has some proposed language to place in the Department of Revenue rules that will resolve the issue regarding inventory. The agreement that has been reached is that if a housing unit is held as inventory and it is not hooked up to water or sewer as of January 1 of each calendar year, it will be considered as inventory and not taxed as real property.
Ms. Lori Urbigkit, representing the Wyoming Manufactured Housing Association, indicated her association cooperated with the Department of Revenue and they were able to work the issue out.
Telecommunication Property Assessment
Mr. Black indicated the Department of Revenue is continuing to work with industry on telecommunications property taxes. He has nothing further to report at this time.
CAMA System
Mr. Black indicated the Department of Revenue has put out a request for proposal on updating the CAMA system and expects to receive eight to ten proposals. Mr. Black feels the department will be able to update the CAMA system from software that is already in existence.
Powder River Coal Decision Update
Mr. Randy Bolles, Administrator of the Mineral Tax Division of the Department of Revenue, provided the Committee with an update on the Powder River Coal Decision. He indicated some companies are amending their returns to include the depletion expense related to lease bonus payments. Companies are looking at amended returns to decide what the Department of Revenue will allow for depletion expenses. Mr. Bolles indicated he is working with the Petroleum Association of Wyoming on rules to bring back the net-back method of valuation for oil and gas.
Streamlined Sales Tax Project
Mr. Dan Noble, Administrator of the Excise Tax Division of the Department of Revenue, provided an update to the Committee on the streamlined sales tax project. They are currently considering digital property and how to tax that property. In some states digital property is considered tangible personal property. Mr. Noble also provided the Committee with an update on the reporting requirements for a change in taxation rate and the need to provide advance notice to all vendors.
Sales Tax Exemption-Transportation, 03LSO-0054.W1
Mr. Quiner explained the bill, which would clarify the sales tax exemption granted for the intrastate transportation of employees to and from work and for freight and property. The bill would allow the exemption to apply to all businesses transporting employees, freight and property within the state instead of only applying to public utilities (see Exhibit A-1). Following discussion, Senator Peck moved the Committee sponsor the bill as a House bill. The motion passed with a roll call vote of 12 ayes and 2 excused (see Exhibit A-2).
Sales Tax-Vendor Licenses, 03LSO-0055.W1
Mr. Noble explained the bill which would revoke sales tax vendor licenses when there is no activity or reporting made by the vendor (see Exhibit B-1). The bill would require a vendor who has had no reportable taxable sales under the vendor's license to report the reason for the inactivity to the department. If the department does not find justification for the license, the department could cancel the license. Following discussion, the Committee asked the department to redraft the bill to include the authority to place a license on inactive status if there was a valid reason for the vendor to have the license and there was no reportable activity. The Committee will consider the redraft at its next meeting.
School Facilities Commission
Mr. Forrest Kepler, Chairman of the School Facilities Commission; Mr. Charlie Ware and Mr. Don Brygelson, provided the Committee with information on the activities of the commission. The commission has been touring school facilities to determine how an assessment score is made. Members of the commission indicated the membership is well organized and is a knowledgeable group of contractors and architects. The commission will try to keep the school construction work within the State of Wyoming.
Mr. Steve Sommers provided the Committee with information on the coal lease bonus money and indicated a majority of the money is already obligated to the school capital construction account for the purposes of major maintenance (see Exhibit C-1).
Tobacco Tax
Ms. Sarah Mikesell Growney, Wyoming Tobacco Use Prevention, reported her association is working on educating the public on increasing the cigarette tax. Wyoming has the 46th lowest state tax on cigarettes. She indicated for every 10 percent increase in tobacco tax, states see a corresponding 7 percent decrease in cigarette use among the youth. Escalating health care costs dictate the tobacco tax be increased.
Following discussion, the Committee asked that a bill be drafted increasing the cigarette tax by $.48 per pack of cigarettes with the funding to go to the substance abuse program following repayment of the tobacco trust fund.
There being no further business, the meeting was adjourned at approximately 4:40 p.m.
* * * * *
Cochairman Peck called the meeting to order at 8:30 a.m.
Natural Gas Pricing
Mr. Bob Reed, natural gas pricing consultant, provided the Committee with a presentation on the marketing of natural gas in the Rocky Mountain region. Mr. Reed indicated the problem with natural gas pricing in the Rocky Mountain region versus the Henry Hub market in Louisiana, is that transmission capacity is not adequate in the Rocky Mountain region. He indicated the Rocky Mountain region produces three times more gas than it needs for local consumption, and two-thirds of the gas has to be exported. The demand in this region is very seasonal and while gas production is growing at eight percent per year, consumption in the region is growing about two percent per year, so there is an excess of gas. The transmission capacity (pipelines) have not kept pace with the production of gas so gas is being sold at a discount price at the Opal market in Wyoming. He indicated the Kern River Pipeline should be on line by May 2003 so this should help the problem of transporting the gas out of state.
Mr. Mark Strahn, Vice Chairman of the Energy Commission; Mr. Patrick Petit, Wyoming Business Council; and Mr. Shawn Taylor of the Energy Commission, provided the Committee with an update on the workings of the Energy Commission (see Exhibit D-1). Mr. Strahn indicated Wyoming has one of the largest natural gas resource potentials in North America, but has an inadequate pipeline structure to transport the gas to market. The problem in Wyoming is the resource is so far away from the market. Currently Wyoming is the third largest producing natural gas state in the country. He indicated the price differential between Opal and Henry Hub is not always the direct impact that it might otherwise be due to long term contracts that have been previously entered into by gas producers. Mr. Strahn indicated the Energy Commission will do a study analyzing the price differential between the Wyoming and Louisiana markets in more depth.
Mr. Petit indicated the commission is waiting for other companies to share in the cost of the study and that is why the study has not begun. He indicated the state should look at a long- term solution for a broader revenue stream than from mineral taxation. He also indicated there are 30-32 different agencies in the state that regulate the energy industry and there is a need to consolidate all this regulatory activity.
Mr. Ed Brewer, Williams Energy Company, also provided the Committee with information on the difference in price between Wyoming gas and the national price at Henry Hub in Louisiana (see Exhibit D-2). He indicated it is difficult when the market is so far away from the production. He indicated very little gas is purchased on the spot market. He also noted pipelines are regulated by FERC and their rates have been the same for the past five years. Pipelines are very competitive and are cost of service based.
Mr. John Kennedy, an independent gas producer, indicated he is suffering from the decline in gas prices. He indicated there was a big transfer of wealth from gas producers to shippers (pipeline). He feels there are approximately 25 drilling rigs currently working in the Powder River area for coalbed methane and this decrease in production is due to the poor natural gas price. He feels the executive branch should be proactive in the gas business.
Mr. David Lanning, Yates Energy, indicated his company operates 60 wells and are one of the largest leaseholders in Wyoming. They also operate in New Mexico and since there is a $.40 difference in price per mcf of gas between Wyoming and New Mexico, they have stopped producing in Wyoming and have been producing gas in New Mexico. He indicated Yates has stopped selling gas on the spot market because they have a problem with transportation of the gas. He noted the permitting process of bringing gas to production is lengthy and expensive so a company needs to take a careful look before making a financial commitment to production.
Municipality Revenue Needs
Mr. George Parks, Executive Director of the Wyoming Association of Municipalities (WAM), indicated WAM recently held a meeting in Casper regarding the local option sales taxes (see Exhibit E-1). Mr. Parks indicated since the state increased the sales tax rate, seven counties have rejected the optional sales tax in local elections. The Legislature has been sensitive to the needs of municipalities in the past, but the support for the optional tax is declining. WAM would like to work with the Legislature in discussing options to meet the long-term needs of municipalities. The WAM is currently making a study of options available and will provide a copy of the report to the Committee when it is finished.
Distribution of Tax Monies to Local Governments
Representative Huckfeldt indicated he feels there is a disparity between large and small communities when it comes to tax distribution. He feels the Legislature should act to help out the small communities. Representative Huckfeldt would like the Committee to consider proposed legislation on the redistribution of fuel tax monies as well as combining optional local taxes for the next meeting.
Natural Gas Valuation
Senator Bruce Hinchey, Executive Director of the Petroleum Association of Wyoming and Mr. Paul Syring with BP Amoco, provided the Committee with a draft bill on a new version of the net-back valuation methodology for oil and gas. The bill provides a revised net-back method for the valuation of producer processed gas (see Exhibit F-1). Following their presentation, the Department of Revenue provided a response (see Exhibit F-2). Mr. Earl Atwood and Mr. Bolles of the Department of Revenue indicated they had met with industry on the draft bill. They feel it is a good starting point, but would like to look at how it compares with existing statutes. They indicated they would like a little more time to study all aspects of the proposal and are happy to continue to work with industry. They do feel this is better than the proportionate profits method that has been used in the past.
Following discussion, the Committee asked that a bill be drafted for consideration at its next meeting on the industry proposal with any appropriate staff comments.
Adjournment
Cochairman Peck announced the next meeting will be held November 7 and 8 in Cheyenne.
There being no further business, Cochairman Peck adjourned the meeting at 1:00 p.m.
Respectfully submitted,
Senator Robert A. Peck
Cochairman