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October 4, 2004
Parkway Plaza
Casper, Wyoming
Senator Jayne Mockler, Chairman
Representative Rodney “Pete” Anderson
Representative Tom Lockhart
Brenda Arnold, Laramie County Assessor
Wade Hall, Department of Revenue
Casey Parker, Attorney General's Office
Bobby Rolston, Anadarko Corporation
Ken Uhrich, Department of Revenue
Liz Zerga, Attorney
Michael Walden-Newman, Wyoming Taxpayer's Association
Mark Quiner, Assistant Director
Don Richards, Senior Research Analyst
Please refer to
Appendix 1 to review the Committee Sign-in Sheet
for a list of other individuals who attended the meeting.
Chairman Mockler called the meeting to order at 1:05 p.m. Mr. Quiner called the roll. Representative Anderson moved for approval of the Subcommittee's minutes from the September 20th meeting, without change. The motion passed. The following sections summarize the Subcommittee proceedings by topic.
Chairman Mockler summarized the progress of the Subcommittee at its last meeting and asked if the members requested any changes to the definitions of "intangible" and "tangible" before any further business. Representative Anderson voiced concerns regarding "intangible real property." Ms. Brenda Arnold, Laramie County Assessor, and Ms. Liz Zerga, Attorney, both indicated that the current assessment practices value certain intangible aspects of real property. Chairman Mockler then summarized the Subcommittee's definitions for individuals not present at the last meeting and stressed that it is a necessary first step to start with a set of fair definitions. The Subcommittee agreed to proceed using the developed wording at this time. (Appendix 2 provides a copy of Chairman Mockler's discussion outline for the Subcommittee meeting.)
Chairman Mockler initiated the discussion of how the Subcommittee should proceed in identifying what intangible property ought to be exempt from ad valorem taxation. She indicated that one suggestion would be to exempt all intangible assets as a starting point for discussion purposes. The Subcommittee discussed the merits of exempting all intangibles. Mr. Bobby Rolston, Anadarko, expressed concern with defining each intangible and the potential of ending up in court if the list was not clear. Mr. Wade Hall, Department of Revenue, indicated that there was a very real possibility that the Department of Revenue would challenge certain requests by industry since the Department may take a more conservative view of the definitions than industry.
Representative Anderson summarized one of the major concerns from the last meeting was the fact that certain intangibles may be taxed on properties assessed by the state and not on properties in the same class that are being assessed locally. The Subcommittee discussed this point further, and Ms. Zerga pointed out that the Supreme Court had ruled that the existing statutory list of intangibles is not exhaustive, yet she claimed that the Department of Revenue has not acknowledged this point.
Mr. Don Richards, LSO, provided handouts to the Subcommittee of a list compiled through various submissions from Subcommittee members since the last meeting in September. The list of intangible assets is built upon the basic framework of categories suggested in September by Norm Ross of PacifiCorp. (Specifically, the suggested outline comes from Valuing Intangible Assets, by Robert Reilly, New York: McGraw-Hill, 1999.) Mr. Richards explained that the first section of the list provides a summary of historical tax treatment of certain intangible assets, specifically those assets that have not been taxed in the past in Wyoming. (Refer to Appendix 3 for a copy of the list provided to the Subcommittee.) Mr. Hall stated that the Department of Revenue and the Attorney General's Office had reviewed the list prior to the meeting and generally agreed with the determinations within the first category.
The Subcommittee inquired about how mineral rights are presently treated. Mr. Rolston indicated that the mineral right is currently not taxed. Once production commences, the mineral, itself, is assessed once being severed. After this explanation the Subcommittee generally agreed that all items in the first section of the handout before "Marketing Related Items" (refer to Appendix 3) are indeed intangible assets and should continue to be exempt from ad valorem taxation.
Chairman Mockler indicated that she would like to proceed with Subcommittee discussion of all items on the list, noting that some may be listed under more than one category. She suggested that if there are any concerns with an asset on the list, it could be removed and would not be included among those items recommended to be exempt by the Subcommittee.
Beginning with the first category, Ms. Arnold noted that many marketing items are not typically tracked or valued in the local assessment process, would be difficult to track, but may still result in a deduction if specifically exempt. Ms. Casey Parker, Attorney General's Office, agreed and further articulated that it is difficult to identify the value of certain intangible assets if they become exempt. For example, since the state uses the income approach and unitary assessment method, taxpayers would have an opportunity to claim that their trade name gives them value and request an exemption.
Ms. Zerga agreed that the state's income approach does capture the value of intangibles and stressed the need to treat state-assessed and locally-assessed properties equally or risk violating the Constitution.
Mr. Hall offered an example of a computer purchased with installed software and explained the difficulty in arriving at the value of the installed software. Mr. Ken Ulrich, Department of Revenue, then suggested that it would be possible for certain companies to reduce their assessed value to zero by claiming the value from a list of exempt intangible assets. Furthermore, since Wyoming is a self-reporting state, it would require the Department of Revenue to request substantial supporting documents from taxpayers in order to support and verify their claims. Following further discussion, Ms. Parker inquired if it would be possible to ask industry representatives what intangible assets they believe the state has historically been taxing.
In response, Ms. Zerga indicated that the trend in other states is away from taxing intangible assets. Mr. Norm Ross, Pacificorp, testified his company has many items on the list but would likely not ask for exemptions for all since they would need to prove: (1) that the Department of Revenue has captured the value initially, and (2) how to measure the value of the intangible assets that have been captured. Ms. Stacey Sprinkle, Verizon Wireless, testified that other states use the unitary method and exempt certain intangibles. Mr. Hall reiterated Ms. Parker's inquiry and asked if industry representative could identify the intangibles likely to meet Mr. Ross's criteria and should be exempt. The Subcommittee continued to discuss various options for developing a list, and Ms. Sprinkle suggested that an alternative approach may be to require the Department of Revenue to use the economic enhancement approach to assessment and avoid developing a list altogether.
Mr. Rolston indicated that there appears to be agreement from the Subcommittee that all items on the list are indeed intangible assets. At his suggestion, the Subcommittee then considered whether it might be appropriate to exempt all intangibles and then separately list those that need to be taxed. Chairman Mockler noted that the Constitution requires that all property be assessed and asked how the state is assured that all value is currently captured. Mr. Rolston indicated that statute provides that the "fair market value" be determined, and that the state assumes that all value is then captured.
Ms. Zerga offered another alternative that all "intangible personal property become exempt." Ms. Arnold expressed some concern with that approach since, at the local level, some intangible personal property is inherently picked up in the assessment methods.
Chairman Mockler then suggested that the Subcommittee work through the list and identify all intangible assets from the list that the state has traditionally exempted. After some discussion, Chairman Mockler modified her proposal by asking the Subcommittee to attempt to identify all assets that were related to the top of the list previously agreed upon by the Subcommittee. Mr. Ulrich responded with a summary of intangible assets traditionally considered in other states, according to the American Bar Association (September 20th minutes, Appendix 2, pp. 67-123). The Subcommittee next discussed the likely fiscal impact should all intangible assets become exempt from ad valorem tax. Mr. Ulrich responded that a Department of Revenue extrapolation based upon a relatively small sample of state-assessed companies identified the total assessed value would be approximately $800 million, with an annual tax impact of roughly $56 million. He added that counties and schools would feel most of this impact, as the primary beneficiaries of property tax.
Ms. Arnold proposed that the Subcommittee might wish to consider addressing the issue of exemptions by assessment tier. Building upon this suggestion, the Subcommittee agreed that one more meeting would be necessary and that the Subcommittee would recommend a three-part plan to the full Revenue Committee. The proposal to the full Committee would include:
1) Draft legislation defining "tangible" and "intangible";
2) Draft legislation (potentially in the same bill as #1) that would ensure the status quo, or the traditional local assessment practice prior to the impact of the Supreme Court decisions on intangible property, for all property within the 9.5 percent (all other property) tier.
3) Draft legislation directing the Joint Revenue Interim Committee to study the 11.5 percent assessment tier (industrial property). The study requirements should be explicitly stated and include direction to not only consider the taxation of intangible property but to consider the differences in impact upon regulated and unregulated companies and state-assessed and locally-assessed properties within this tier. Chairman Mockler also indicated that a statement of legislative intent providing direction to the Department of Revenue on the Legislature's desire on how to proceed during calendar year 2005 could also be incorporated. This statement of intent may also require that the Department adopt new rules.
Chairman Mockler announced that the next meeting of the Subcommittee would be held on Friday, October 22, 2004 in Cheyenne.
There being no further business, Chairman Mockler adjourned the meeting at 5:00 pm.
Respectfully submitted,
Senator Jayne Mockler, Chairman