Tax Swapping

By on December 18, 2009

The big topic this week in the coffeehouses of Jackson has been tax swapping.  (Well maybe not in every coffeehouse, but at least in the ones I frequent and you got to sit next to old nerds like me that discuss tax policy as a hobby).  Tax swapping was created a few years ago in response to a need seen from the Town of Jackson.  The Town of Jackson is the only town in the State of Wyoming that does not assess property tax (each municipality can assess up to 8 mills.  Technically Van Tassel (pop. 15) and Lost Springs (pop. 3) don’t either).

This is good for the homeowners in Jackson, but it puts Jackson on a one legged stool of only relying on one source of revenue (sales tax).  When sales tax goes down, the Town of Jackson goes down and goes down faster than the county, because the county has numerous sources of revenue that help to balance the treasury if one source of revenue goes down.  The State Legislature was not happy with giving monies to the Town of Jackson, because it was not believed that the Town of Jackson should get state funds, if they were not taxing their citizens to same level as all of the other towns in Wyoming.  Some cities in Wyoming believed that the Town of Jackson should not get any state funds.  In response, the Teton County Legislators supported a bill that allowed for an extra penny of sales tax.

The argument was that sales tax was the better revenue source for a tourist oriented town.  So the Town of Jackson would implement an extra penny instead of implementing property tax.  Thus the concept of “tax swap”, in that sales tax would be swapped for property tax.  Then the Town of Jackson Town Council voted to not implement the extra penny of sales tax, which certainly came as a surprise.  It appears to be a moot point now, since the state does not have the large surpluses it used to have to distribute to towns and counties.

With sales tax there are the first 4 pennies that are usually called the state pennies.  They are actually split 69/31 with 69% going to the state and 31% going to the town/county based on population.  (The town and county have about equal population, so the split is usually 50/50).  The 5th penny is a General Revenue Tax which the town and county split based on population.  The 5th penny is a huge revenue source for both the town and county.  ($10 million a year).  The 6th penny is the Special Excise Tax (SPET) penny which is used for specific projects.  (pathways, museum construction, planning monies for the new START facility, sidewalks in town, etc).

There has been discussion that the town may really need to consider implementing a 7th penny of general revenue sales tax.  (This is the extra penny that the legislature authorized a few years ago in response to the Town of Jackson wanting to tax swap on their property tax).  Even though the original idea of using the 7th penny as a tax swap on property tax has gone away as an issue (because the state has no surpluses to hand out anymore), there is now the idea of swapping out the SPET penny for an additional general revenue sales tax.

The argument goes that in bad times you can not afford to fund special projects that are non-essential to the operations of government.  Thus instead of funding special projects through the SPET tax, you implement the extra general revenue sales tax to bring in needed revenue to keep regular operations going.  There would be no tax increase since you would be swapping one penny for another penny.

Of course, this leads into a conversation as to what is necessary or essential and what is non-essential.  Roads, levees, public health, law enforcement, courts are usually placed in the essential category.  What is non-essential depends on your point of view.

The town council and county commissioners are discussing what to do when the current SPET tax expires in 2010.  Do they place the SPET again on the ballot and move ahead with new projects?  Or do they not place the SPET on the ballot and instead implement an additional general revenue sales tax in place of the SPET tax (tax swap) to fund general operations?  And there has even been discussion of doing both taxes (which would, of course, be a tax increase).

Another interesting aspect to consider is that TetonVillage is a separate tax district and they have an additional 2 pennies already to pay for their new infrastructure going in out there.  So right now the tax in Teton Village is 8 cents rather than 6 cents, which it is in the town and county.

About Keith Gingery

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