Conventional wisdom holds that Washington Democrats and Wyoming Republicans don’t agree on many policy issues, fiscal or social, yet they’re both making a push right now for a major corporate tax increase. In fact Wyoming Republicans are much more likely than Speaker Nancy Pelosi and congressional Democrats to impose a corporate tax hike in the near future.
Wyoming is one of only two states that does not levy a corporate or gross receipts tax on business income (the other is South Dakota), but that may soon change. House Bill 220, introduced by Representative Jerry Obermueller (R) on January 22, was approved by the Wyoming House of Representatives with a 44 to 14 vote on January 25. HB 220, if enacted would impose a 7% state corporate tax targeted at companies with more than 100 shareholders.
The Wyoming Senate, which Republicans control with a 27 to 3 margin, will now take up the proposed corporate tax. Should it be approved by that chamber, Governor Mark Gordon (R), who was sworn in as Wyoming’s new governor earlier this month, will be the last line of defense against the imposition of corporate tax that many believe could have disastrous consequences for the state economy. Opponents of the bill include the Wyoming Retail Association and the Wyoming Lodging & Restaurant Association.
While Wyoming Lawmakers Move To A Impose Corporate Tax, Competing States Are Moving In The Opposite Direction
The push for a corporate income tax in Wyoming comes at a time when other states, both red and blue, are moving in the opposite direction and working to eliminate state corporate taxes. Last year alone, Connecticut reduced its top marginal corporate income tax rate from 9% to 8.25%, the District of Columbia cut its corporate income tax, and Indiana’s corporate rate dropped from 6% to 5.75%.
Less than a month ago, on New Year’s Day, North Carolina’s corporate income tax, already the nation’s lowest among the states that impose the levy, was cut from 3% to 2.5%. In Oklahoma, legislation was recently filed to eliminate that state’s corporate income tax. In Texas, where the Lone Star State lawmakers recently convened their biennial legislative session, there is a serious effort underway to get rid of that state’s gross receipts tax, known as the margins tax.
As Wyoming Republicans Push An Income Tax For C-Corps, Democrats Target Small Businesses With An Income Tax
While Wyoming Republicans are pushing to institute a corporate income tax, their Democratic colleagues have introduced a bill, House Bill 223, to institute a personal income tax of 4%. Wyoming is currently one of nine states that do not tax personal income (*while New Hampshire, counted among this list of nine, does not tax wage income, it does tax investment income).
HB 223, introduced by House Minority Leader Cathy Connelly (D), would apply to income above $200,000. While Rep. Connelly and her colleagues are selling this as a tax on the rich, this income tax would also hit thousands of small businesses in Wyoming that file under the individual income tax system.
According to the IRS, more than 2,600 sole proprietors in Wyoming filed under the individual income tax system in 2016, the most recent data available, and had income in excess of $200,000. Those small businesses, along with the more than 5,220 partners and S-Corp shareholders across Wyoming who file under the individual system and had income above $200,000, would be hit by the personal income tax proposed Connelly and her colleagues.
Rep. Obermuellor meanwhile markets his corporate tax as being targeted toward out-of-state employers.
Every argument we have is that out-of-staters pay those taxes,” Obermuller said. “I can’t guarantee there’s not going to be some in-state companies, but my instinct is that number will be extremely low, if at all.”
For something as significant as the institution of a state corporate tax, Rep. Obermueller’s bill rapidly moved through the House, having been introduced and approved by the chamber in a matter of days. The Wyoming Senate will vote on the proposal as soon as this coming Wednesday, January 30.
With Republicans controlling the U.S. Senate and the White House, Democrats will not get their proposal for a federal corporate income tax hike passed in Washington any time soon. Oddly enough, their wish is more likely to come true at the state level in Wyoming this year.
If Rep. Obermueller and his colleagues get their way, Wyoming will soon move from a state currently viewed as a model that others are trying to emulate, to a cautionary tale that competing states are moving away from.
