Over the past decade, Wyoming counties lost out on almost $100 million in delinquent mineral taxes.
Wyoming’s 23 counties charge coal, oil and gas companies for the minerals they extract. Ad valorem, or production taxes, are paid to counties and fund important functions such as county governments and schools. Three-fourths of ad valorem mineral tax collections go into the general education pool to fund school districts statewide.
But, in the past decade, delinquency has become commonplace. Statewide, in 2009, the sum was just over $2 million; this year it topped $39 million.
Locally, the burden has been significant. In 2018, $7.75 million – fully 71% – of the ad valorem taxes due to Johnson County were delinquent.
That is the kind of shortfall that makes balancing a county budget incredibly difficult. It’s hard to pay your bills with money you don’t receive.
The problem is not a new one – only a growing one, and it’s largely attributable to the fact that ad valorem taxes aren’t due to counties until 18 months after the minerals have been produced. In the current volatile energy market, a lot can happen in 18 months.
At a meeting last month of a new legislative committee formed in response to energy industry bankruptcies, few disagreed that the system was broken and required urgent attention. Some of the most damning testimony came from Larry Wolfe, a former energy industry lobbyist and attorney.
“It’s fundamentally changed now,” Wolfe said.
Each company that successfully uses bankruptcy to avoid taxes encourages other companies to follow suit, Wolfe said.
“You are the guardians of the tax system,” Wolfe told lawmakers. “If you don’t care, … nobody does.”
A draft bill would require companies to pay production taxes every month in similar form to severance taxes. If enacted, companies would be required to keep current on their taxes, preventing future losses for counties.
Petroleum Association of Wyoming Executive Director Pete Obermueller said that, generally, the industry is not opposed to paying ad valorem taxes monthly. However, he said the transition period – during which companies would be paying both new taxes and the taxes they had accrued over the previous 18 months – could prove ruinous for the fragile energy industry. Obermueller suggested that a remedy might be for lawmakers to forgive some of the owed taxes.
Here’s the rub: The minerals produced are finite, and we get one chance to tax them. Johnson County will never get another crack at the $7.75 million they are fairly and legally owed, and lawmakers don’t yet know how many dollars they won’t receive from 2019 production.
State legislators passed on a chance to enact monthly collections in 2016. This year, they may have a chance to right that wrong.