Wyoming Adopts the Sales Tax: The 1930s Origins of the Current Tax System

By Phil Roberts, Department of History, University of Wyoming



            Wyoming's economy always has been marked by booms and busts. Because of the peaks and valleys in prosperity, revenues to support governmental services have bounced wildly over time. Boom times occasionally brought calls to reduce the tax burden as revenue poured into state coffers.. At others times, when the state’s economy was suffering and revenues were in short supply, state officials looked to other funding sources or sought additional revenues from the federal government.  In the worst depression in the state's history--the decade from 1923-33--the legislature tried to make substantial changes in the tax system.  The result is the current sales tax, adopted originally in 1935 as a “temporary emergency measure.”

            The sales tax became a part of the state’s revenue picture only after various forms of taxation were debated in two regular sessions and a special session of the Wyoming legislature. The story starts in the early 1920s when Wyomingites, dependent on a natural-resource economy, entered the “Great Depression” much earlier than the rest of America. State government, cities and counties managed to weather the hard times for nearly a decade, but by 1933, all levels of government had reached a funding crisis.

            At  the opening of the legislative session of 1933, Gov. Leslie Miller, a Democrat elected in 1932 to complete the term of Republican Gov. Frank Emerson who had died in office just 1 1/2 months after being reelected in 1930, faced a State Senate of 15 Republicans and 12 Democrats. The Democrats had a 42-20 majority in the House.

            Miller provided what one editor called, “friendly advice to the legislature.” He told them that “finding that source of taxation and using it to make the property tax burden more reasonable or equal is what people really want.” (Miller had pledged at one point in the campaign to “lower government costs by 25 percent,” as a means of “pulling ourselves out of a hole.”)

            Most legislators, along with a majority of editors, favored cutting wages to public employees. Labor union representatives wanted to eliminate the property tax and add an income tax. After all, the editor of the Wyoming Labor Journal wrote, an income tax would only be applied “on businesses that are profitable.” 

            Many agricultural organizations, nationally and in Wyoming, favored an income tax. Their representatives continued to argue that they wished to “broaden the tax base” by shifting away from an “over-reliance on property taxes.” Not coincidentally, property taxes were paid most heavily by owners of farm and ranch lands. As one of agriculture representative wrote in 1932: “Wyoming can no longer rely on property owners [agriculturists] to pay the greatest share of costs for government services.”  He asserted that the tax system had to be spread more broadly.

            A constitutional amendment establishing a severance tax on minerals nearly passed in the 1924 general election. It had gained more “yes” votes than “no” votes, but failed to gain the required 50 percent plus one majority of all voters casting ballots. Oddly, no mention of minerals was made nine years later.

            As the regular legislative session wound down in 1933, it was apparent that cuts wouldn’t be enough to sustain the state budget through the next biennium. New income would be necessary. Clearly, a special session would have to be called because, at that time, the Wyoming legislature met every other year for just 40 days. The crisis appeared too great to wait two years for action.

            In the wake of these realities, the legislative leadership from both parties appointed three members of each House to a special Committee on Taxation. Charged with increasing government efficiency, decreasing governmental costs and producing a more equal distribution of the tax burden, they voted to hire the Griffenhagen Company of Chicago to do a cost analysis of state government and recommend places where cuts could be made and where revenues could be increased.

            “Poor relief,” administered by counties and towns, had reached crisis levels. In 1933, one in five Wyoming residents were on relief.   State Sen. Roy Cameron, president of the Senate and chairman of the special tax reform commission, told a Cheyenne reporter that the commission had discussed the need for a “temporary sales tax” to obtain funds for relief, although the commission made no recommendation on the matter.

            The Griffenhagen company returned its report in October 1933.  The commission declined to accept many of the company’s recommendations, much to the surprise of the press. As one columnist noted, “The report of the special commission does not appear to be as completely revolutionary as a survey of the complete Griffenhagen report led us to fear it might be. A large number of the reforms as recommended by the experts who made the survey, are not included in the report which the commission is making to the governor and to the members of the legislature along about Nov. 1st.”

            The commission settled on a “five-point” proposal, allowing the rest of the report to be shelved, possibly to be considered at a later time.  Abandoned were Griffenhagen recommendations for a statewide centralized police force, a single-house legislature and elimination of election of state officials, including the governor.

            The commission did adopt some points from the Griffenhagen suggestions. One was to centralize  all road building within the State Highway Department. Another was to consolidate all school districts into one statewide district.  Estimated savings from both plans were estimated at approximately $2 million annually.  Further, the committee wanted to create a “finance board” and eliminate county assessors, treasurers and their state counterparts. This would lead to more equalized taxation, the commission claimed.

            A personal net income tax and a business net income tax would add $2 million on the revenue side, the commission said.  “Inasmuch as the total cost of all government in Wyoming, local and state, amounted this year to between eight and nine million dollars, it is apparent that if the estimated economies and new revenue are as they predict, real estate, which now must bear nearly the entire burden of the state, should have this tax burden slashed nearly in half.” The tax base had to be broadened, it concluded, and an income tax would accomplish this feat.

            While the commission believed a flat four percent was appropriate for a business net income tax, gaining an estimated $1 million per year, the personal income tax would be graduated. For those earning less than $1,000, there would be no tax except for payment of the mandatory $8 “filing fee,” required for income earners at all other levels as well. Those earning from $1,000-$2,000 would pay one percent; $2,000-$4,000, two percent; $4,000-$6,000, three percent; $6,000-$8,000, four percent; $8,000-$10,000, five percent;  and six percent on all those making more than $10,000 annually.

            The commission began a series of newspaper articles, arguing for their proposals, in November, 1933. 

            The first installment argued that much of the waste and inefficiency in state government could be eliminated by centralizing roads and schools.  In one district, the commission argued, “the trustees purchased enough floor varnish to last 100 years. In one county the county commissioners purchased $90,000 worth of road machinery in the last three years. Less than $30,000 (new value) worth of machinery could be located when the new board of county commissioners took over the affairs of the county last January 1st.”

            The commission pointed out that voters shouldn’t fear loss of local control. “The people should not be misled by false appeals to local pride and prejudice and to fear of weakening popular control. Such appeals will undoubtedly be advanced by those whose selfish interests lie in the continuation of the present waste, inefficiencies and injustices.”

            When Governor Miller addressed the special session on the opening day (Dec.  3,  1933), he reminded legislators that the special six-member taxation committee had not been appointed by him, but by the legislature.  He praised the committee’s diligence and singled out Senators Roy H. Cameron (R-Crook)  and Clifford A. Miller (R-Natrona) who led the committee’s work. 

            He said he wouldn’t comment extensively on the committee’s report, leaving that to the committee through individual bills they might propose for the session. “I do, however, desire to comment briefly upon a few of the recommendations.”

            After noting a few areas in which he had agreement (changes in inheritance taxes, for example), he said: “There is unquestionably a very considerable feeling in this State that we should adopt some form of an income tax.  Personally, I believe the income tax to be the outstandingly just and fundamental method of taxation.”

            He added: “I do not believe, however, that at this time we should give thought to any new taxes unless these taxes should be used to offset and reduce tax now paid on real property. It is, therefore, my recommendation that the Legislature give due consideration to the proposal for an income tax and if favorable consideration be given the committee’s bill, the same be amended to the effect that any tax paid on property shall be a credit not upon gross income but upon income tax to be paid. Unless the workings of the income tax measure can be made to relieve the present burdens borne by owners of real property, the measure should be discarded at this time.”

            (Years later, in 1974, Wyoming voters passed a constitutional amendment, Article 15, Sec. 18, that follows Miller’s logic. Contrary to popular belief, the State may impose an income tax, but the amendment states:  “No tax shall be imposed upon income without allowing full credit against such tax liability for all sales, use, and ad valorem taxes paid in the taxable year by the same taxpayer to any taxing authority in Wyoming.”  The measure was championed in the legislature by Nels Smith, the namesake and grandson of the man who defeated Miller for governor in 1938).

            In order to take care of the increasing burden of “poor relief,” Miller recommended a tax on beer (just recently legalized when Prohibition was repealed) of four cents per gallon.  “I believe it would be a tax at once productive of sufficient revenue and a tax popular in its purpose and conception.”

            He also proposed changes in educational finance, but would not concur with the committee’s recommendation that the entire school system of the state be centralized into one district and under one board.   He concluded, however, that reduction in state expenditures, which he had accomplished during the previous year, was a better budget solution than new taxes.

            Not all of Wyoming had a “considerable feeling” in favor of an income tax.  The Lander Chamber of Commerce took a straw poll of its membership in November, 1933. The group voted 10-1 for a sales tax and against an income tax.

            Partisan politics apparently had little to do with support for an income tax. Democrats had control of the House of Representatives by a margin of 41-20 while the Republicans held on to the Senate by 16-11. Had the income tax been a purely partisan issue, the outcome would have been clear. Both parties were split on the issue, however. Generally, farmers and ranchers, in Wyoming as well as nationally, seemed to favor an income tax. Businessmen and industry representatives opposed it.

            On the first day of the special session, a group of 23 legislators from both parties proposed a “privilege tax,” (HB 59) also known as the “adjustment sales tax.”  The newspapers referred to the bipartisan group as the “farm bloc.”

            The privilege tax appears to have been a combination of sales and income tax. It featured a two percent tax on gross receipts of doctors, lawyers and other professionals, oil and gas, transport, and communication companies.  “Raw materials” were exempt from taxation, defined by the group as agricultural products but, curiously, not oil and gas.  Leading the House group were Rep. R. V. Allen, a Goshen County Democrat, and Rep. L. F. Thornton, a Hot Springs County Republican.

            While the privilege tax and various other tax bills were winding their way through legislative committees, both houses addressed expenditures. The initial bill containing the Griffenhagen company’s recommendations on school district consolidation, law enforcement and county reduction failed in the House by a vote of 26-32. Nineteen of the 20 Republicans voted against it, joined by 14 Democrats.

            Amid complaints that the special session was paying too much attention to trivial matters such as a “beaver tag bill,” the legislative leadership brought up the farm bloc’s “privileges tax.”

            Democratic floor leader H. D. Watenpaugh argued strongly against it. The measure was  before the committee of the whole for more than 3 1/2 hours late into the night of December 18. Scotty Jack, Casper Democrat, spoke against the bill as a “levy on human misery, a tax striking the unemployed as well as the employed, applying even to the clothing of the man in the bread line.” He argued that an income tax would be more equitable.

            Park County Republican Ernest Goppert spoke for the “adjustment tax” in what newspaper reports claimed was the longest speech of the special session. “The present tax system,” he argued, “puts a penalty on the man who improves the community” by the erection of a home, a factory, etc. He pointed out that up to 1/10 of all property in Wyoming had been sold for taxes.

            In the Powell area, he asserted, 25 percent of all property was sold for taxes in 1932 alone. He said the tax bill would reduce the pressure on property owners and “encourage thrift by taxing spending.” Extensive amendments were made in the bill, but it went down to defeat by a vote of 22-37 on a motion to postpone it indefinitely.

            After the defeat of their privilege tax, the Democratic House Leader Watenpaugh brought HB 1, the income tax law, up for debate. Most of the farm bloc--the group losing the earlier privilege tax vote--nonetheless backed a graduated income tax bill calling for a tax ranging from one percent on incomes below $300 annually to six percent on incomes in excess of $10,000 annually. A second income tax bill was introduced, however, that sought to simplify filing. HB 103 would have required payment as a state income tax the same amount the taxpayer paid for the federal income tax.

            The income tax bills were debated on Dec. 20, 1933. The next day, the House killed the initial plan by a vote of 24-36. The second proposal never reached a vote. Any additional form of taxation was dead until after the next biennial session and with a new legislature elected in November, 1934.

            In 1934, economic conditions in Wyoming remained dire. In fact, the short-term outlook just before the November election suggested that the state would need new revenue sources if it hoped to have a balanced budget. Failure of proposals for an income tax in the special session of 1933 simply made the crisis even more severe.

            Governor Leslie Miller, a Democrat and former oil executive who, in 1933, had pledged he would not seek federal aid for Wyoming, reluctantly changed his view by 1934. The New Deal programs would help ease some of the economic distress suffered by many state residents. But even with federal programs, Wyoming schools, counties, cities and state agencies would need financial help in the following two years.

            Miller had been reelected by a margin of 54,305 to 38,792 in November, 1934.

            He was joined by Democrats in all four of the other state offices--former Fremont County legislator Lester C. Hunt was Secretary of State; former Natrona County representative William “Scotty” Jack was State Auditor; J. Kirk Baldwin, state treasurer (the first and only Democrat ever elected to that post in the state’s history); and Jack R. Gage, was superintendent of public instruction.

            Democrats occupied all three congressional seats.  Joseph C. O’Mahoney defeated Republican Vincent Carter for the U. S. Senate while Cody lawyer Paul Greever won the House seat over Charles E. Winter. 

            Even before the legislative session, it was clear that raising revenue again would be the key issue in 1935. Soon after the November election, the Wyoming Education Association submitted a sales tax proposal. The teachers’ group argued that without it, schools would continue to decay.

            In December, 1934, Will Metz, the State Relief Administrator, proposed a state lottery, patterned after the Irish Sweepstakes, as a means to raise money for welfare programs. Soon after the 1935 session began, 22 House members co-sponsored a lottery bill. The measure was endorsed by the president of the Wyoming Taxpayers League.

            Some observers were skeptical of a lottery. “How do we know that our citizens with a taste for gambling will prefer this particular game to other ‘honest games of chance’?” wrote the editor of the Sheridan Press.  There was talk of a sales tax as a “temporary measure” to alleviate the looming budget shortfall.

            Governor Miller’s position on a sales tax was still unclear in the month prior to 1935 legislative session. Before a Rotary club group in Cheyenne, Miller “outlined a sales tax plan which he said would meet all financial needs of state government during the next biennium and at the same time, would afford relief to property owners by eliminating a direct state tax on real estate.” He was quoted as telling the Rotary he did not believe “a state income tax would solve the taxation problem.”

            Martin Cahill, the head of the State Federation of Labor, voiced opposition to the sales tax. The Wyoming Labor Journal continued to publish editorials pointing out that the sales tax was “unfair to workers” and a  “burden to the part-time worker.”

            The state board of equalization, cognizant of the opposition from various quarters to each form of taxation, recommended a “joint income and sales tax” to Governor Miller in December, 1934. The board urged that all state and school revenues be raised through sales and income taxes, “rendering all property taxes to cities and counties.” According to C. H. McWhinnie, the chairman of the board, “This would not in any way be an additional tax but would be a more equal distribution of the tax burden.”  

            When the legislative session opened in January, 1935, it was clear that business and agriculture preferred the sales tax. Gone, apparently, was the “farm bloc,” the bipartisan legislative group favoring a “privilege tax” or an income tax in the 1933 session. 

            Democrats held a one-seat advantage (14-13) in the State Senate. Democrat Nels A. Pearson of Sheridan held the Senate presidency. In the House the Democratic margin had slipped a bit from 1933. The 38 Democrats, led by House Speaker Henry D. Watenpaugh, Sheridan County, faced 18 Republicans.

            Rep. L. F. Thornton, the Hot Springs County Republican who was one of the “Farm Bloc” leaders in the 1933 session, was not present.  He had tried to run for State Senate but lost in Hot Springs County to Democrat A. R. Zimmerman. Rep. R. V. Allen, a Goshen County Democrat, the other leader of the farm group, remained the only Democrat in the three-member Goshen House delegation, but by a narrow margin. 

            Other supporters of the “privilege tax” in 1933 were gone, too. Republican Ernest Goppert in Park County lost, replaced by  Democrat George T. Beck, Jr., who joined fellow Democrat Herman F. Krueger as the two legislators representing Park County.  Neither Senators Roy H. Cameron (R-Crook)  nor Clifford A. Miller (R-Natrona), the two special taxation committee chairs, returned to the legislature in 1935.

            Legislators were mindful that in the year since the 1933 special session, cities, counties and the state continued to suffer financial drains from welfare. Unemployment in the state remained high. The House Revenue committee held open hearings in early February.  Representatives from organized labor and other groups were called to testify.  As the Wyoming State Tribune report indicated, “Most of the outright opponents of a sales tax advocated levies on incomes with particularly heavy mulct of the bigger incomes.”

            In 1933 support for the income tax came from a coalition representing various occupational groups. The coalition had disappeared in 1935 . Some observers quipped that only labor and “government employees” were in favor of an income tax this time around. “The state relief agencies are clamoring for the sale tax with an ear-marked $500,000 to keep them in steady jobs,” the Cody Enterprise editor sniffed. “Others favor the sales tax but insist upon a general lowering of other taxes in lieu of the sales tax,” the Enterprise editor concluded. 

            The editor of the Wyoming State Tribune, opposed to an income tax, wrote: “Among those who yesterday voiced loudest and most emphatic disapproval of the sales tax plan were Martin Cahill, head of the state federation of labor; Secretary Nicodemus of the Unemployed Union and Roy Hines, Cheyenne representative of the Communist Party.  They complained, in general, that the rich men and big corporations of Wyoming should be made to pay for relief.”

            The Tribune’s news story cleverly seemed to fasten organized labor and support of  an income tax to two organizations that Wyomingites viewed with great skepticism--the Unemployed Union and the tiny Communist Party. Opponents of the income tax in the legislature apparently recognized this fact, too. Representatives of both groups were invited to testify before legislative committees.

            The Communists had virtually no support statewide. They had ran candidates for four statewide offices in 1934, but the highest vote total was 195 votes for Don Wirth, their candidate for state treasurer. Nonetheless, their representative spoke out strongly for an income tax, stating that it was an important means of “resisting capitalism.” Such harsh rhetoric frightened the more “mainstream” supporters of an income tax. into silence.  By tying the income tax to Communists, opponents of the tax won the day.

            But an income tax had not been the only alternative for a sales tax.  A. D. Shipp, Casper representative of the oil workers, told the House Revenue committee that a state-controlled lottery would solve the relief problem. “[A]rguments against conducting a state lottery and taxing gambling, which we all know goes on, have no weight when advanced by those who think the state’s morals might be endangered,” he told the committee. “If we can tax these things we not only can destroy them, if they are evil, but we can be raising a lot of money for the thousands in the state who are on relief while we are doing it,” he concluded.

            Two legislators, William H. Cross of Converse County and W. C. DeLoney of Teton County, (both Republicans) introduced a bill to legalize all gambling. The Cross-DeLoney bill, S. F. 24, was introduced early in the session. A less extreme lottery act was endorsed by the president of the Wyoming Taxpayers League.

            An informal Wyoming Eagle poll taken in late December, 1934, indicated that Wyomingites favored the lottery act by 256 to 40.  The editor of a Thermopolis paper advocated “wide open gambling.” Nonetheless, church groups came out against gambling on moral grounds. Gov. Miller, too, was opposed.

            The editor of the Sheridan Press was skeptical of the income-producing potential of gambling. “How do we know that our citizens with a taste for gambling will prefer this particular game to other ‘honest games of chance’?” the editor asked.  Despite strong opposition, the full gambling act sailed through both Houses only to be vetoed by the governor.

            The second week of the session began with a substantial number favoring a sales tax and a small group still advocating an income tax. It appeared to some observers that action would not be taken on either--the legislature would do nothing about revenue, just as it had done in 1933.

            Gov. Miller, however, finally stepped in, making a personal plea for passage of the sales tax. “Pointing out that money is needed for relief purposes and declaring it to be out of the question to increase the direct tax levy to raise it, the governor urged the adoption of the sales tax as a means of definitely assuring income so the state may cooperate with the federal government under terms of the economic security act,” the Tribune story read.  In the act, the sum of $500,000 would be earmarked for relief. 

            “The sales tax is the only way out,” the governor told legislators in an informal meeting.  In an unprecedented appearance before the House, Relief Administrator Will Metz also pleaded for passage of the sales tax act. (State newspapers criticized him for “pushing for a sales tax” rather than leaving it to the legislature).

            Opposition to a sales tax remained vocal--and bipartisan. Rep. George Messick (R-Sheridan) observed that “70 percent of the people do not want a sales tax.” Rep. J. Reuel Armstrong (R-Carbon) pointed out that since the state had repealed Prohibition and opted to enter the wholesale liquor business, revenues from those operations, estimated at $1 million annually, would mean “there is no need for a sales tax.”

            Miller, the Democratic governor, recognized that organized labor was the primary opponent of the tax. “I know the chief opposition comes from organized labor,” Miller said, “but the laboring man does not pay a disproportionate share of taxes in Wyoming.”

            As a means of insuring passage, the sponsors of the sales tax bill added dozens of exemptions, including a crucial exemption on all services and on agricultural commodities.  To sweeten the proposal, they argued that the measure would be “only temporary” and the entire tax question could be revisited once the economic conditions warranted.  While there is no direct evidence as to support based on this fact, clearly the sales tax advocates seem to have cemented their position with these assurances.

            Meanwhile, the income tax proponents, tied indirectly to communism in the hearings, had lost momentum since the 1933 special session. Outnumbered, they tried to substitute an income tax for the sales tax late in the session. The effort failed by a substantial margin.

            After considerable debate, including references to the “failure” of the Utah income tax law to raise sufficient revenues, the House passed the sales tax bill on Feb. 12, 1935, by a vote of 35-19. Later, the Senate passed it with only token opposition.

            On Feb. 18, 1935, the governor signed the bill that became the “Emergency Sales Tax Act of 1935.”

            The law required that all retail firms purchase an annual sales tax license for a $2 fee. (Section 3). Two percent was assessed on all retail sales, on carriers of telephone and telegraph services (exempting interstate services), public utilities, gas and electric companies. Two percent was assessed on all meals served in restaurants and two percent on admission to entertainment events. The first 13 cents of any purchase was exempted. 

            Numerous exemptions were built into the “Emergency Act.” Commodities, sales to federal and state agencies and charitable organizations were exempt. Section 16 made it unlawful to advertise that the tax was “being absorbed” by the retailer.

            The enabling clause indicated the nature of the act: “This is an emergency act and shall be self-repealing and shall expire on March 31, 1937.”

            At the opening of the 1937 legislative session, Gov. Miller explained his veto of the 1935 gambling act. He also urged the passage of an income tax, suggesting that a constitutional amendment be placed on the 1938 ballot.  “We need a three-legged taxation system,” Miller argued.

            Miller’s recommendations, however, were not followed by the legislature. After dozens of amendments were offered broadening the exemptions, the legislature reenacted the sales tax in what was then titled the “Selective Sales Tax Act of 1937.”  Section 4 changed the lower limit on the tax to 24 cents. The effective date was April 1, 1937. State revenue shortfalls, for the time being, were averted.

            The Revenue Committee, siding with Gov. Miller, voted in favor of an income tax in 1937. When the bill, HJR #2, reached the full house, it was rejected by a vote of 17-39, almost exactly the reverse of the 40-16 vote in favor of the sales tax introduced at the same time.

            Political repercussions for passage of the sales tax are difficult to assess.  Some historians have pointed to Gov. Miller’s support for the income tax as part of the reason for his loss to Nels Smith in the 1938 general election. A number of other issues contributed to Smith’s victory over Miller. For one, Miller was seeking what was then an unprecedented third term.

            Lincoln County representative Carl Robinson introduced an income tax bill in the 1939 legislature.  But the legislative mood had become even more anti-income tax.. HJM #6 was introduced advocating repeal of the federal income tax. While Robinson’s measure was sent to the Judiciary committee where it died, the memorial opposing the federal income tax sailed through the Senate on a 17-9 vote and the House by a vote of 30-18.

            By most indications, Wyomingites had become conditioned to the sales tax and hostile to the idea of an income tax. The economy was improving and the legislature apparently felt the revenue crisis of the early 1930s had been solved through passage of the sales tax.  At a time when most of the surrounding states were opting for income taxes as a means of “broadening the tax base,” the Wyoming legislature had made a choice that was to have a long-term impact on state funding and an enduring legacy to future governors and state legislators, even into the next century.


NOTE: This article is an abbreviated version of a longer article containing complete citations and more lengthy analysis. The longer article was published in 2004 as:  "A History of the Wyoming Sales Tax: How Lawmakers Chose It from Among Severance Taxes, an Income Tax, Gambling and a Lottery,"  Wyoming Law Review, 4 (1), pp. 157-245).