Understanding State Sales Tax

Most states levy a state sales tax. It is not required that states charge sales tax, and the sales tax rate can vary widely across the states that do have sales tax. Five states (Alaska, Delaware, Montana, New Hampshire and Oregon) currently do not have a state sales tax. In the 45 states that have a state sales tax, the amount varies from 2% to nearly 8% of a total purchase. Some states also have sales tax exemptions on certain items. For example, in Wyoming there is currently no sales tax on groceries or prescription drugs.

While income tax rates can be complex and vary greatly from person to person, sales tax is much more straightforward. If you look at a receipt, you can easily see the amount you paid in sales tax for that purchase. The tax will be the same for each person who makes a purchase of like items in a similar location; it does not depend on WHO is making the purchase. Sales tax is calculated as a percentage of the amount paid for a good or service. Sales tax is collected at the “point of sale,” which means you pay immediately upon purchasing an item or service, as opposed to income tax, which comes due on a certain date each year.

Sales Tax in Wyoming: 4%, 5% and 6%

4% State Sales Tax

The state of Wyoming has a 4% sales tax that applies to each purchase made, except for some services, groceries and prescription drugs, in all 23 counties. This means that for each dollar spent on purchasing goods or services in Wyoming, an additional 4 cents is charged for state sales tax. The sales taxes are paid to the retail stores or other vendors where you make your purchase; it is collected at the point of sale then remitted to the state.

Of the total amount of revenue generated by the 4% state sales tax across Wyoming, the State of Wyoming keeps 69% in its general fund. This is to support the functions of our state government. The State of Wyoming sends the remaining 31% of the proceeds from the state sales tax back to the counties where the sales transaction occurred. The county then divides its portion of the remaining 31% between the county and municipalities, based on a percentage of the total county population. This sales tax revenue is a major source of funds for Wyoming’s local governments, especially our municipalities.

 

5% Optional General Purpose Sales Tax

Each county in Wyoming automatically has a 4% state sales tax. In addition, counties can seek voter approval to add 1% to the sales tax collected in their county, increasing it from 4% to 5%. Often called the “5th penny,” it adds one more cent of tax on each dollar spent in the county. While the 4% state sales tax exists in every county in Wyoming, the additional 1% does not. This optional tax requires the approval of the county’s voters to be enacted. Currently in Wyoming, 21 of the 23 counties have the 5th penny or 5% optional general purpose sales tax in place. At this time, Park and Sublette counties do not.

The 5% optional tax is paid to the retail store or other vendor where you make your purchase, just like other sales tax. The tax is collected at the point of sale, and then the store or vendor remits all of the sales tax they’ve collected to the state, as with the 4% state sales tax. However, UNLIKE the 4% state sales tax, once the 5th penny tax is remitted to the state, the distribution back to the county where the tax was generated follows a very different formula. Instead of the state keeping 70% of the funds generated from the tax and distributing 30% back to the counties as with the 4% state sales tax, the state keeps 1% of the funds generated from the optional 5th penny tax. That means the remaining 99% of funds generated from the 5th penny is distributed back to the counties. Once the 99% of the funds generated by the 5% optional tax is distributed back to the county, it follows the same population-based formula as used to distribute the funds to the county and municipal governments.

The 5% optional general purpose sales tax can be used for capital projects or operating needs at the county and municipal governments’ discretion. The 5% optional tax requires voter approval when it is first enacted, and it is in place for four years. After four years, it can be continued by resolution of the governing bodies within the county – usually the county commissioners and the city or town councils. Or, the governing bodies can bring it back to the ballot for voter approval every four years.

Let’s say in Wyoming, County X had sales tax receipts that totaled $10 million in a particular year. That means retail stores, vendors and service providers all across the county collected the required 4% taxes. Each time someone spent one dollar at a business in County X, the state sales tax of 4 cents was collected. The stores and vendors in County X send all the sales tax they’ve collected to the state government, and at the end of the year it totals $10 million for County X. The state of Wyoming keeps approximately $7 million of that $10 million total, since that equals the approximate 70% of sales tax that funds our state’s general fund. Of the original $10 million, after $7 million goes to the state of Wyoming, there is $3 million remaining. That $3 million is sent back to the county where the funds were generated. So, the

county government in County X will receive $3 million from the state sales tax in that particular year. County X divides that $3 million between the county government and all of the municipal governments, using a formula based on population. So, where the residents of County X reside will determine how much each local government — the county and municipalities — will receive of that remaining $3 million.

6% Optional Special Purpose Sales Tax

The state of Wyoming has a 4% state sales tax for all purchases of goods and services in Wyoming. In addition, many counties assess an optional 5th penny or 5% general purpose tax, which is also incurred on goods and services purchased in that county. A third sales tax you might encounter in Wyoming is an optional “6th penny” or 6% special purpose tax. Similar to the 4% and 5% sales taxes, the 6% special purpose tax is paid at the point of sale by stores and vendors on each transaction.

The 6% special purpose tax always requires the approval of the county’s voters to be put into effect. It is designed to fund only a specific capital need within a county or municipality. By state statute, the funds generated from the 6th penny cannot be used for ongoing operating needs of local governments. Instead, the funds must be designated for a special purpose or capital project. A “capital project” is usually considered either new construction or the expansion, renovation, or replacement of an existing facility or infrastructure. Renovating a library, constructing a bridge, or replacing utility lines can all be considered capital projects. Paying for county employee salaries or funding an ongoing municipal recreation program would NOT meet that definition.

Unique to the 6% special purpose tax is the way it eventually ends, or is “sunset.” Because the 6% special purpose tax is tied to a capital project (or projects), there is a specific dollar amount associated with it. Once the necessary revenue has been generated through the 6th penny tax, the tax goes away; it cannot continue to be collected.