Limited Liability Corporations (LLCs) are now commonplace in the American economy. In fact, they are being formed three or four to one in comparison to corporations. While these pass-through tax entities are often good for local businesses, the regulation of LLCs differs by state and this can create interesting challenges within state lines. This is currently true in Wyoming, where the loose regulation of LLCs is meant to favor incoming business, but also creates an “LLC Loophole” in the regulation of campaign finance. This dichotomy in regulation becomes ironic when you recall that Wyoming created the first LLC in 1977.
While the remainder of this post will focus on the LLC Loophole in Wyoming, it is important to mention the history of the LLC in Wyoming. The Hamilton Brothers Oil Company originally pushed for the Alaskan legislature to allow for LLCs, thinking that the other large oil companies would influence a change for less taxation. However, after two failed votes with the Alaska Legislature, the Oil Company’s attorneys brought the same proposed legislation to Wyoming where it passed as the Wyoming Limited Liability Company Act, ch. 158, 1977. Since then, Wyoming has maintained low regulation and low tax rates in order to support a favorable business environment and facilitate economic growth. In fact, the Tax Foundation’s State Business Tax Climate Index ranked Wyoming first in the nation in terms of favorability to business; but, these rankings are coming at the price of electoral regulation. More specifically, dark money haunts Wyoming’s electoral process. In fact, in 2015, “the state ranked 48th and 40th in political finance and electoral oversight transparency, respectively, and has some of the nation’s least restrictive laws on spending.”
In September of this year, the Wyoming Legislature attempted to address some of its political finance issues. As Secretary of State spokesman Will Dinneen explained, the proposed bill sought, “to close a loophole for parties and PACs to no longer be able to function as a conduit for corporations to funnel money directly to a candidate or campaign committee”. This is not the first effort in the state to limit “dark money” in elections. Two years ago, University of Wyoming law professor Kenneth Chestek formed “Wyoming Promise” and put forward a ballot initiative and a resolution to limit unknown funders, but both failed. For the more recent proposal, some critics are not confident that the legislation on PACs would be enough to solve the entire problem. This is because of the ambiguity of the term “corporation” which leaves the LLC Loophole open. The proposed statute does not amend the language of what can constitute a dark donor, and leaves it at, “any kind including a corporation, partnership, trade union, professional association or civic, fraternal or religious group or other profit or nonprofit entity except a political party, political action committee or candidate’s campaign committee.” However, the Wyoming legislature has not made it clear whether or not corporation is meant to include LLCs. Moreover, in Wyoming, current laws allow “limited liability corporations to be formed for the sole purpose of running negative campaign advertisements with no way to know who was behind them.” So, if LLCs remain unregulated in terms of campaign finance operations then the issues of dark money in Wyoming could persist. However, the solution to this is simple. All the Wyoming legislature needs to do is directly address LLCs in the donor regulations. However, whether it is out of principle or nostalgia, Wyoming seems hesitant to take further steps in regulating LLCs in any capacity. In any event, it is very ironic that the state in which LLCs were born is now having issues as a result of under-regulation.