CHARLESTON – West Virginia consumers would have to begin paying state sales tax on more services they purchase, under legislation amended and approved Saturday by the state House Finance Committee.
Currently, consumers must pay sales tax on most goods they buy, but the state sales tax does not apply to the costs of many services that have been exempted. Under the legislation advanced Saturday, the sales tax would apply to such services as legal, contracting, public accountants, veterinarians and personalized fitness programs at fitness centers. Medical care would continue to be exempt.
The legislation also reduces the state sales tax rate from the current 6 percent to 5.5 percent.
The bill calls for further reductions in the overall sales tax rate provided the state’s revenue situation meets certain benchmarks. If the state maintains a healthy balance in its “rainy day” funds – measured as at least 15 percent of the total of the general revenue fund budget on June 30 of each year – the sales tax rate would continue to drop in 0.25-percent increments each Jan. 1 through 2020.
Currently, the “rainy day” funds total roughly 18 percent of the $4.3 billion general revenue fund budget. If that percentage remains above the 15-percent benchmark, the sales tax rate would drop to 5.25 percent on Jan. 1, 2018; 5 percent on Jan. 1, 2019; and 4.75 percent on Jan. 1, 2020.
The bill that was amended Saturday and moved to the full House for consideration was HB 2704. As introduced by Del. Jim Morgan, D-Cabell, the bill called for increasing the state sales tax from 6 to 7 percent until June 30, 2019, as a temporary means to raise extra revenue for the state, which is facing budget deficits.
Morgan said while the amended bill would bring in considerably more revenue, it was not what he intended.
“They are subjecting, for lack of a better term, more people to paying general sales tax,” he said.
Morgan said from what he has been told, the services previously exempt were exempt because it was lobbied for and allowed by previous legislators.
The scope of what will no longer be exempt is broad, including sale of radio/broadcast television time, printed advertising, computer hardware and software, professional engineers, architects, and any service where a professional license is required, such as a barber.
Current estimates indicate that, at the current 6-percent rate, more than $200 million in revenue could be generated annually if the exemptions for these services were repealed, according to a release from the House Finance Committee.
“While most consumers are familiar with the 6-percent sales tax they are charged at the register, they likely don’t realize there are a wide array of commercial services that have been exempted from this tax,” said Finance Committee Chairman Eric Nelson, R-Kanawha, in the release.
“This bill will repeal many of those special exemptions, and in return, regular consumers will see a reduction in the rate they are charged when they go shopping.”
The schedule also provides the Legislature with opportunities to annually revisit the plan.
“I believe this is a common-sense approach to simplify and promote fairness in our tax code,” said Finance Committee Vice-Chairman Eric Householder, R-Berkeley, in the release. “The state shouldn’t be picking winners and losers, and that’s the kind of behavior promoted by having all these existing exemptions and carve-outs in our tax code. We need to move to a simpler, fairer tax system that lowers the burden on all, and I believe this plan helps to accomplish that.”
Morgan said he plans to wait and see what happens with the bill as it moves through second and third readings, which allow for more amendments before he makes a judgment.
The amended bill that passed out of the Finance Committee included proposals derived from the work conducted by the Joint Select Committee on Tax Reform, which held several hearings during the interim committee process last year.
A second reading of the bill is scheduled for Monday. If passed, the bill will go to the Senate for consideration.
All bills in the House and Senate must be passed on to the other legislative body by Wednesday to be passed this session.
Follow reporter Taylor Stuck on Twitter @TaylorStuckHD.