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Bill to repeal income tax to undergo revision; budget deputy recommends review


The Register-Herald

CHARLESTON, W.Va.  — The lead sponsor of a bill that would repeal personal income tax says he plans to revise the bill to address concerns raised in the fiscal note.

The Senate Select Committee on Tax Reform took up Senate Bill 335 in its Monday meeting. Mark Muchow, deputy secretary of the Department of Revenue presented information on the fiscal note, which is the expected financial effect of the bill.

The fiscal note, which Muchow submitted last Thursday, said repealing the personal income tax and replacing it with a consumer tax would cause a net General Revenue Fund decline of $870 million over the first four years.

In the the first year, the General Revenue Fund would see a surplus of $550 million because of the consumption tax changes that occur six months before modifying the existing income tax structure. Then, the numbers would decline over the next three years.

Sen. Robert Karnes, R-Upshur, said the plan right now is to revise the committee substitute and present the revised version for Muchow to analyze to make sure whatever adjustments are made will address the concerns. Karnes is the lead sponsor of the bill and chairs the Select Committee on Tax Reform.

He said he anticipates having the revised version possibly as soon as this week.

One of the things Karnes said he wants to address in the bill is moving closer to a triggered step down process for income tax. Income tax would remain in a much smaller number and then as the revenue comes in, rates would be lower.

Muchow said Monday the committee has a tough assignment ahead, saying West Virginia has several strikes against it.

“One is very low real estate taxes,” he said. “Other states have higher. Real estate doesn’t move, economic activity does.”

He said West Virginia has the second lowest rate in the country as relates to real estate taxes.

Karnes said this topic will be something the committee will look into but said it is a constitutional question, meaning it would have to go to voters to agree to make such changes. He said he agrees that the state is one of the lowest in the country for property taxes and that adjustments need to be made to adjust personal property tax so it’s not a barrier to business, which he said may mean a tradeoff.

“The average person may not be paying property taxes on a truck but maybe paying more on real property. How that shapes up, I can’t say for sure. We are early in that process because we are working on this process first.”

Muchow said West Virginia also is at a disadvantage to some of its neighboring states regarding local taxes. He used the example of Bluefield, West Virginia and Bluefield, Virginia. He said Virginia does better because local taxes play a bigger role.

Muchow said corporate and severance taxes are unchanged under the bill and that liability would shift from individual households to business inputs. He also said West Virginia would have among the highest sales tax rate in the country upon the bill’s implementation.

Sen. Ed Gaunch, R-Kanawha, said he was encouraged when he first saw the fiscal note.

“What I see in it and what I was afraid of was a pie in the sky review that made us all think, ‘wow, why do we not go ahead with it right now?’ What I see is a thoughtful, not worst-case scenario, but certainly a realistic scenario,” Gaunch said.

Gaunch asked if there would be any positive inputs if the state did away with income tax and whether that money would be turned around and spent in the economy.

“The question is whether it would be spent in West Virginia or other states,” Muchow said.

Muchow said in the fiscal note he anticipated “significant leakages” from bordering counties into neighboring states to take advantage of lower rates.

He also gave the example of a large company offering legal services that may internalize those services or export out of state.

He also mentioned the tax on professional services, giving the example of a CPA in Parkersburg charging a state and local tax and paying all other business related taxes. He said in that scenario, customers could be going to Marietta, Ohio, for services and the CPA may eventually have to move to Ohio because of that 9 percent differential.

Muchow said in his view, there should be a dynamic study on this topic. He also said that just because income tax would go away wouldn’t mean that some people wouldn’t still pay an income tax.

He gave the example of people living in border counties who work in a neighboring state, who would still pay that income tax.

Karnes said as far as studying the topic goes, he has been in discussion with people from West Virginia University and Marshall to do a more in-depth look but said many parts could be sped up.

“Again, I would like to point out in the last 40 years, there have been four major studies that have never produced anything. There’s a point where you can study, study, study but then there’s a point where you actually have to do something.”

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