By October 2, 2017 Read More →

Legislature may try hand at eliminating personal property taxes

By RUSTY MARKS

The State Journal

CHARLESTON, W.Va.  — After trying and failing to adopt a tax reform plan earlier this year to roll back personal income tax rates and do away with most exemptions to the state’s sales tax, members of the West Virginia Legislature hope to eliminate personal property taxes some believe are stifling growth in the Mountain State.

State Commerce Secretary Woody Thrasher has said business taxes on inventory and on machinery and equipment are huge stumbling blocks to business and industry owners who want to move to West Virginia. Several neighboring states do not tax business and machinery, and only a few states tax business inventory.

When the state Legislature convenes in January for the 2018 regular legislative session, eliminating personal property taxes for business owners and ordinary residents will be a big priority, legislative leaders say.

“I believe we’ll try to build a consensus around bold, progressive tax reform,” said state Senate President Mitch Carmichael, R-Jackson. He said leaders in the Senate want to do away with most personal property taxes, including taxes that businesses pay on inventory, equipment and machinery, as well as property taxes that residents pay on their cars and other possessions.

Carmichael’s colleagues in the House of Delegates will be taking a similar look at tax reform.

“Right off the bat, I want to look at all options,” said Delegate Eric Nelson, R-Kanawha, who is chairman of the House Finance Committee. Like many other lawmakers, Nelson agrees property taxes on businesses are hurting the state’s economy.

Nelson pointed to a Sept. 25 opinion piece in The Wall Street Journal that credited a decision by Michigan lawmakers to cut back property taxes on business owners with helping revive Michigan’s economy following years of decline as evidence that such tax reform could work in West Virginia.

The problem with eliminating personal property taxes in West Virginia is how lawmakers intend to make up for the lost revenue. According to state tax officials, personal property taxes account for more than $588 million a year toward the state budget.

Business taxes on machinery equipment bring in about $180 million a year, while taxes on inventory bring in another $69 million, tax officials estimate. Personal property taxes on vehicles add another $146 million to the state’s coffers, tax officials said.

Personal property taxes are also one of the major sources of revenue for county governments and school systems.

To help ease the financial sting of eliminating personal property taxes, lawmakers are talking about phasing the taxes out over a period of up to 10 years. Even so, in the first year of the proposed phase-out, county governments stand to lose more than $48 million in revenue, county schools stand to lose more than $120 million and municipalities stand to lose more than $9 million unless lawmakers come up with a way to replace the money, according to estimates provided to Carmichael.

“We absolutely recognize that revenue must be replaced,” Carmichael said. What to replace it with remains a subject for discussion.

Nelson said the lost revenue could be replaced by raising the state’s sales tax, an option he does not favor. Or lawmakers could broaden the state’s tax base by eliminating many current sales tax exemptions.

Lawmakers are talking about different tax reform proposals during legislative interim meetings in hopes of having a basic tax reform framework worked out before the regular legislative session begins.

“We’ve just got to get our heads together,” Nelson said. “That’s why we’re starting on it now.”

But the tax plan favored by leaders in the state Senate calls for replacing taxes on personal property with taxes on real property — taxes on land, homes and businesses. “Much of that tax is exported to out-of-state property owners,” Carmichael said.

An outline of the Senate plan in contained in Senate Joint Resolution 8. The resolution calls for legislation to allow county governments to levy extra taxes on real property to make up for the losses in personal property tax collections. Carmichael said the county taxes would be similar to excess levies currently in place.

“We want to keep our schools and counties whole,” Carmichael said. “We want to provide more local control and flexibility.”

Jonathan Adler, executive director of the West Virginia Association of Counties, however, thinks Senate Joint Resolution 8 is a bad plan. He told lawmakers during interim meetings in September that eliminating personal property taxes will end up hurting counties.

Sen. Mike Romano, D-Harrison, agrees.

Romano agrees inventory and equipment taxes are hurting businesses. “At the same time, we cannot eliminate the business inventory tax by transferring that tax burden to our small businesses, working class and seniors,” he said.

Romano said real property taxes would not be increased for out-of-state property owners, but for anyone who lives in West Virginia and owns a home, land or a business. He said the Senate tax plan would raise taxes on the owner of a business appraised at $60,000 from $400 a year to $1,700 a year, and on a house appraised at $230,000 from $1,800 a year to $3,150 a year.

“It’s going to result in a lot of people not being able to pay their property taxes and losing their house,” Romano said.

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