By ANDREA LANNOM
The Register-Herald
CHARLESTON, W.Va. — A Senate committee discussed a bill that would eliminate the personal income tax and replace it with a consumption tax.
Mike Caryl, former state Tax Commissioner and a retained consultant to the committee, discussed the committee substitute for Senate Bill 335 during Monday’s Senate Committee on Tax Reform. Members of the committee did not vote on the bill Monday.
In Friday’s meeting, Senator Robert Plymale, D-Wayne, asked to have the fiscal note — an estimated statement of the expected fiscal impact of a bill — presented when they discuss the bill. However, his motion was denied and members decided to proceed without it.
Senator Craig Blair, R-Berkeley, opposed Plymale’s motion, saying members of the committee do not control when they get fiscal notes.
“I’m with him. The sooner we receive the fiscal note the better, but we have no control whatsoever of when we receive the fiscal note. It will slow down what we have to do in committee. If there is work we can do before we get the fiscal note, we should be doing it,” Blair said.
Plymale said waiting would not stop anything and would allow members to see how the bill would affect the finances.
“If we are going to ask intelligent questions of people, experts in areas that are being brought in … I think we should be able to have all the information so we do know what we’re doing,” Plymale said.
In Monday’s meting, Caryl talked about the abstract of the bill.
One of the provisions was an amendment to the home rule law to make sure that it would not be affected by the basic repeal of sales tax.
For the use tax and sales tax repeal, he said the effective date for both is July 1, which was corrected from the original bill which had it as Jan. 1, 2018.
Under the bill, the imposed tax on consumption and use is 8 percent for sales and leases, which Caryl said is untaxed in current law. There are 31 exemptions, some of which are exemptions based on who the purchaser is on the nature of what is being sold or on the use of services, he said.
Caryl also discussed how the tax applies to purchasing vehicles. He said the regular 8 percent rate will apply to the first $10,000 on vehicles and it will be 6 percent above that.
Caryl said there will be a step down of corporate net income tax. If the Rainy Day Fund exceeds 10 percent of the general fund budget for the year, then the step down of the corporate net income tax comes into play. It goes down 1 percent for each year that this happens, Caryl said.
“If 10 percent of the budget for a particular year and there is a surplus in the consumption tax over what it was projected to yield in that same budget, then half of that would go into the Rainy Day Fund,” Caryl said.
He said if there is a Rainy Day Fund balance is less than 15 percent of the general revenue fund budget and the new consumption tax is less than 97 percent estimate for that, then a contingent temporary five-year personal income tax comes into play.
“The rate is tied to the extent to which the Rainy Day Fund falls short of that 15 percent,” Caryl said. “For each 1 percent the Rainy Day Fund balance falls below 15 percent, 1 tenth of 1 percent is contingent on that temporary income tax.”
The authority to impose that tax would disappear in 2023.
Plymale asked the rationale between tying things to the Rainy Day Fund. Caryl said it’s a cautious approach and 10 percent is the rule with regard to corporate net income.
“It’s the rule of thumb rating agencies look at,” he said. “You’re going to have a better rating if your Rainy Day Fund is 15 percent.”
Plymale said rating agencies also have been critical of West Virginia over the stability of the budget and relying on the Rainy Day Fund.
“I think they’ll look favorably on a shift from income tax to consumption tax,” Caryl said. “Individual income is sensitive to the economic ebb and flow but consumption tax is far less vulnerable. It’s a far more stable base of revenue raising.”
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