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Senate restores tax exemptions as deadline looms


The Herald-Dispatch

CHARLESTON, W.Va. — With six days before a critical deadline, the West Virginia Senate Finance Committee still is ruminating a major tax reform bill.

Senate Bill 335 cleared the Select Committee on Tax Reform earlier this month, and it remains under the consideration of members of the Finance Committee.

Wednesday, March 29, is the last day that a bill can be voted on in its chamber of origin and still give the other legislative body adequate time to process the bill. It’s commonly known as crossover day.

At its inception on Feb. 16, SB 335 was a measure meant to eliminate some of the exemptions from the state’s sales tax and eliminate the state income tax altogether.

After fiscal notes showed the measure would lead to a loss of $870 million in revenue during the next four years, the bill was drastically altered by members of the Tax Reform Committee on March 11.

Changes to the bill began with the elimination of the state’s current 6 percent sales tax. The bill replaces that tax with a broad 8 percent consumption and sales tax and lowers the income tax to a flat 2.65 percent beginning Jan. 1, 2018.

It also sets up a structure to eliminate the personal income tax in West Virginia by as early as 2032. After that is accomplished, the legislation calls for the elimination of the corporate net income tax and changes to the severance tax structure to follow.

The March 11 version of the bill kept the sales tax exemption for advertising services, but other professional services were taxed.

On March 13, Tax Reform Committee members voted to further amend the bill to increase the state’s soft drink tax rate from 1 cent per bottle to 5 cents per bottle, expected to generate $60 million. The committee also voted to increase the state’s beer barrel tax to $11 per barrel, estimated to generate $73 million in revenue for the state. Under current law, the rate is $5.50 per barrel.

On March 13, the committee also added a measure to existing state code that determines what portion of the net revenue profit of alcohol sales is directed straight into the general revenue fund, and committee members voted to eliminate income tax on Social Security recipients. If the bill becomes law in its current form, the income tax would stop being charged beginning Jan. 1, 2018.

The elimination of the income tax for Social Security is expected to cost the state $90 million.

The bill kept exemptions from the consumption and sales taxes for purchases made by governmental, educational, nonprofit, public safety and health care entities.

The bill re-establishes the consumption and sales tax to be applicable to grocery purchases.

The bill would not require West Virginians to pay sales taxes on services and items including medical services, prescriptions and tools; baby-sitting and day care services; tickets and concessions at youth league and school-sanctioned athletic events; and things purchased as part of fundraisers for nonprofit organizations and volunteer fire departments – all of which are currently exempt from the state’s sales tax.

March 13 also was the day the Tax Reform Committee advanced the bill to the Senate Finance Committee.

As of March 20, exemptions to the consumption and sales tax had been restored for professional services including accounting, architectural, legal, engineering, advertising, electronic data, real estate, and employment and recruiting services.

If SB 335 is signed into law in its current form, the 8 percent consumption tax and flat 2.65 percent income tax would go into effect, setting off the chain reaction to eliminate the sales tax and reduce severance taxes.

After the income tax goes into effect Jan. 1, it would decrease by 0.1 of a percent for every $50 million of revenue from the consumption tax beyond $2.5 billion the previous fiscal year and if the state’s de facto savings account, the Rainy Day Fund, contains at least 15 percent of the state’s general revenue budget.

Then, on Jan. 1, 2023, the process of phasing out the personal income tax would begin when it’s lowered to 2.38 percent. The soonest that state budget experts predict the income tax would be completely gone will be 2032.

No matter what the year, once the income tax is gone, the state’s corporate net income tax rate would be reduced by 1 percent each year as long as the state’s Rainy Day Fund contained at least 10 percent of the state’s general revenue budget.

Once the corporate net income tax is eliminated, the severance tax rate on natural gas would decrease by 1 percent for two subsequent years until it reached 3 percent.

Beginning July 1, 2017, the bill would increase the severance tax rate on thin seam coal to 2.5 percent. All other coal production would be taxed at 3.75 percent until July 1, 2018, when all other coal would begin to be taxed at 2.5 percent.

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