WV tax reform bill gains momentum

Legislation to substantially change West Virginia’s tax system continues to move forward in the Senate, despite concerns that it could hurt lower- and middle-class families and state retailers.

A Senate finance subcommittee on Monday advanced the Tax Reform Act (SB 335), which in its current version would significantly reduce income tax, corporate net and severance tax rates, replacing them with a broad-based 8 percent sales tax.

Sen. Corey Palumbo, D-Kanawha, applauded the tax reform advocates for their work but voiced concern with the bill Monday.

“One: We’re going to shift the tax burden from upper-income people to lower- and middle-income people,” he said. “Two: The 8 percent sales tax is going to be very difficult on retailers in the state, particularly ones in the border counties.”

Unlike the original draft of the bill, which would have eliminated personal income tax, the current version sets a flat rate of 2.5 percent for all income brackets. That was after a fiscal note showed eliminating income taxes would blow a $610 million hole in the state budget. The existing income tax has four rate tiers, from 4 percent for incomes of $10,000 to $25,000, to 6.5 percent for incomes of $60,000 or more.

Michael Caryl, a tax attorney and tax commissioner under Gov. Arch A. Moore Jr. in the 1980s, said a proposed earned-income tax credit for lower-income households, and a fixed income tax credit for retirees would “significantly mitigate” the regressive nature of the flat income tax.

However, that would require voter approval of an amendment to the state Constitution, proposed in a companion joint resolution to the tax bill (SJR 8). Earlier Monday, the Senate Select Committee on Tax Reform discussed, but took no action on, the resolution.

“It’s a powerful incentive to pass the amendment,” Caryl said of proposed tax credits.

Sen. Robert Plymale, D-Wayne, raised concerns with the proposed 8 percent consumption tax, which would eliminate many existing sales tax exemptions on utility payments and on many personal and professional services. The bill also would impose an 8 percent sales tax on groceries, which currently are not taxed.

“The tax going from 6 percent to 8 percent is a major concern I have. I heard that from businesses over and over again,” Plymale said, noting that the Huntington Mall draws heavily from Eastern Kentucky and Southern Ohio.

Caryl said studies show convenience trumps cost when it comes to sales taxes, particularly for shoppers with higher incomes.

“There’s a certain point on the income scale where convenience is a far more powerful force over saving a few bucks on the sale,” he said.

Sen. Craig Blair, R-Berkeley, said he also has concerns about the consumption tax, representing a county that borders two states.

“Whether this even passes or not, I think this is an absolutely remarkable demonstration of how we realize we’ve got problems in West Virginia in how we go about taxing our people, and raising a stable income going into the future,” he said.

Sen. Greg Boso, R-Nicholas, said the Legislature can come back and tweak the tax plan, if necessary.

“I think it’s a step in the right direction to move West Virginia forward,” he said of the tax package.

Also during Monday’s meeting, Plymale questioned why the elimination of the state’s business franchise tax and rollback of the corporate net from 9 percent to 6.5 percent in recent years has not seemed to spur economic growth. Caryl disagreed with Plymale’s assertion, saying it’s a given that those cuts have benefited the economy.

Reach Phil Kabler at philk@wvgazettemail.com, 304-348-1220 or follow @PhilKabler on Twitter.

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