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Analysis: Manufacturing tax repeal would hit some counties hard, leave others unaffected

WV inventory tax map

For years, some legislators and business lobbyists have clamored for an end to the personal property tax on manufacturing machinery, equipment and inventory — which they say would encourage more businesses to come to West Virginia.

Lawmakers have never ended the tax for one big reason: They haven’t been able to figure out how to replace the money the tax brings in, which goes to counties to fund school systems, sheriff’s departments and more.

As lawmakers grapple again with the issue, a Gazette-Mail analysis of data from the state Tax Division shows that a handful of West Virginia’s 55 counties would be hit hard by the removal of the inventory tax, while others would barely be affected at all.

Four counties — Brooke, Hancock, Jackson and Pleasants — would have lost more than 20 percent of their property tax revenue for the 2018 tax year if the inventory tax wasn’t there, according to the data. Two of those counties, Jackson and Brooke, would each have lost more than $6 million.

Jonathan Adler, executive director of the West Virginia Association of Counties, said it’s crucial to have a definite way to replace the lost tax revenue, because losing that much money each year could be crippling to those four counties and others like them, and they would need to be “made whole.”

“I think everybody feels like they want to get rid of the tax because it affects business, but the question is how to pay for it,” Adler said. “That’s the question nobody seems able to answer.”

On the other hand, 12 counties with little in the way of manufacturing businesses would have lost less than $50,000 each if the inventory tax had been repealed for 2018.

Natural gas-rich Doddridge County, which collected $33.64 million in property taxes in 2018, would have lost just $560, according to the Tax Division.

In all, West Virginia’s 55 counties collected $1.715 billion in property taxes in the 2018 tax year, with personal property taxes on manufacturing machinery, equipment and inventory accounting for $91.09 million of that total, according to Tax Division data.

More than 40 percent of property tax collections go toward county school boards. If the inventory tax were repealed, those school boards theoretically would be able to recover money through the state school aid formula, which increases the state’s share of school funding to make up for losses in county revenue. But a loss of tax revenue across the state might strain the state’s financial resources.

One size doesn’t fit all

Manufacturing facilities aren’t evenly distributed among counties. Likewise, the impact of repealing the inventory tax would vary widely from county to county.

Brooke County, once home to Weirton Steel, still retains a number of steel, chemical and manufacturing companies. Without the inventory tax, it would have lost $6.15 million of the $26.24 million of property taxes it collected in 2018 — a loss of 23 percent.

Likewise, Jackson County would have been without $6.09 million of $28.17 million of property taxes, a loss of nearly 22 percent.

Two other counties would have lost more than 20 percent of property tax revenues: Hancock County, losing $5.51 million of $24.83 million, and Pleasants County, losing $2.31 million of $11.06 million in total property tax revenue.

In 2018, a total of 21 counties would have lost $1 million or more under an inventory tax repeal.

Kanawha County would have had the largest total amount lost, at $11.02 million — although that amounts to just 5 percent of the county’s $206.2 million total property tax collections.

Putnam County would have lost $6.29 million. That would have amounted to 10 percent of its $62.23 million total.

Some counties that are home to recent manufacturing projects already take in less in property taxes than one might think.

Berkeley County, home of the massive, $500 million Procter & Gamble manufacturing complex, would have lost just $4.33 million out of $95.18 million in total property taxes, or 4.5 percent.

The equipment in the P&G plant was bought with bonds sold by the state Development Office, which then leased the equipment back to P&G, so the county doesn’t pay the inventory tax on that equipment.

State officials have done the same for a number of major manufacturing projects, including the Gestamp plant in South Charleston.

Conversely, 12 rural counties with little manufacturing would have lost less than $50,000 each in 2018 if the inventory tax had been repealed.

The lost revenue in Doddridge County would have amounted to about one one-thousandth of 1 percent of total property tax revenue.

A number of southern coalfield counties would also have seen minimal impact.

Boone County would have lost less than 1 percent — $22,304 of $26.24 million — of its 2018 property tax revenue. Lincoln County would have lost $4,093 of $9.51 million, and McDowell County would have lost $14,580 of $13.29 million.

The current push

The current push in the state Legislature to get rid of the inventory tax (SJR8) would phase it out over four years, by taking the current 60 percent assessment and reducing it by 15 percent a year.

The proposal also says replacement revenue — starting at $25 million the first year, and growing by $25 million a year until it reaches $100 million — should be placed in future state budgets.

But again, this resolution doesn’t say exactly where that replacement money comes from. Adler, the head of the counties association, said his members won’t be comfortable with any such proposal without a fixed source of revenue to make up what the tax would have brought in.

And even under the current proposal, the uncertain $25 million in revenue added to the budget wouldn’t come close to the $91 million the inventory tax brought counties in 2018.

Even if legislators come to an agreement on removing the tax, it won’t be easy to get it passed. Because changing the inventory tax would require an amendment to the state constitution, two-thirds of members in the state Senate and House of Delegates would have to approve it, and then the amendment would be placed on November’s general election ballot, where voters would have the final say.

Adler hopes that means if the proposal moves forward, it will have a bipartisan agreement on where the replacement money will come from.

“I think Senate leadership certainly has been very sensitive to making counties whole, where nobody gets hurt,” he said.

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

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Atkins, Linda - 3 p.m., Fidler & Frame Funeral Home, Belle.

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