Reducing business inventory taxes will be a priority of the 2018 legislative session, but there’s no chance that the West Virginia Legislature will revisit last year’s contentious fight to lower personal income taxes.
That was the consensus of a panel of House and Senate Finance Committee members participating in a discussion on tax code legislation, as part of the West Virginia Press Association’s 2018 Legislative Lookahead on Friday.
House Finance Chairman Eric Nelson, R-Kanawha, called the personal property tax on business inventory the biggest single hindrance to bringing economic development and jobs to the state.
West Virginia is one of 10 states that tax business inventory.
Nelson said legislative leadership is committed to reducing the tax, which provides counties with about $530 million a year in revenue, by $140 million. That’s consistent with Senate President Mitch Carmichael’s proposal to phase-down the tax by $20 million a year over seven years.
However, Delegate Brent Boggs, D-Braxton, urged the Legislature to proceed cautiously, citing recent history, when it eliminated the sales tax on food and the business franchise tax, and rolled back the corporate net tax rate — and blew a $400 million a year hole in state budgets, causing budget impasses the past three years.
“We’ve got to be very careful and learn from the lessons of the past, and not do something we can’t afford,” Boggs said.
Delegate Mick Bates, D-Raleigh, said it is critical that the Legislature replace lost revenue from the tax cut, since the revenue primarily goes to fund county school systems.
Bates also wasn’t convinced that reducing inventory taxes is absolutely necessary.
“Business appears to be doing well, and looks like they will be doing quite well under the federal tax plan,” he said.
Sen. Ed Gaunch, R-Kanawha, noted that Commerce Secretary Woody Thrasher has called the inventory tax the most onerous tax that the state levies on businesses.
“In retrospect, I really wish we had started on that last year, instead of the personal income tax,” Gaunch said, referring to the contentious effort last session to roll back income tax rates, making up the lost revenue by raising the consumer sales tax and eliminating sales tax exemptions for various professional services.
The panelists were unanimous that the Legislature will not revisit income tax cuts this session.
“I think we wasted a lot of time last year on that issue,” said Gaunch, who added that he still has the bruises to prove that he had been an advocate of the proposal.
In retrospect, Gaunch said he questions the wisdom of replacing reduced income tax revenue with higher sales taxes, saying the future for local retailers “scares me a little bit.”
Bates pointed out that, halfway through the 2017-18 budget year, income tax collection is running $33 million ahead of estimates, while sales tax collection is falling $20 million short of projections.
“In hindsight, it’s wise we didn’t go down that path,” he said.
Nelson said he believes major tax reform issues should be addressed in special session or during legislative interim meetings, not during the 60-day regular session. Bates, Gaunch and Nelson served on an interim Joint Committee on Tax Reform.
Given that 2018 is an election year, the panelists agreed that there is no chance the Legislature will pass any tax increases, even for so-called “sin taxes” on cigarettes, beer, wine, liquor and soft drinks, and likely will not spend time on other tax issues, such as tiered severance tax rates proposed by Gov. Jim Justice last session.
They also debated why the business tax cuts phased in between 2007 and 2015 had not produced an economic upturn.
Nelson said taxes are one of multiple factors that businesses weigh when considering new locations, and he said the reduction in the corporate net rates made West Virginia competitive with neighboring states.
Added Gaunch, “It’s hard to say it didn’t work, because things might be worse if we hadn’t.”
Reach Phil Kabler at philk@wvgazettemail.com, 304-348-1220 or follow @PhilKabler on Twitter.
