Proposed West Virginia tax changes worry businesses
PARKERSBURG — A bill changing the tax system in West Virginia has its skeptics.
Senate Bill 335 would eliminate the 6 percent sales tax and replace it with an 8 percent general consumption tax, including food, lower the income tax rate to 2.65 percent with a method to eliminate it around 2032, repeal the corporate net income and change the severance taxes on coal and natural gas.
The consumption tax on sales would make West Virginia the highest compared to surrounding states and encourage consumers to go across state lines, said Steve Roberts, executive director of the West Virginia Chamber of Commerce.
“Actually, we’re very concerned about this proposal,” Roberts said.
Taxing unprepared food and food ingredients would be effective Jan. 1. The sales tax on food was phased out in 2013.
“I think that’s wrong,” said Jim Oppe, owner of local Foodland stores in West Virginia.
Oppe said he understands of the severity of the state’s financial situation, facing a projected $450 million deficit in the upcoming fiscal year, but food is a necessity. Everyone will be hurt and hurt the lower wage earners the most, he said.
“You have to eat,” Oppe said.
A family of four can spend from $125 to $150 a week on groceries, he said. Add $10 to $12 additional for taxes a week and it adds up in a year, he said.
When the tax on food was lifted, stores in West Virginia started seeing customers from Ohio, Oppe said.
“It made a difference when we took the 6 percent off,” he said. “All we’re doing is driving (customers) across the border.”
Gil White, state director of the National Federation of Independent Business in West Virginia, said while eliminating the personal income tax would impact small-business owners, the organization has “big concerns” about replacing the 6 percent sales tax with an 8 percent general consumption tax.
“That would essentially raise the sales tax by 33 percent, and that would have a tremendous impact on people’s buying power,” White said. “It also would put West Virginia retailers along the border at a real competitive disadvantage.
“None of our neighboring states has a sales tax approaching 8 percent on the dollar. If you live near the border of Kentucky, Ohio, Pennsylvania, Maryland or Virginia, and you could save hundreds of dollars by driving a few miles across the state line, you would,” he said in a statement. “That’s going to hurt retailers along the border, and that, in turn, is going to (put) less money in state coffers.
SB 335 was reported out of committee Monday by the Senate Select Committee on Tax Reform. It was sent to the Finance Committee.
“I believe in the Senate it’s been very well received,” said state Senator Robert L. Karnes, R-Upsher, lead sponsor and chairman of the Senate Committee on Tax Reform. “In the House it’s a little bit more mixed.”
Half of the 34 members of the Senate are sponsors, including state Senator Mike Azinger, a Republican from Wood County, Karnes said.
The chamber is receptive to listening to all budget proposals, however, improvements already made to the tax structure in West Virginia shouldn’t be reversed, Roberts said. Some national groups have cited how competitive West Virginia has become, he said.
According to the fiscal note from the state Department of Taxation to the original legislation, changes in the consumption tax and the income tax would increase revenue from $550 million in 2018 to $610 million in 2021, but after the first four years there would be a net general revenue fund decline of $870 million. Amendments by the Tax Reform Committee addressed that shortage.
“The proposed bill represents the most massive tax reform effort of any state in recent memory. Most states commit significant resources toward adequate measurement of tax reform impact on businesses and residents prior to adoption of a significant change,” the fiscal note said. “The resources and time frame for the preparation of this fiscal note are woefully inadequate to properly measure the cumulative extent of all consequences associated with proposed changes. It is presumed that one of the possible objectives behind this proposed bill may be greater economic growth over time.”
Lawmakers are asked “to be very cautious before they completely upset the tax system we have in West Virginia,” Roberts said.
With the budget and revenue problems facing the state, “you hate to be the one complaining,” said Jody Murphy, executive director of the Pleasants Area Chamber of Commerce.
But the consumption tax is going to drive customers across the state line to shop, he said.
“I don’t think it’s a good thing,” Murphy said.
A new grocery store just opened in St. Marys, and just across the river in Newport is a grocery store, Murphy said. Shoppers already go to the Wal-Mart in Marietta, he said.
“I think it will have an effect on business,” Murphy said.
A Glance at the Measure
Senate Bill 335 would make changes to the West Virginia personal income tax, sales tax and severance taxes on natural resources. The bill, among other provisions, would:
* Create an 8 percent consumption tax to replace the sales tax. A 1 percent additional sales tax imposed by cities including Parkersburg under home rule would remain.
* Lower the income tax to 2.5 percent, effective Jan. 1. The top rate currently is 6.5 percent for more than $60,000 a year, but 5.1 percent is the average. The 2.5 percent would be decreased by 0.1 percent for every $50 million above $2.4 billion in revenue from the general consumption tax, provided the Rainy Day Fund is 15 percent of the general revenue budget for the fiscal year.
* Create tax credits and exemptions for working families, seniors and servicemen, an Earned Income Tax Credit, a fixed-income tax credit for residents over 65, a tax credit from 10 to 25 percent beginning July 1 for historic rehabilitation, an income tax exemption for military retirement benefits and Social Security, and phase out the corporate net income tax.
* Raise the pop tax to 5 cents, raise the beer barrel tax from $5.50 to $11 and raise the markup on wholesale liquor from 28 to 36 percent.
* Sets the severance tax on all coal at 2.5 percent. A severance tax rate on natural gas would be reduced to 3 percent.
* E-cigarette liquid would be taxed at 11 percent.
Separate legislation would be a resolution to amend the West Virginia Constitution to repeal the personal property tax paid by businesses on machinery and equipment and by residents on vehicles. The change would include an increase in the real estate tax to be paid.
An analysis of SB 335 by
the Chamber of Commerce of West Virginia, says:
* West Virginia would have the highest tax rate on purchases in the nation.
* Twenty-eight of the 55 counties share a border with another state, and more than 75 percent of population lives within an easy drive of a border state.
* An independent study requested by the West Virginia Chamber said SB 335 could create a problem of “pyramiding,” when a sales or consumption tax is imposed multiple times during the production and distribution process, causing the effective sales tax rate to far exceed the statutory rate.
* The bill raises electricity prices on many users by 8 percent.
* The bill applies an 11 percent tax on hotel-motel rentals.
* While businesses want tax stability and predictability, the bill changes the tax system without allowing businesses adequate time to plan and adapt.
* The fiscal note says the bill identifies a long-term revenue reduction within several years of implementation of the new tax plan.