Sales tax linked with B&O cuts
PARKERSBURG – Earlier this year, Wheeling City Council put the brakes on Business and Occupation Tax reductions approved with the introduction of a half-percent sales tax under West Virginia’s home rule program because revenue was coming in lower than expected.
That won’t be an option for Parkersburg and Vienna if they’re accepted into the program.
Both cities are proposing the establishment of a 1 percent sales tax in tandem with reductions in B&O rates. The legislation expanding participation in the home rule program from four to 20 cities also ties adoption of a sales tax to a B&O reduction.
If a city rescinds its B&O cuts – or raises those rates at all – it can no longer charge a sales tax.
“That’s why we’re estimating it conservatively, so we don’t run into that problem,” Parkersburg Mayor Bob Newell said. “If it would go bad, we would simply just go back to the B&O.”
Vienna Mayor Randy Rapp said his city also is taking the conservative approach, especially in light of what happened in Wheeling.
“Everybody’s being cautious because you can’t upset your operating budget thinking of what might happen,” he said.
Wheeling City Council approved its sales tax and B&O cuts in last June with the sales tax to go into effect Oct. 1, 2013. A 26 percent reduction on B&O for retail businesses and elimination of the B&O tax on manufacturing was scheduled to start April 1 of this year.
But in March, council voted to delay both reductions, citing sales tax revenue that hadn’t met initial projections.
“Our collections were far less than what we projected them to be,” Wheeling Mayor Andy McKenzie said.
Parkersburg needs “to be very careful about how they reduce their B&O and implement their sales tax because there is a major delay, one in educating the business community and also for the state of West Virginia to collect it” and return it to the city, he said.
Businesses send their municipal sales tax payments with their state sales tax. The state Tax Department remits the municipality’s share at the beginning of the following quarter, said Mark Morton, general counsel for the West Virginia Tax Department.
Newell said he does not anticipate that delay being a significant issue for the city since B&O taxes also are collected on a quarterly basis.
“There shouldn’t be much of a disruption,” he said.
McKenzie said Wheeling also receives its B&O revenue quarterly.
“The difference is you’re guesstimating what the sales tax is. You know what the B&O is; you have a track record,” he said.
In presenting numbers on the tax proposal to Parkersburg City Council’s Finance Committee last month, Newell noted the state could not help the city project sales tax revenue. The estimate the city is working from is about $4.5 million, after state administrative fees are deducted. The proposed B&O cuts tally about $2.1 million.
Some of the difference is intended to address long-term liabilities like employee pensions, but Newell said if sales tax revenue is higher than anticipated, additional B&O cuts can be considered.
“If it’s more, then we can start looking at the other stuff as well,” he said.
Rapp said Vienna’s reductions are expected to cost about $452,000 in B&O revenue, while the sales tax is conservatively projected to bring in $3.2 million. The city has also made estimates of how further cuts would affect its revenue and may consider those if the initial round is positive, he said.
McKenzie said some of the delays Wheeling experienced could have been the result of that city being an early participant in the program and one of the few cities using a sales tax. In addition, there are some businesses still not collecting the tax, he said, noting he has a receipt from a car wash that didn’t charge him, nearly seven months after it went into effect.
“You cannot educate the public enough,” McKenzie said. “I don’t know that we did enough.”
McKenzie recommended Parkersburg give itself a window of at least six months, if not more, between implementing the sales tax and cutting B&O.
The law doesn’t specify the timing of the B&O reductions in relation to the start of the sales tax, saying simply that “a participating municipality may enact a municipal sales tax up to 1 percent if it reduces or eliminates its municipal business and occupation tax.”
Josh Jarrell, deputy secretary of commerce for the state and a member of the Municipal Home Rule Board, said he believes the intention of the provision is for the reductions and implementation to happen at the same time.
That’s the plan for Vienna and Parkersburg, their mayors said.
“I’m not trying to double dip,” Newell said.
By law, the sales tax cannot be implemented until the beginning of a quarter and only after 60 days’ notice is given to sellers.
McKenzie said Wheeling officials are doing an extensive review of the city’s tax structure and plan to follow through with the promised cuts.
“I think anything less than that would be dishonest,” he said.
However, he noted there could be even more tax relief than originally projected.
“I actually believe it’s going to exceed what we thought it would be,” McKenzie said. “I think we’ll do a better job of reducing the burden.”