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Lawmakers hear case for tax repeal

Tax revenue continues drop

CHARLESTON — As it gets closer to the 2020 legislative session, the push is by state leaders and manufacturing interests to eliminate the business and inventory tax, even as overall tax revenues for the fiscal year remain 2 percent below estimates.

The Joint Standing Committee on Finance heard Monday from the State Development and the West Virginia Manufacturers Association during December interim meetings at the Capitol in Charleston.

The topic was the possible elimination of the business and inventory tax, long on the Christmas gift list for trade groups, such as the Business and Industry Council, the West Virginia Chamber of Commerce, and the WVMA. According to Rebecca McPhail, president of the WVMA, there are 50,000 direct jobs in the state manufacturing industry, a drop from 80,000 in 1990.

“We think that there’s a lot of opportunity for manufacturing growth in West Virginia, but we’ve got to be more competitive in what is now a global economy,” McPhail said. “We also think that more manufacturing careers can reverse the population loss trends that we see in West Virginia and help us recruit talent back to the Mountain State.”

One way McPhail says to reverse those population loss trends and help grow manufacturing, as well as downstream businesses that could spring up to support those large companies, is by eliminating the business and inventory tax on heavy machinery and equipment.

“It’s a well-established fact that West Virginia’s tangible personal property tax on manufacturing, inventory, machinery and equipment is a regressive form of taxation that’s inhibiting our ability to grow the industry and invest and create more jobs,” McPhail said.

The business and inventory tax is estimated to bring around $400 million annually, with county governments and school systems benefiting from the tax. Businesses consider the tax onerous, with no surrounding states offering a similar tax and causing some businesses to leave their heavy machinery outside the state unless needed.

“Being one of only two states that taxes manufacturing, inventory, machinery and equipment without some type of broad-based exemptions or credits, makes West Virginia one of the worst states for capital investment in manufacturing in the United States,” McPhail said.

Michael Graney, executive director of West Virginia Development Office, agreed with McPhail’s remarks. Graney, the former president of convenience store chain One Stop, said his former company paid millions over the years in business and inventory taxes. In his role in the Development Office, Graney said many companies bypass West Virginia because of the tax.

“West Virginia is eliminated because of this tax from being able to compete,” Graney said. “That’s especially true with equipment-intensive businesses, particularly true. To be frank, we really don’t even know how many opportunities we missed because we’re just getting passed over.”

An attempt to remove the business and inventory tax requirement from the state Constitution was made during the 2019 legislative session that ended in March, but the resolution never made it out of the House. It takes a two-thirds majority of each body of the Legislature to approve a constitutional amendment to remove the requirement for the tax. That constitutional amendment would then be put on the ballot for the public to vote.

Graney said the State Tax Department was working on plans to present to the Legislature in January for the removal of the business and inventory tax and how county government and school system revenues would be replaced to compensate. However, lawmakers also received a briefing on the negative state of tax revenues.

General revenue fund tax collections for November came in at $322.9 million, $7.2 million less than the $330.1 million estimate by the state Department of Revenue. Year-to-date tax revenue collections for fiscal year 2020 beginning in July were $1.77 billion, which is $40.2 million below estimates, a 2-percent decrease.

Dave Hardy, secretary of the state Department of Revenue, said December tax revenue numbers are looking positive and are expected to come in above estimates. Hardy also said that mid-year budget cuts that the administration has been preparing are likely not happening.

“(Gov. Jim Justice) wanted us to be prepared to do that if we needed to do it,” Hardy said. “Overall I think we’re having a fiscal year that’s pretty much on target…so keep your fingers crossed.”

Mark Muchow, deputy secretary of the Department of Revenue, told lawmakers that severance tax revenue collections were down by 29.9 percent year-to-date when they factor in monies that go to counties and local governments.

“In November we were projecting a 20-percent decline, so the decline of rates has been essentially close to double the projected rate,” Muchow said. “The decline rate for the severance tax is going to continue because there we have a forecast of relatively low natural gas prices and that’s the biggest drivers in natural gas prices.”

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