CHARLESTON, W.Va. — Bills introduced Friday in the House of Delegates could make major changes to West Virginia’s tax code, establishing a flat income tax rate of 5.1 percent and dropping the sales tax to 5.5 percent while also broadening what is taxed.
Both changes would go into effect Jan. 1, 2018. Fiscal notes are requested on both bills to help determine the financial impact to the state.
They’re envisioned as revenue-neutral, meaning they wouldn’t be a fix for the state’s estimated half-billion dollar budget gap for the coming fiscal year. But changing the bills as the legislative process moves along could bring in more revenue.
“All the factors that are in play relate to the sales tax and the income tax,” House Speaker Tim Armstead said Thursday, a day before the bills were made publicly available.
“Of course the Senate is looking at a plan that we’re very interested in talking about — in terms of trying to eliminate the income tax.”
The state Senate’s Select Committee on Tax Reform has been considering legislation that would do away with the state income tax and replace it with a broadened consumer sales tax.
The Senate’s committee went back to the drawing board when a fiscal note determined the results would plunge state revenue a billion dollars down from current. The committee was drawing up a new proposal triggered by the state’s financial performance and was to meet again at 3 p.m. Saturday.
But Armstead noted that the House’s approach is different.
“What we’ve been working on for several months — years, actually — has been looking at broadening the base and lowering the rate on our sales tax. We want to put all that on the table and decide what is best for the future of our state,” the speaker said in an interview following the West Virginia Press Association’s annual legislative breakfast.
“Over the years, there have been exception after exception carved out. Some make sense, some don’t.”
He said if the broadening works, that opens up additional options.
“You can start looking at reducing rates, whether it’s a sales tax or an income tax where we’re out of sync with the other states. We’re trying work with the Senate to look at all the different options that would be available to us if we were able to close some of those loopholes and exemptions,” Armstead said.
“Some of our members would like to reduce the sales tax because they’re in border counties. Others would say use that for reducing income tax and I think there are certainly economic reasons to do that. We’re trying to put that on the table, work together between the House and the Senate and find the right combination of those things to move our state forward.”
INCOME TAX: The House Finance Committee chairman has introduced a bill that would make every West Virginian’s income tax rate 5.1 percent.
The bill adds just two paragraphs to the state code.
House Finance Chairman Eric Nelson, R-Kanawha, is the lead sponsor of the bill, which has been assigned to his committee. The other sponsor is Delegate Eric Householder, R-Berkeley, the vice-chairman for Finance.
The proposal is based on the work of the Legislature’s Joint Committee on Tax Reform and, in particular, from a report presented by John Deskins, director of the Bureau of Business and Economic Research at West Virginia University. It is available here.
A flat rate of 5.1 percent applied to all taxable income generates $1.637 billion a year in state revenues, up about 1.1 percent from current, according to Deskins.
In other words, it’s initially viewed as a revenue-neutral move and, while it might simplify the tax code it wouldn’t be viewed as a remedy for the state’s estimated half-billion dollar budget gap for the coming fiscal year.
Deskins had suggested two other income tax proposals — one providing three tiers for income and another examining five tiers. The flat tax is the one Nelson and Householder settled on for their bill.
Gov. Jim Justice has said he would like to eliminate the state income tax after it’s clearer that West Virginia is on solid economic footing.
SALES TAX: In the other House tax proposal, the sales tax would drop from its current 6 percent to 5.5 percent next Jan. 1.
The tax would be reassessed every August and then would drop by .25 cents every January if the state meets revenue benchmarks aligned with the Consumer Price Index. The floor for the tax is 5 percent.
The state would continue to calculate its fuel taxes separately.
The bill does not include a tax on groceries, House spokesman Jared Hunt clarified. An early version of this story mistakenly said the bill considers a return to the food tax, only exempting a few categories.
The bill includes some exemptions for prepared food, like when it is sold for school fundraisers or by charitable organizations. West Virginia reduced its food tax for years and then zeroed it out in 2013. Armstead was a leader in that effort and still feels passionately about it.
This past Thursday, Armstead said, “Some people are looking at that. I don’t support that. I don’t support that.”
The bill specifically includes a telecommunications tax. Former Gov. Earl Ray Tomblin suggested the tax could raise $60 million to help fill the state budget gap, but the Legislature has not embraced the idea until — possibly — now.
It adds taxes for areas like professional services, personal services like barbering or manicuring, car rentals, contracting services, for opinion research services, for fitness center memberships and for paid concerts. It eliminates a reduced rate of taxation for buying a mobile home and eliminates an exemption for buying a burial plot.
It continues to exempt a variety of items, including soap for car washes, which Armstead singled out a couple of months ago as a particularly odd exemption.
The bill does does not include a tax on advertising, a concept that has been fought by the associations representing West Virginia newspapers and broadcasters.
The lead sponsor on the sales tax bill is freshman Delegate Riley Moore, R-Jefferson. Additional sponsors are delegates George Ambler, Geoff Foster, Carol Miller, Lynne Arvon, Zack Maynard and John Shott.