CHARLESTON, W.Va. — Senate President Mitch Carmichael agrees that a commercial activities tax backed by Gov. Jim Justice could be a big sticking point as negotiations continue over the state budget.
“The commercial activity tax is a nonstarter,” Carmichael said today on MetroNews’ “Talkline.” “That is a tax that just simply goes on what a business collects in revenue. It is a tax that is being moved away from throughout America.
“I understand the governor’s desire for that and I respect his position. He is willing to change that component of it.”
Governor Justice has proposed .045 percent commercial activities tax on businesses. The administration says that would amount to $45 million toward the coming year’s state budget.
When the governor introduced the tax during his State of the State address, he proposed a rate of two-tenths of a percent on gross revenues, estimated to raise $214.3 million.
The governor has said he believes the tax is a way to demonstrate that the state’s businesses are doing their part to help the state out of its fiscal problems.
In a brief interview Monday evening, the governor said budget talks with Carmichael are going well, but he would like to hold businesses accountable for some specific role in helping the state get through its fiscal problems.
“Mitch and I are working great together. I think the world of him. He’s got a lot of good ideas, and we’re going to get this thing worked out. But what we’ve got to have is a level of participation from the businesses, from the people, from the wealthy, from the government,” Justice said.
“We all have to pull this rope together, and that’s all I’m asking for. It doesn’t necessarily have to be a CAT tax but it’s got to be some participation from the businesses.”
Republican leadership in the House of Delegates has been critical of the commercial activities tax, also describing it as a major stumbling block on budget negotiations.
The tax has been a piece of the budget framework under discussion by the Senate and the governor in recent weeks. The bill, as written, would repeal the commercial activities tax by 2020.
It’s similar to a tax established in Ohio. Observers in West Virginia have been comparing it to a business and occupation tax, sometimes calling it by that name.
The state Chamber of Commerce publicly expressed its willingness to take part a few weeks ago.
“The least painful thing we can do is a temporary commercial activities tax that will sunset,”state Chamber of Commerce President Steve Roberts said then. “We believe businesses realize it’s a significant contribution and appropriate one.”
The Tax Foundation, a tax policy nonprofit considered friendly to business, was critical of the possibility of establishing a commercial activities tax in an article titled “Late-breaking West Virginia compromise would create two new taxes.”
“Although the rate is low —at least initially — gross receipts taxes are imposed on businesses without regard to profitability or ability to pay. They also “pyramid,” meaning that the tax is imposed again at each transacted stage of the production process, resulting in the tax being embedded in the price of a final good or service multiple times over,” Jared Walczak of the Tax Foundation wrote.
In one of The Tax Foundation’s most popular recent articles, Nicole Kaeding wrote about the number of states that have been considering a gross receipts tax, including West Virginia, Louisiana, Oklahoma, Oregon and West Virginia.
“The flaws of gross receipts taxes are well documented,” Kaeding wrote.
“Gross receipts taxes lead to higher consumer prices, lower wages, and fewer job opportunities, as the tax pyramids throughout the production cycle. Unlike a retail sales tax that is assessed only on the final consumer purchase of a product, a gross receipts tax is assessed at every stage of production.”
Carmichael, R-Jackson, said today that any tax affects businesses in West Virginia.
“Business is in, very much so. When we put taxes on anyone, everyone’s in,” Carmichael said.
Carmichael said his fellow Republicans in the Senate are enthusiastic about an aspect of a potential budget deal with the governor that would lower the state income tax by a triggered step-down that aims to eventually eliminate the income tax.
The bill also raises the sales tax from 6 percent to 7 percent.
“What the Senate and governor always agreed to is the better path is a tax cut for West Virginia and to control spending. This is tax reform that cuts significantly and does so by slightly raising consumer sales tax,” Carmichael said today on “Talkline.”
Carmichael acknowledged that’s a major difference from what the House of Delegates has said it is willing to accept. He said he and House Speaker Tim Armstead met today to discuss the issue.
“I have complete respect for him and want to make sure we accommodate the House’s views on these issues,” Carmichael said.
Carmichael went on to say, “They are opposed to raising the consumer sales tax, and I get that. We are great friends and we’ll do this in the spirit of camaraderie with the governor to move the state forward.”
Also speaking today on “Talkline,” Jeff Sandy, director of the state Department of Military Affairs and Public Safety, said his agency would have a tough time dealing with the kind of cuts proposed in legislative versions of the state budget.
“Everyone believes that public safety is of the utmost importance to West Virginians,” Sandy said. “The budget proposed by our legislators harmed all facets of our activity here at military affairs.”
For example, he said, the agency already has identified more than a hundred million dollars in work that needs to be done to maintain the state’s prisons.
“We have roofs leaking; we have gates that do not work properly,” Sandy said.