State Commerce Secretary Woody Thrasher is on a mission.  He has set his sights on eliminating the state’s personal property tax on inventory, machinery and equipment.

Thrasher just started with the administration in January, so he is new to the fight. However, business and some political leaders have for years been trying to shed the unwieldy, anti-growth provision of the code.

The Governor’s Commission on Fair Taxation Report in 1999 singled out the tax as a hindrance to economic growth.  “As a result (of the tax), businesses in West Virginia are at a competitive disadvantage economically.”

Additionally, the report says the tax is “complicated, difficult to enforce, inequitable and discriminatory in that only certain entities are typically monitored for compliance.”

Thrasher says the tax is one of the core issues that makes West Virginia uncompetitive with other states.  Pennsylvania and Ohio do not assess a property tax on machinery and equipment and Virginia has a low rate with numerous exemptions.  Only 14 states impose a property tax on business inventory and only seven states tax manufacturing inventory. West Virginia taxes both.

The tax is such a turnoff for businesses interested in coming to West Virginia that the state has had to create an awkward “work around” to minimize the impact.  Of course, that’s unfair to existing businesses that don’t get a similar break.

There are two issues holding back removal of the tax.

First, Article X of the State Constitution calls for taxation of real and personal property.  (Real property generally includes land and buildings, while personal or tangible property includes vehicles, fixtures, machinery, equipment and inventory.) Voters would have to pass a Constitutional Amendment to remove the tax.

Second, and more importantly, the taxes on machinery, equipment and inventory generate a lot of money—an estimated $235 million dollars this year.  About two-thirds of that money goes to county schools, while 27 percent goes to county governments. (Seven percent is distributed between municipalities and the state).

Simply eliminating the tax would blow a hole in local public school budgets and put the squeeze on counties as well.  West Virginia Association of Counties Executive Director Jonathan Adler told lawmakers this week, “I think everybody recognizes that hurt to the counties and I think everybody wants to make sure that’s not done.”

Both Adler and Thrasher are right.  The state should get rid of this tax to make West Virginia more attractive to business. However, we should not play whack-a-mole with the tax code by changing just one thing.

The state needs comprehensive and revenue-neutral tax reform that embodies fundamental principles of taxation including fairness, simplicity and competitiveness.

 

 

 

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