The effort to phase out the state’s property taxes on machinery, equipment and inventory, and on vehicles has died in the Senate.

Proponents—all Republicans—failed to get the two-thirds vote necessary to advance the resolution to the House. It died on an 18-16 tally, with two Republicans joining the Democrats in opposition.

This was always going to be a heavy lift for a variety of reasons.

First, the approval process was difficult. Property taxes are in the State Constitution so to change that, proponents needed two-thirds majority from both chambers and approval by voters in the next election.

Second, the plan created a potential hole in county budgets. When fully phased in, counties and county school boards that receive the bulk of the property taxes would have lost an estimated $300 million in revenue.

The school systems would be kept whole through the school aid formula, but that money has to come from somewhere. Republicans promised counties would be fully funded by revenue from increases in the tobacco taxes and an increase of one-half of a percent in the sales tax, to six-and-one-half percent.

That only covered two-thirds of the lost revenue. The rest, proponents said, would be made up by natural growth in the state budget and cuts in state spending.

However, county government leaders didn’t buy that. County commissioners and assessors put a lot of pressure on their Senators to oppose the plan, and they were an effective lobbying group.

Third, Republicans focused on the decreases in the business taxes and the personal property tax on vehicles. But remember there were also tax increases. Supporters struggled to make the point that, yes, some taxes would go up, but the hated annual property tax on vehicles would disappear.

Some would go up, some would go down. It got a little confusing.

Fourth, business has benefited from tax changes in recent years—a lowering of the corporate net income tax and elimination of the business franchise tax. Those were appropriate moves, but supporters were often guilty of overselling the benefits to the state’s business climate.

Now, when the state’s economy has slowed primarily because of coal and natural gas, it’s more difficult to argue that business just needs one more tax reduction.

And finally, there were just too many moving parts; an amendment to the State Constitution, some taxes going down, some going up, uncertainty about the revenue projections, a distrust that future legislatures would treat county governments fairly, a fear that other local property taxes would rise to make up the difference.

In the end, it collapsed under its own weight.

But its failure should not change this fact; The property taxes on machinery, equipment and inventory are anti-growth. They are taxes on the value of the property, so businesses have to pay them regardless of whether they make a profit. That’s money businesses could otherwise use to invest in higher wages and new equipment.

The tax is so bad that West Virginia is one of just two states that imposes it. Frequently West Virginia’s Development Office creates a “work around” for new businesses coming to the state so they won’t have to pay the tax.

The vehicle tax is also a burden. It’s an additional expense to vehicle-intensive businesses and to every West Virginian who owns a car or truck. When they buy a vehicle they pay a sales tax, a tax on the gasoline they use, payments for the vehicle itself, insurance, as well as upkeep and maintenance.

And then every year there is a personal property tax bill on the value of the vehicle that must be paid before you can get your license renewed!

Republicans failed to get their plan out of the gate, and there were legitimate questions about the wisdom of their approach. Governor Justice was cool to the idea, so that didn’t help either.

But at least this necessary debate has begun.

 

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