Last week’s news in West Virginia was dominated by the storm and the recovery efforts. Nearly lost was the story about West Virginia’s sales tax on food dropping another percentage point on July 1st, down to one percent.
As long as the state’s Rainy Day contingency fund remains equal to or greater than 12.5 percent of the state’s General Revenue Fund, the final penny of the tax will come off in one year.
That will be a banner day for West Virginians.
Through the years, West Virginia has been all over the board on whether, and how much, to tax residents at the grocery store. In 1979, the Legislature began phasing out the tax on food, but compensated by raising the general sales tax to six percent.
In 1989, with the state in dire financial straits, the Legislature reinstated the sales tax on food at six percent.
In 2004, Governor Joe Manchin and the Legislature decided to start gradually removing the food tax. Governor Earl Ray Tomblin and lawmakers continued the reduction and now we’re just one year away from seeing it disappear completely.
That’s a good move for West Virginia.
The sales tax on food, while a relatively convenient way for the state to collect revenue to pay for services, is regressive. Everyone has to buy food and this tax hits hardest those whose weekly food bill takes up a larger share of their income.
(Food stamps are exempt from the sales tax on food.)
Meanwhile, dozens of other goods and services are already exempt from the general sales tax. As stated in the Governor’s Commission on Fair Taxation report in 1999, “A person may purchase food which is taxable, while another person purchases a haircut, which is exempt.”
In recent years, West Virginia’s politicians have demonstrated leadership by removing the food tax, phasing out the business franchise tax and lowering the corporate net income tax.
Those are all positive steps, but frankly those tax changes are the low hanging fruit. West Virginia’s tax code is still a mess. The findings in the Commission’s study, though done 13 years ago, still hold true today.
The state’s present revenue collection system is too regressive, contains too many exemptions, is overly burdensome on its citizens, has not adapted to the shifting economy and leaves local jurisdictions few options for collecting revenue.
West Virginia has more than held its own over the last few years while other states have gone deeper into debt, raised taxes and cut services. The state should now take the next step by implementing comprehensive tax reform to make our system of revenue collection fair, equitable and competitive.