Hope fading for business inventory tax repeal

Governor Jim Justice’s plan to phase out the property tax on industrial equipment, machinery and inventory is on life support at the State Legislature.  I’ll explain why, but first here’s the background.

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

The tax is so onerous that the state Commerce Department concocts a work-around so that businesses considering locating to the state can avoid it.  West Virginia is one of just 14 states that imposes a property tax on business inventory and one of only seven states that taxes manufacturing inventory.

But it’s not easy to get rid of the tax because it would require a change in the State Constitution. To achieve that, each chamber of the Legislature has to pass a resolution by two-thirds vote and then state voters would have to approve the change.

The resolution could probably clear the Senate, where Republicans hold a 22-12 advantage, but the House of Delegates is a different story.  Republicans have a 64-36 advantage, but 67 votes are needed to reach the two-thirds threshold.

Backers would have to get every Republican—that’s not likely—and a few Democrats to reach the threshold and that’s highly improbable.

House Minority Leader Tim Miley (D-Harrison) says the caucus is united against the repeal for two reasons. Some Democrats just believe business taxes have already been reduced enough in recent years, while others are more open to repealing the tax, but they are frustrated by the size of the teacher pay raise.

One can argue the teacher pay issue is separate from the business tax reduction, but Miley says they are actually linked.

“It’s extremely difficult for any elected representative to go home and tell one group of constituents that we can’t afford to pay them sufficiently while turning to another group of business constituents and relieving a tax burden on them, which would create a hole in state revenues,” Miley told me.

Under the proposal the seven year phase out would not begin until 2020, and it would take out about $20 million a year in revenue.  As a comparison, each one percent across-the-board raise for teachers, service workers and state employees costs about $20 million.

Supporters of the tax repeal contend the change will increase economic growth and that will generate more revenue for the state and ultimately lead to higher pay for teachers and public employees. That’s a reasonable argument, but the optics are bad and the timing is awful.

It’s a mistake to pronounce any bill “dead” while the Legislature is still in session.  A lot can change in the remaining three weeks. But the teacher/public employee pay issue is driving the agenda right now.

As Miley said, “As long as the public employee compensation increase remains unsatisfactory, there is little chance of the inventory tax repeal.”




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