West Virginia’s sales tax would be highest in the nation, with caveats

The West Virginia Business & Industry Council is raising concerns that Gov. Jim Justice’s big plan would zoom to the top of the wrong ranking.

“West Virginia will have the highest state consumer sales tax in the nation at 7.9 percent,” the broad-based business organization wrote in a memo laying out concerns.

Justice argued responded by arguing that’s not the proper interpretation.

Gov. Jim Justice

“It’s not true,” Justice said.

The governor, instead, assessed what West Virginia’s sales tax would be when interpreted in a different way.

Justice said people should not just look at the state number. Instead, the governor said people should look at combined state and local sales tax rates.

Under that interpretation, he said, Mississippi is considering a rate that would be higher than West Virginia’s combined rate. Others — including Tennessee, Louisiana, Arkansas, Alabama, Washington “and on and on” — would have higher combined state and local rates, he said.

Well, the base assertion — that raising the state consumer sales tax from 6.0 percent to 7.9 percent would be highest in the nation — is true.

California’s state sales tax rate is 7.25. Several states are at 7.0.

But the governor’s view is also correct.

If you look at the combined state and local sales tax rate, West Virginia’s proposed rate would not be at the top of the nation. But it would be right up there.

The five states with the highest average combined state and local sales tax rates are Tennessee at 9.55 percent, Louisiana at 9.52 percent, Arkansas at 9.51 percent, Washington at 9.23 percent, and Alabama at 9.22 percent.

West Virginia’s combined state and local rate is considered to be 6.5 percent now. That’s because the average local rate is .5. That half-percent comes from the average of the cities that apply 1 percent and the cities that have no additional sales tax.

The governor’s proposal would bump that up by 1.9 percent. So the new West Virginia combined rate would be 8.4 percent.

Jared Walczak

“Eleven states have that rate or higher,” said Jared Walczak, vice president of state projects with the Center for State Tax Policy at the Tax Foundation.

He said the governor’s point of comparison is the correct one to consider.

“Most states have both state and local sales taxes, and in some states, the local rate can rival the state’s. The appropriate point of comparison is the average combined state and local sales tax rate in each state,” Walczak said.

Kelly Allen

Fair point, said Kelly Allen, executive director of the West Virginia Center on Budget & Policy.

But West Virginians would experience a significant increase either way you slice it.

“I think it’s fair for him to suggest that people should consider the combined state and local sales tax rate, though it’s hard to quibble that his proposal would give us the highest state sales tax in the country. That’s just a fact,” Allen said.

Even looking at the combined state and local tax puts West Virginia’s proposed rate out of step with the region, she said.

“That would place us significantly higher than any of our neighboring states, which places businesses near the border at a competitive disadvantage and is bad for West Virginians who don’t have the ability to travel out of state to take advantage of lower sales taxes, thus the tax shift falling more heavily on them and reinforcing the regressivity of the plan,” Allen said.

“There’s also a bill introduced this year that would allow counties to levy a one percent sales tax which, if enacted along with this proposal, could push some places to a 9.9 percent combined sales tax rate.”

Craig Blair

Speaking recently on MetroNews’ “Talkline,” Senate President Craig Blair said his first reaction to the governor’s plan was favorable. He believes cutting the income tax will spur growth and suggested the tradeoff would be reasonable.

“Consumption tax is going to be the future in this country for all states,” said Blair, R-Berkeley.

He suggested an increased sales tax might not be noticed by people visiting or traveling through West Virginia.

“When’s the last time you looked at the bottom of your receipt to see what you were paying for sales tax?” Blair asked. “Now also, do that when you travel.”

He said, “If you were able to do it on a consumption tax, the people who come here to go skiing, to go mountain biking, to go rock climbing, to enjoy our state — they would actually help pay for this, and that sales tax increase is not going to deter them one bit from coming to West Virginia.”

Ryan Maness

West Virginians judging the proposal should consider the sales tax rate compared to surrounding states, said Ryan Maness, senior tax analyst at MultiState Associates, a state and local government relations company.

“In reality, big changes require big trade offs and moving West Virginia from being a middle of the pack sales tax state (the Tax Foundation ranks you all at #31) to having the highest state sales tax rate in the country would be a major change,” Maness said.

“Governor Justice has been repeatedly dodging questions about border competition, but a 7.9 percent state rate would make you almost a full point higher than every other neighboring state. This coupled with the fact that business inputs (which professional services mostly are) will make it significantly more expensive to do business in West Virginia.”

Maness suggested that may play into tough political realities.

“Speaking politically, when other states have looked at significant sales tax base expansion in the past, lawmakers have run into a buzzsaw of opposition,” he said.

“In 2019-20 Utah spent months trying to craft and sell a plan to expand the sales tax, but it proved to be so toxic politically that lawmakers ended up repealing their own bill mere weeks after passing it and the longest serving member of the state legislature, who was a key champion of the effort, lost his next primary. The same has been true for virtually every state that has ever undertaken this process.”

Mike Clowser

The most notable opposition in West Virginia so far has been from the business community.

In its polite but firm memo to legislators, the Business & Industry Council concluded the tax plan could encourage state residents to cross the border to make purchases, hurting existing state businesses.

“We all agree the elimination of the personal income tax is a laudable goal, but BIC members believe there needs to be study, debate, and public input in order to develop a comprehensive tax restructuring plan,” the organization stated in the memo signed by chairman Mike Clowser.

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