Most of the attention on taxes this legislative session has focused on the Governor’s proposal to rapidly phase out the state’s personal income tax and the competing House Republican plan. However, there is another tax plan that is moving this session that is getting far less notice.
Both the Senate and House of Delegates are considering amending the state Constitution that could have a significant impact on property taxes.
House Joint Resolution 3 would give the Legislature the authority to make adjustments in taxation for tangible personal property, including machinery, equipment and inventory of manufacturers, and inventory held by small businesses.
Senate Joint Resolution 7 would do much the same thing, however, it specifically mentions giving lawmakers the power to also to reduce the motor vehicle property tax.
A resolution needs support from two-thirds of the members of each chamber, then it would be put on the ballot for voter approval or rejection.
The state Office of Tax and Revenue estimates the property tax on machinery, equipment and inventory raises about $300 million annually. The vehicle tax adds another $100 million. Most of the revenue (65 percent) goes to education, 28 percent to counties and 7 percent to cities.
During a virtual public hearing Monday on HJR 3, business interests spoke in favor of the move.
West Virginia Manufacturer’s Association President Rebecca McPhail said the tax puts capital-intensive businesses in the state at a competitive disadvantage. “The state’s personal property tax on inventory, machinery and equipment penalizes capital investment and acts as a disincentive to capital investment in West Virginia,” she testified.
However, several county commissioners testified that if lawmakers decided to reduce or eliminate the tax, counties would lose a significant source of revenue.
Both sides have a point.
The tax is bad for business. Every time West Virginia recruits a new business to the state it must create a work-around of the tax as part of the deal. Meanwhile, counties are limited in how they can raise revenue, so a cut without a way to backfill would leave them hamstrung.
The issue dates to the Great Depression. West Virginia passed the Tax Limitation Amendment in 1932 which put very specific directives and limitations in the state Constitution as to how property would be taxed. The goal then was to reduce property taxes for West Virginians during hard times.
But that also took significant taxing authority out of the hands of the Legislature. Each of the amendments now under consideration would, if approved by the voters, restore that authority to the Legislature, giving it the ability to adjust taxes as necessary depending on economic conditions and the needs.
In a more perfect world, the Legislature would tackle comprehensive tax reform, one that embodied the values of fairness and impartiality, while remaining revenue-neutral. In lieu of that, at least we can give the state Constitution a badly needed update on property taxes and return that power to the Legislature where it belongs.