CHARLESTON — The House Finance Committee approved on Wednesday a resolution to put before the voters a Constitutional amendment to allow a future Legislature to reduce or remove the tax on business inventory, machinery and equipment.
The vote wasn’t unanimous. It was a voice vote, so no one was on record, but it appeared to follow party lines.
As committee counsel explained, tax law is embedded in the state Constitution, so changes to it have to be approved by the voters via an amendment. They approved such a change in October 2017 in the Roads to Prosperity Amendment.
HJR 17 proposes to change personal property tax law regarding business inventory, machinery and equipment by enabling the Legislature to reduce and ultimately eliminate it.
If approved this session by two-thirds of both legislative houses, it would go before the voters in November 2020. That means the 85th Legislature, seated in January 2021, would be the first eligible to take any kind of action on the tax.
This tax has been for many years regarded as an obstacle to business growth. The Underwood tax reform commission in 1999 and the Manchin commission in 2006 both recommended eliminating it.
But the challenge, Finance members reiterated on Wednesday, is replacing the lost revenue.
Deputy Revenue Secretary Mark Muchow told members that the tax brings in about $250 million to $300 million per year. About 36 to 37 percent goes to county school boards, about 26 to 27 percent to counties, and about 5 percent to municipalities.
Because state law requires that all schools be funded equally, per student, and the state school aid formula supplements any county shortfall to the per-student allotment with state funds, he said, the state will be on the hook for any shortage created by phasing out the tax.
Muchow told the members that seven states tax manufacturing inventory, so West Virginia is among the minority. Neighboring Pennsylvania and Ohio tax only real estate.
Committee chair Eric Householder, R-Berkeley, required members to focus their comments on questions on the resolution at hand and not speculate how future Legislatures might go about phasing it out or replacing the lost money with alternative taxes.
In 2017, the Senate Tax Reform Committee floated the idea of making up the lost revenue by increasing real estate taxes. Opposition sank that idea fairly quickly, balking at the idea of giving businesses a break on the backs of homeowners, but the possibility of trying it again remains a concern for many legislators.
Delegate Isaac Sponaugle, D-Pendleton, said he supports the intent of the resolution but not the resolution itself. “When it hits the floor, it’s going to die. I’ll tell you why. It’s only half a bite of an apple,” he said. It contains no plan for replacing the lost money. “I believe we have a responsibility as a legislature, if we’re going to do this, to actually instate an entire plan.”
Delegate Mick Bates, D-Raleigh, likewise said the tax is something no one likes but schools and counties depend on it. “This is an elegant attempt to do an end around that process and come up with a viable solution.”
Tax law protections were placed in the Constitution for a reason, he said. A future “rogue Legislature” could use the amendment to “wreak havoc on our local governments and our school system.”
Delegate Jim Butler, R-Mason, supported the resolution. For decades, he said, the tax has made West Virginia uncompetitive. It effectively locks jobs out of the state and harms the residents.
Members approved an amendment to the resolution to correct a drafting error and remove some redundant and unclear language in what would go before the voters.
HJR 17 next goes to House Judiciary.
On the same day Finance considered the resolution, House Speaker Roger Hanshaw offered some additional insights into it during Hoppy Kercheval’s Talkline show on MetroNews radio.
He emphasized that it changes nothing now, but makes it possible for a future legislature to take steps to eliminate the tax.
Leaders of both parties are in talks about it. “We know this has to be a bipartisan effort because it takes a two-thirds vote in both houses to advance that resolution.” And both parties have said it needs to go.
Hanshaw said some companies engage in gamesmanship about where they house their equipment and inventory. He recently spoke to the owner of a Morgantown area business that headquarters across the border in Pennsylvania to avoid the tax.
Given the financial risks to the counties, this isn’t something they want to jump into quickly, Hanshaw said. The resolution will allow them to take it off piecemeal or in stages or for sectors, such as warehousing.
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