After 2.5 hours of debate, Senate leadership’s signature business tax cut bill barely passed, 17-16. Two Republicans crossed the aisle to vote with the Democrat opposition on SB 837.
That did not bode well for the companion constitutional amendment, SJR 9, which would need 23 votes to pass and be put before the voters to enable the legislation.
So, at about 4:30 p.m., after a marathon floor session interrupted with a short recess, leadership laid SJR 9 over for a day.
The aim of the bill and the resolution is to end the tax on manufacturing inventory, machinery and equipment in order to retain business and draw in more from out of state.
SB 837 actually phases out three taxes over the course of six years, starting April 1, 2021 (pending approval of SJR 9): the manufacturing inventory, equipment and machinery tax; the retail inventory tax; and the personal property tax on automobiles, including ATVs and utility vehicles. Newly purchased items would be immediately exempt.
Legislators have said that the automobile tax cut was included as an incentive to win voter approval of the resolution.
The three cuts, Finance chair Craig Blair, R-Berkeley, said on the Senate floor, would cut $300 million of revenue: $150 million in automobile taxes, $50 million in retail inventory tax and $100 million from manufacturing taxes.
To replace the lost revenue, the state sales tax would be raised from 6% to 6.5%. The cigarette tax would go from $1.20 to $2 per pack; the other tobacco products tax from 12% of wholesale price to 50%; and the vaping liquids tax from 7.5 cents per milliliter to 50% of the wholesale price.
The sales tax hike is projected to generate an additional $116.5 million per year. The tobacco tax hike would initially produce an additional $88 million. This new money would be channeled to a new Revenue Reallocation Fund intended to keep the schools, counties and municipalities whole as they lose the inventory tax income.
Blair said that the constant refrain during summer and fall stakeholder meetings on this issue was replacing the lost revenue, which goes mostly to counties and schools, with a small part going to municipalities. So the new revenue from the tax hikes would go into a special account to keep the counties, schools and cities whole.
The hikes don’t equal the cuts, Blair admitted, and that’s the reason for the phase-out of the cuts: to allow for economic growth and course corrections. “Not for a minute do I come forward and say this is perfect.” Changes are probable.
Sen. Mike Romano, D-Harrison, said that West Virginia’s average sales tax, factoring in additional locals sales taxes, is higher than all neighboring states than Ohio. The proposed hike won’t help competiveness.
Blair said he understands: 54% of the state’s residents live in border counties and Virginia and Maryland are only 15 minutes away from his home. But the state has lots of service industry jobs while it hemorrhages manufacturing jobs, and this bill is needed.
Among the opposition, Sen. Paul Hardy, D-Logan, noted that the outlook for Fiscal Years 2022-25 is deficits, totaling $633 million. “If we had the money I’d be all for this.”
Sen. Ron Stollings, D-Boone, said county officials are concerned about being able to fund law enforcement and public safety, parks and other county services. “They have a huge fear.”
Minority Leader Roman Prezioso, D-Marion, said one of his jobs when he began his time in the Legislature was to make sure state is financially viable. Bipartisan business tax cuts totaling $250 million failed to generate the expected results: more jobs and business.
So he opposes this GOP-led effort. “We need to step back. We need to study the issue and then move forward.” The manufacturing tax is regressive, he agrees, but they need a bipartisan solution.
Sen. Doug Facemire, D-Braxton, voiced his opposition with two quotes: “If ifs and buts was candy and nuts it’d be Christmas every day.” And, citing the sales tax hike, “The rich man does the dancing and the poor man pays the band.”
Proponents talked about the need to draw business, and about the opportunity the two measures offer.
“How do you grow jobs,” asked Sen. Chandler Swope, R-Mercer. Not by increasing taxes and driving people out. Economic projections show that the new Revenue Reallocation Fund that new tax money would go into should be flush through 2030. And this is the biggest game changer to come along in years.
“Do we do something or do we do nothing,” he asked. “I would be ashamed of myself I was to go back home and admit I was afraid to do something.”
Majority leader Tom Takubo, R-Kanawha, talked about the carpentry safeguard of measuring twice before cutting once. With the six-year phase-out, he said, SB 837 measure five times before its final cuts.
Blair apologized for taking nearly 20 minutes for his closing speech. “This is a good deal for the people of West Virginia, and better yet, it’s their choice,” he said. But the Senate could deny them that choice by voting down SJR 9.
SJR 9, which will be on third reading for a vote on Tuesday, proposes a constitutional amendment to give the Legislature more control over taxation of personal property.
If approved by the voters in November, the amendment would allow the Legislature to classify property as real or personal for the purposes of taxation. It would eliminate the constitutional requirement for uniform taxation and allow the Legislature to set varying rates for differing “species” of personal property, or exempt one or more species from taxation.
A provision prohibits the Legislature from setting tax rates above the current constitutional limits.
All local senators voted with their party on SB 837. Republicans Bill Hamilton, R-Upshur, and John Pitsenbarger, R-Nicholas, voted with the Democrats. Sen. Kenny Mann, R-Monroe, was absent.
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