CHARLESTON — An effort to phase out the business and inventory tax on machinery and equipment faced questioning Monday by the leader of the Democratic minority in the West Virginia Senate.
Members of the Joint Standing Committee on Finance received a draft resolution Monday morning during the first day of legislative interim meetings. The 2020 session of the 84th Legislature starts noon Wednesday.
Joint Resolution 1 would eliminate the ad valorem tax on manufacturing inventory, machinery, and equipment, also known as the business and inventory tax.
Jeff Johnson, counsel for the Senate Finance Committee, said the joint resolution would exempt manufacturing machinery and tangible property purchased on or after July 1, 2021, from taxation. Currently, manufacturing machinery and equipment is taxed at 6 percent, bringing in an estimated $100 million per year.
The tax would be phased out over a four-year period, starting at 25 percent in 2021, 30 percent in 2022 and 2023, and 15 percent in 2024. Language in the resolution would require the state to make county governments and school systems whole – the largest recipients of the revenue from the business and inventory tax.
“It would require in the Constitution that the governor and the Legislature replace revenue lost from the elimination of the tax,” Johnson said. “It requires that this replaced revenue be placed in each fiscal year for perpetuity.”
The joint resolution would require two-thirds vote of both the House of Delegates and state Senate. If adopted, the resolution would be placed on the ballot for a special election, likely to coincide with the Nov. 3 general election.
The business and inventory tax has been a target for over 20 years. A report to former governor Cecil Underwood in 1999 recommended the tax be eliminated, as did a task force created by former Gov. Joe Manchin in 2006. Republican lawmakers have talked about removing the tax since taking the majority in the Legislature in 2014, with talk picking up again in August 2019 at the West Virginia Chamber of Commerce’s Annual Meeting.
The West Virginia Manufacturers Association has led the charge in recent months for removing the tax, including visiting county commissions across the state. According to one representative, speaking to the Wood County Commission last week, the association helped write the resolution.
Senate Minority Leader Roman Prezioso, D-Marion, raised concerns Monday about the resolution’s language, which doesn’t say how the tax revenue for counties and schools would be replaced.
“The specifics on how we’re going to backfill the shortfall for education and counties is not specified in this resolution,” Prezioso said. “It does say that it’s incumbent upon the governor and the Legislature to make whole the boards of education and the counties.”
“In terms of actual identification, the sources of replacement revenue are not identified,” Johnson said. “That will be up to the purview of the decisions made by the Legislature.”
Prezioso, a former chairman of the Senate Finance Committee and a retired school administrator, said there needs to be more information given to lawmakers on how the revenue will be replaced. He believes the language in the draft resolution would mean future legislatures would have to raise taxes.
“I’d like to see more specifics on how we’re going to achieve this as opposed to just giving carte blanche to the governor and the Legislature,” Prezioso said. “It seems to me we’re setting a very dangerous precedent here. Requiring us to make counties and school systems whole puts us in the position to have to raise taxes.”
According to the presentation at the West Virginia Press Association’s Legislative Lookahead Jan. 3, Senate Finance Committee Chairman Craig Blair, R-Berkeley, said that the loss of tax revenue can be backfilled using appropriations from the general revenue budget instead of tax increases.
Republican lawmakers believe that removing the tax will help businesses expand and make the state more attractive for new businesses, offsetting the loss of property tax revenue with increased revenue from sales, income, and corporate net taxes.