Senate's Tax Reform Bill Beginning to Take Shape

Feb 27, 2017

The Senate’s Select Committee on Tax Reform has started discussing the latest version of its bill to repeal West Virginia's personal income tax and replace it with an expanded consumption tax. 

The income tax provides nearly $2 billion in annual revenue for the state, but supporters of the provision say a broader sales tax on goods and services at a higher rate could replace that revenue, encouraging economic growth in the state. 

The committee discussed the bill for a second time Monday morning, but still have not been presented with a fiscal note detailing the shift of revenues. 

Overall, the updated version of Senate Bill 335 presented to Senators on the committee Monday would still repeal the state’s 6 percent consumer sales tax and replace it with an 8 percent general consumption tax—what’s essentially a sales tax on almost all good and services. 

That includes reinstating the food tax, or taxes you pay on groceries, and also adding taxes to professional and personal services, like lawyers’ fees or haircuts and gym memberships.

The committee substitute also includes some clarifications for municipalities. 

Some cities have implemented an additional sales tax under home rule legislation to get rid of their B&O taxes. Others have implemented sales taxes to help pay off unfunded worker’s pension debts. Both of those types of municipal sales taxes would remain intact under the updated bill. 

Sales taxes on gasoline that are dedicated to funding roads are also largely not impacted by the legislation, but the tax on an automobile purchases would increase from 4 to 8 percent on the first $10,000 of value, and 6 percent for any cost above that. 

Senate Bill 335 still includes 31 areas of exemptions. They include exemptions for churches and nonprofits, wholesalers, aircraft repair services, and tuition charged at colleges and universities, just like under the current sales tax.

The bill's lead sponsor and the chair of the select committee, Sen. Robert Karnes, has said the bill is intended to be a revenue neutral measure--  meaning it won’t make or lose any revenue, but shift the income sources.

A revenue neutral bill would not help close the estimated $497 million budget gap in the 2018 fiscal year.

In the process of repealing the personal income tax, the bill also would phase out the corporate net income tax, or the tax placed on business profits, and decrease the severance tax on both coal and natural gas from its current 5 percent to 2.5 percent over several years.