House Committee Removes Major Elements of Justice Tax Reform Plan

Members of the House Finance Committee voted almost unanimously in favor of their version of a revenue bill Thursday afternoon, one that looks drastically different than one the Senate approved earlier this week.

The measure was the result of negotiations between Republicans and Democrats in the chamber and is very similar to revenue measures delegates considered during the regular session focused on making changes to the sales tax rather than the income tax.

“The support was not there,” House Finance Chair Eric Nelson said of the removal of changes to the personal income tax in the bill.  

A phase-out of the personal income tax has been backed by Senate Republicans and the governor have supported.

The House Finance Committee’s bill does include some income tax changes, exempting military retirement pay immediately and phasing in an exemption for Social Security benefits over three years for seniors making less than $100,000 a year.

Senate Democrats floated a similar idea earlier in the week, but it was rejected in the upper chamber.

“We’re going to give some type of tax relief to the citizens that need it most,” Del. Isaac Sponaugle said in committee. “Not the wealthiest citizens in the state of West Virginia, but the citizens that are struggling.”

The larger focus of the bill, though, is removing some current sales tax exemptions to bring in more revenue.

The rate would stay at 6 percent, but consumers would have to pay the tax on their cell phone bills, gym memberships, and on construction labor up to $40,000.

Businesses in the communications field would have to begin paying the tax on their purchases and the tax would also be applied to primary opinion research.

“I’m really delighted with some of the policy changes that are in the bill,” Del. Larry Rowe said of the measure, “but I don’t think it addresses the real policy change that we have to confront ourselves with and that is the budget hole that we’ve got.”

The Governor’s Office estimates the budget gap for the 2018 fiscal year is some $450 million. Nelson expects a final financial analysis of the bill to be presented to the members tomorrow, but estimates it will bring in around $100 million for 2018.

To protect some revenue, the committee removed Gov. Justice’s proposed restructuring of the coal severance tax from the bill, which would have given the industry a $50 million tax break in the upcoming fiscal year, but Majority Leader Darryl Cowles said he still recognizes there are revenue issues.

“It still is somewhat short in filling the gap, but it could shield drastic budget cuts when we go to put a budget together,” he said.

Senate President Mitch Carmichael said those drastic cuts are why the Senate chose to move forward with a tax reform plan that results in even larger revenue numbers in fiscal year 2018, although a fiscal note detailing those revenues has not surfaced in the chamber.

Carmichael said the Senate budget will hold spending to last year’s levels, protecting vital government services from the deep cuts he says the House will have to present.

As far as the progress of the House revenue bill, Nelson said the chamber will likely vote on it Friday.

Carmichael said the Senate will amend its tax reform plan based on income taxes back into it Monday and likely send the bill to a conference committee, where members of each chamber will negotiate an outcome.

Once that bill is done, lawmakers can then begin their work on the actual budget bill.