Yet another plan to restructure taxes in West Virginia has been taken up by members of the House of Delegates.
The House Finance Committee was presented with their version of a Senate Bill 484 during a Saturday afternoon meeting.
The bill was initially presented to lawmakers by Gov. Jim Justice as a sweeping tax increase, raising some $450 million in new revenues.
As it passed out of the Senate, though, the measure only included recapturing some $12 million in annual sales tax revenue generated from some road construction purchases. Those funds are typically transferred to the state Road Fund, but the Senate’s bill would keep them in general revenue for legislative appropriation.
On Saturday, the House Finance Committee was presented with a new version of the bill that goes above and beyond that measure, and essentially refutes the economic theory behind previous tax reform measures considered in the Senate.
The new House version of Senate Bill 484 is a “broadening the base” measure, according to House Finance Chair Eric Nelson. It still contains the capture of state Road Fund dollars, but also gets rid of several exemptions in the consumer sales tax in two phases.
On July 1 of this year, salon services, contracting services, and cell phone bills would be subject to the sales tax. The exemptions for gym memberships, electronic data services, primary opinion research, and some direct use services would end on October 1.
On July 1, 2018, the bill would reduce the states 6 percent sales tax to 5.5 percent. It would again reduce to 5 percent on July 1, 2019, and 4.75 percent on July 1, 2020.
Unlike previous tax reform measures considered in both chambers, this version of the bill does not make changes to the personal income tax.
In all, analysts say the changes to the sales tax alone in the bill would result in a $137 million increase in revenues in the 2018 fiscal year, a $56 million reduction in 2019, a $66 million reduction in 2020, and a $125 million reduction when fully implemented in 2021.
House Finance Policy Analyst Fred Lewis told members of the committee, though, that the reductions in revenue do not account for any potential growth in spending the state could see as a result of a lower sales tax rate.
When fully implemented, the rate would be the lowest of any state to border West Virginia. Kentucky, Maryland and Pennsylvania have a 6 percent consumer sales tax. Ohio’s is 5.75 percent and Virginia’s 5.3 percent.
The plan is the exact opposite of what Senate Tax Reform Committee Chair Robert Karnes had pushed through his committee. The Senate’s tax reform plan– although it went through many iterations– was based on the idea of increasing the consumer sales tax while reducing personal income taxes. Karnes argued that would incent economic growth in the state.
“Over here there’s no argument that getting rid of the income tax will cause you to grow. It’s the lowering of the sales tax so it’s just an opposite view,” Senate Finance Chair Mike Hall said after the meeting. Hall attended to hear the presentation of the House’s version of the bill.
“The theory is that we’re 70 percent a border state so I guess the thinking is that if you lower the consumption taxes to lower than your surrounding states that may, on the margin, attract people to come or at least not leave the state to buy things,” he said.
Still, Hall said the generation of some $140 million in new revenues for the 2018 fiscal year due to the end of some exemptions and the recapturing of the Road Fund dollars may not be attractive to the Senate.
“You’re still raising taxes in terms of though you’re lowering the rate, you’re taxing new things,” he said. “There doesn’t seem to be much appetite for tax increases in the Senate right now, at all, even from broadening the base.”
“If the revenue estimate increases one penny over last year’s revenue estimate there appears to be, among the leadership, a resistance to that at this point.”
The House Finance Committee will continue discussion of the bill Monday morning.
Should the chamber approve the amended version, Senate Bill 484 would have to go back to the Senate for its approval. If Senators refuse the House version of the bill, it will go to a conference committee for a final version to be negotiated.