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Tax phase-out amendment introduced

CHARLESTON — After months of hype, the joint resolution to eliminate the business and inventory tax in phases was introduced this week in the West Virginia Senate, but Democratic lawmakers reminded the majority that the resolution can’t pass without them.

Senate Joint Resolution 8 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.

In the latest version of the resolution, the tax would be phased out over a four-year period, starting with 45% in fiscal year 2021, 30% in 2022, 15% in 2023, and the complete elimination of the tax in fiscal year 2024. The resolution requires the governor to replace the lost revenue as the tax is phased out, starting with $25 million in fiscal year 2022, $50 million in 2023, $75 million in 2024, and $100 million in 2025.

Joint Resolution 8 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.

Eliminating the business and inventory tax has been talked about in Charleston for more than 20 years, with former Republican governor Cecil Underwood and former Democratic governor Joe Manchin both receiving recommendations to end the tax, which is built into the state constitution.

Long a goal of the majority in the Legislature since Republicans took the Senate and House of Delegates in 2015, talk of removing the tax picked up starting in August during a panel discussion by Republican legislative leaders at the West Virginia Chamber of Commerce’s Annual Meeting at the Greenbrier Resort.

The West Virginia Manufacturers Association spent the latter part of 2019 approaching county commissions to seek their support for ending the tax, which funds county governments and school systems. Most recently, the Wood County Commission expressed support as long as funding lost from the phase-out is replaced.

Senate Democrats, during remarks at the end of Tuesday’s floor session, reminded the Republican majority that any hope for passage of the resolution relied on Democrats voting in favor.

“Constitutional amendments require more than a majority vote. They require a super-majority,” said state Sen. Mike Romano, D-Harrison, a former member of the Harrison County Commission. “Nobody has asked the Democrats how we’re going to eliminate what is a bad tax…if we’re really serious about that and if we’re not just throwing up some window dressing to tell people we’re going to eliminate it, then everyone has to participate.”

Senate Finance Committee Chairman Craig Blair, R-Berkeley, said Senate Republicans are aware that they need at least three Senate Democrats to vote with Republicans to get to 23 votes, the two-thirds majority need to pass the resolution. Blair said the Senate judiciary and finance committees will give Democrats an opportunity to provide input on the resolution’s crafting.

“I think everyone in this chamber is aware it takes two-thirds vote to accomplish this,” Blair said. “We do need to work together as a team on what’s going on and into the future, but this is the beginning of the process.”

State Sen. Paul Hardesty, D-Logan, reminded lawmakers that coal severance tax revenue from coal mined in Southern West Virginia went to budgets in all 55 counties. He said that since coal mining has plummeted in the last decade, county budgets in his district are hurting. Hardesty questioned the belief of some that revenue lost from the phase-out can be made up with tax revenue growth from business expansion.

“We understand that these taxes are regressive and problematic. We also have to address this not with rose-colored glasses but we have to be realistic,” said Hardesty, a former member of the Logan County Board of Education. “If you want our help on this side if the aisle…don’t come to me with the growth story, that we’re going to make up all this money with growth, because in Southern West Virginia that doesn’t resonate.”

State Sen. Eric Tarr, R-Putnam, agreed with Hardesty’s remarks about severance, but said the state has to diversify its economy. Tarr said phasing out the business and inventory tax will open up the state for new investment and spur expansion in existing businesses.

“We can no longer be a one-trick pony in West Virginia,” Tarr said. “In order to help every county and every city in West Virginia, we’ve got to grow the productivity of West Virginians.”