CHARLESTON — West Virginia tax collections for January have taken the state’s tax revenue surplus just short of $1 billion.

Now Gov. Jim Justice and the Republican majorities in the Legislature must figure out how to return some of it to taxpayers.

According to a monthly report from the state Senate Finance Committee, January tax collections of $621.1 million were 35% more than the $461.9 million estimate set by the state Department of Revenue, resulting in $162.2 million in excess tax revenue.

Year-to-date tax collections for the current fiscal year 2023 beginning July 2022 through January were $3.676 billion, 37% more than the $2.681 billion revenue estimate, resulting in $995.3 million in surplus tax revenue with just five months left in the fiscal year.

“We have knocked it out of the park again for the month of January,” Justice said Wednesday during a virtual administration briefing from his office in the Capitol. “We’re now sitting at above estimates for seven months of this year.”

Half of the fiscal year 2023 surplus is due to higher prices for coal, oil and natural gas. Year-to-date severance tax collections of $631.2 million were 373% more than the $133.4 million estimate, resulting in $497.8 million in surplus tax revenue. January severance tax collections of $90.3 million were 247% more than the $26 million estimate for a $64.3 million surplus for the month.

More than 40% of the $3.676 billion in tax revenue collected so far came from personal income tax collections, with 18% of the state’s year-to-date tax surplus due to $181.6 million in surplus personal income tax collections. January personal income tax collections of $305.3 million was 20.3% more than the $253.9 million revenue estimate for a $51.4 million surplus for the month.

The personal income tax is at the heart of a discussion on tax reform in West Virginia, with both Justice and the House of Delegates supporting a phased-in 50% cut in personal income tax rates across all six brackets, while Republicans in the state Senate are scrutinizing the plan.

“Without any question in the world, it would be absolutely silly to not think we can very safely, very conservatively move forward with a 50% tax cut in the State of West Virginia, especially if we do it wisely,” Justice said.

The House passed the governor’s plan, House Bill 2526, more than two weeks ago, though the Senate has yet to take the bill up in committee. Instead, Republican leadership in the Senate is developing its own plan while raising concerns about the long-term financial implications of the governor’s plan combined with incoming requests to spend down additional surplus dollars the state has.

“I stand ready to compromise with the Senate if they’ll just give me something,” Justice said. “It’s nice to say we’re still studying it, but come on, we don’t need to be in an auction by ourselves,” Justice said. “We need to be absolutely doing something for the hardworking people of this great state and put money back in their pockets. It’s not our money.”

HB 2526 would phase in a 50% personal income tax cut, with a 30% cut retroactive to January of this year According to the fiscal note from the Department of Revenue, the first 30% cut would return $161.8 million to taxpayers in the current fiscal year ending in June. Another 10% cut would kick in beginning in July, returning $1.085 billion to taxpayers, with the final 10% cut kicking in July 2024, returning $1.492 billion to taxpayers when fully implemented.

Last week, Senate President Craig Blair said the Senate would not be rushed into passing HB 2526 before the bill is fully vetted and until more legislation is passed during the remainder of the 2023 legislative session that have costs that could affect the budget bill setting the budget for fiscal year 2024 in July.

Justice proposed a general revenue budget for fiscal year 2024 of $4.884 billion, 5% more than the $4.645 billion general revenue budget for the fiscal year 2023 passed by lawmakers last year. State revenue officials estimate the state could bring in $6.1 billion in the next fiscal year, providing the state $1.216 billion in surplus tax collections.

The state also is sitting on more than $500 million in remaining surplus tax revenue after ending the previous fiscal year in June with $1.3 billion above revenue estimates. Lawmakers will be considering 28 supplemental appropriations bills that will spend that surplus down to nearly $200,000. Senate Finance Committee Chairman Eric Tarr, R-Putnam, said his committee will hold a meeting Friday with state officials to ask questions about those expenses.

Tarr also said lawmakers need to take into consideration bills being passed this session that have substantial costs, plus the possibility of putting $300 million into the state Rainy Day Fund to cover losses due to investment losses. After exceeding $1 billion in September of fiscal year 2022, the Rainy Day Fund has dropped to $916.5 million.

“We have to go through and see what the expenses of the state are going to be before we go in and decide how much revenue we’re not going to take in,” Tarr said after Wednesday’s floor session. “We do want a tax cut and there is money for a tax cut, but there is not money for an irresponsible tax cut. Until we know what the expenses are of the state, I don’t think you’ll see us putting out a suggestion for what that revenue should be.”

State Department of Revenue officials believe West Virginia will continue to end future fiscal years with surpluses in excess of $1 billion through fiscal year 2027 as long as revenue estimates are kept low and budgets are kept flat, limiting growth in new spending to 3% each fiscal year. HB 2526 also creates a $700 million fund to cover any potential shortfalls or market turmoil that could hurt the state’s finances as the tax cuts kick in.

When asked about Tarr’s concerns, Justice accused the Republican lawmaker of scaremongering.

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