Concerns are emerging about how Gov. Jim Justice’s tax plan might affect West Virginia businesses.
Those worries have arisen in speeches at the state Legislature and in analysis by tax experts who monitor changes at the state level. One analyst predicted West Virginia’s tax proposal could increase taxes on business up to $330 million.
Delegate Jason Barrett, R-Berkeley, spoke on the House floor to say he supports a phase-out of the income tax. But he worried that what the governor proposes instead is out of balance.
“Unfortunately, we are seeing many of those outrageous tax increases in the governor’s tax plan — one aimed squarely at low- and middle-income families as well as small businesses,” Barrett said during a “Remarks by Members” session Wednesday evening.
The governor is proposing a 60 percent cut in the state personal income tax, suggesting it will be a splash that will encourage population growth. He would like to eliminate the tax entirely within three years or so, banking on that growth.
The income tax accounts for about $2.1 billion of the state’s tax base, about 43 percent of the General Fund to pay for government services like education and healthcare.
An outline of the governor’s plan estimates initial personal income tax reductions totaling $1,035,650,000 and rebates totaling $52 million for lower-income residents — but also tax increases of $902,600,000 to make up for most of those breaks.
The proposal would also raise a variety of other taxes, including on soft drinks, tobacco, beer and wine. And Justice proposes taxing some professional services for the first time, including law offices, accountants, gyms and more. He also advocates a “luxury tax” on some items costing more than $5,000. And he proposes sliding scales for severance taxes for coal, oil and natural gas, paying more when markets are better.
Justice refers to the additional taxes as pulling the rope.
“To truly make this work, we all need to pull the rope together as West Virginians,” he stated in a document that was distributed this week.
Barrett, who serves on the House Finance Committee, expressed concern that some residents and small businesses would have to pull the rope harder than they can really afford.
He said the soft drink tax is more accurately described as a beverage tax and cited a wide range of examples: V8 Healthy Greens, flavored waters, almond milk and even Ensure, which are meal replacement shakes.
“Essentially every beverage that isn’t bottled and isn’t cow’s milk, a hundred percent undiluted juice or plain water is subject to this tax,” Barrett said. “These are groceries. This is a grocery tax. Not a soda tax and certainly not a sugary drink tax.”
For many years, West Virginia has applied a tax on soft drinks amounting to a penny per 16.9 fluid ounces. That adds up to about $15 million to benefit the West Virginia University Medical School.
Starting next Jan. 1, Justice proposes to increase the tax — expressed in different ways, depending on how the beverage is produced or sold: 6 cents per 16.9 fluid-ounces beverage, a tax of $4.80 on each gallon of soft drink syrup or 6 cents for each 28.35 grams of dry mixture.
So the beverage industry is describing the proposal as a 500 percent increase. Barrett described such a tax as more likely to occur “in a few liberal cities.”
“Our plan moving forward must be one that is a fiscally-responsible, multi-year approach on phasing out the personal income tax,” he said, “one that reduces taxes on working West Virginians and is not merely a shift on the tax burden.”
Patrick Reynolds
The Council on State Taxation, a nonprofit trade association representing multistate corporations, also expressed concern today that “the proposal will ultimately shift the State’s overall tax burden from individuals to businesses.”
“The proposed sales tax rate increase from 6 percent to 7.9 percent (a 32 percent increase) and expansion of the tax base to professional services would fall disproportionately on businesses,” wrote Patrick Reynolds, senior tax counsel with the Council on State Taxation.
Right now, the organization says, West Virginia derives about 44 percent of its sales tax revenue from taxing business-to-business transactions.
“The bill would increase this percentage and represents an increase in the overall tax burden on businesses,” Reynolds wrote. “The increased tax burden on business inputs will likely deter increased business activity (investment and jobs) in the state.”
Another analyst also concluded West Virginia’s tax proposal would represent an overall increase for business.
Ryan Maness
Ryan Maness, senior policy analyst and tax counsel for MultiState, a state and local government relations company, drew that conclusion in a post titled “West Virginia Tax Reform Carries Historic Price Tag for State Businesses.”
While individuals will see a tax cut, Maness concluded, state businesses will be on the hook for about $230-330 million in new taxes.
Maness also looked at the taxation of business-to-business transactions and the newly-taxed professional services.
“When West Virginia lawmakers assess whether this bill is the right course for their state, they should have a clear view of all of its costs and benefits,” Maness wrote.
“While individual taxpayers will see a net tax cut, tax hikes on job creators could result in more harm to people than the benefit of a modest individual income tax cut.”
On the House of Delegates floor Wednesday evening, Delegate Larry Rowe rose and said he is also worried about the effects of the tax plan.
“The tax shift helps some and hurts others,” said Rowe, D-Kanawha, a member of the House Finance Committee.
He said the increased sales tax would hit those least able to afford it. And he suggested West Virginians who live in border counties will cross the state line to avoid paying those taxes. “It will destroy our economies in the cities that are along the borders,” Rowe said.
And, Rowe said, “the tax turns every transaction into a taxable event — transactions with attorneys and accountants fixing your tax returns, I think haircuts, taxes put onto services that have never been taxed before. Again, large law firms, large accounting firms can just take the work across the bridge and make the money without paying 8 percent of their gross income.”