The West Virginia Senate’s Finance Committee unveiled Monday a complicated and sweeping set of tax reforms. The proposed refiguration of the state’s tax code is somewhat of a game of musical chairs — with a few significant hurdles to overcome.
Lawmakers in the GOP-led Senate are continuing their push to roll back the manufacturing machinery, equipment and inventory tax but, with a committee originating bill, they’re also tacking on a proposal that would eliminate taxes on retail inventory and automobiles.
With a proposed phase out over the course of six years, the tax cuts would cost the state nearly $300 million in annual revenue upon full implementation in fiscal year 2028. To make up the difference in revenue, lawmakers are proposing a hike on consumer sales, tobacco and e-cigarette taxes.
To accomplish the sweeping set of reforms, members of the Senate Finance Committee considered a measure that is as-of-yet formally introduced — but now known as Originating Bill 4. Committee members heard a presentation from counsel on the tax revenue trade-off.
Under the bill, the consumer sales tax would be increased by half of a percent — from 6 to 6.5 percent. The tax on a pack of cigarettes would increase from $1.20 to $2. Taxes on e-cigarettes and vape products would also be hiked under the measure.
The proposal would create a special revenue fund that would hold collections from the tobacco, e-cigarette and consumer sales tax hikes to backfill the other would-be losses in revenue. However, tobacco and e-cigarette revenues would be projected to decline at a rate of 4 percent year-over-year — leaving a $80 mill deficit after Fiscal Year 2032 — putting into question the long-term solvency of such a fund.
The repeal of the manufacturing machinery, equipment and inventory tax has been a priority for Republicans in recent legislative sessions. The majority party has called taxes on manufacturing a hindrance on business growth.
Department of Commerce Secretary Ed Gaunch echoed those sentiments to the Senate Finance Committee.
“I'm 100 percent in favor of getting rid of the inventory and personal property tax. I haven't studied this bill in particular," Gaunch said. "But I've said numerous times, this tax — the inventory personal property tax — is the most onerous tax we have, and I understand that if we can get rid of that and make the local governments whole, then I'm in favor of it."
Johnathan Adler, who serves as the executive director of the West Virginia Association of Counties, said he appreciates lawmakers trying to find a revenue replacement for counties, but he said he is concerned about counties giving up control.
“Our biggest fear is it's taking taxing authority away from the counties, Adler said. “We're not going to be overseeing the property taxes anymore and doing that work under the purview of state tax division. So, that certainly has us wondering quite a bit.”
The Senate Finance Committee adopted two amendments Monday to Originating Bill 4.
The first, proposed by Sen. Ron Stollings, D-Boone, would take $2 million in tobacco and e-cigarette taxes and set it aside for tobacco addiction prevention and cessation. A second amendment, from Sen. Tom Takubo, R-Kanawha, called for vaping products to be taxed at $1 per milliliter.
But Originating Bill 4 would only be step one in the set of sweeping tax reforms.
As part of the overhaul, Senate Joint Resolution 9 would need to be adopted by the Legislature and ratified by voters. With taxes on personal property enshrined in the state Constitution, the measure would allow the reforms in Originating Bill 4 to be enacted.
Senate Joint Resolution 9 would require a two-thirds majority in both houses before needing ratified by a vote of the general public as a constitutional amendment.
Both Originating Bill 4 and Senate Joint Resolution 9 cleared the Finance Committee. Both pieces of legislation now head to the floor.
