A resolution that would allow a future Legislature the discretion of whether to eliminate or reduce the business inventory tax is now before the House Judiciary Committee.
The House Finance Committee advanced House Joint Resolution 17, called the Business Inventory Machinery and Equipment Tax Exemption Amendment, in a Wednesday morning meeting.
The resolution would amend the state’s constitution to let the Legislature make the determination whether to exempt personal property used in business activities as inventory, machinery, or equipment.
Since this resolution calls for a change to the state Constitution, two-thirds members of each house would have to approve the measure. The resolution then would go before voters in the 2020 General Election.
Delegates asked about the revenue breakdown of this tax and how it is distributed. Deputy Revenue Secretary Mark Muchow explained the biggest receiver or property taxes is public education, followed by county commissions and then, to a lesser extent, municipalities.
Muchow broke down the revenue, noting it varies by county but averages about 36-37 percent for school boards, 26-27 percent affecting county commissions, and about 5 percent for municipalities.
“With education, it’s more complicated because the state School Aid Formula guarantees a certain amount of funding in all counties,” Muchow said. “If local funds go down a bit, the state or school levee makes up the difference. Ultimately, the state has a lot of skin in the game.”
Delegate Isaac Sponaugle, D-Pendleton, asked how much money would hang in the balance if the tax were altogether eliminated. Muchow estimated a maximum total ranging from $250 to $300 million.
Delegate Paul Espinosa, R-Jefferson, however, told committee members that there is no cost specifically associated with this resolution because the resolution itself would not change the tax structure. A later Legislature would make that determination whether to exempt personal property items from this tax.
Muchow said in most states, property tax is general law but in West Virginia, it is embedded in the Constitution.
“Just because it’s outside the Constitution doesn’t mean the Legislature will act on it,” Muchow said.
Delegates asked how many states have this tax in place. Muchow answered that manufacturing and inventory is taxed in seven states and personal property is taxed in 20 states. He said Pennsylvania does not tax machinery, equipment or inventory; Ohio removed its tax on machinery and inventory and now taxes real estate; Kentucky has a broad-based tax like West Virginia but real property taxes are higher than personal property; Virginia taxes machinery and equipment; and Maryland taxes real estate.
Delegate Mick Bates, D-Raleigh, expressed concerns about the resolution.
“This is a tax no one likes to pay but the issue is that this is a tax local governments and the school system depend on,” Bates said. “There have been multiple discussions on how to replace this revenue to come up with a viable solution. We are going to remove from the Constitution this protection we have in place, which was placed there for a reason. … I have a general concern about this process and whether a future Legislature, whether under control of either party could use this newly-created authority to affect the local school system.”
Delegate Jim Butler, R-Mason, supported the resolution.
“For decades, several administrations realized the taxation of business inventory and equipment makes West Virginia uncompetitive,” Butler said. “We are locking jobs out of West Virginia and hurting our citizens. This is an important step to untying the hands of future Legislatures.”