Property taxes on business inventory and equipment are the biggest obstacle to attracting new companies to West Virginia, members of a tax research group said Wednesday. But they stopped short of recommending any changes.
The Tax Modernization Project Work Group has twice considered recommendations to Gov. Joe Manchin to push for changes in the state constitution that would give the Legislature flexibility in reducing or eliminating the personal property tax on inventory and equipment.
The group may revisit the subject in a meeting before the legislative session begins next month, but major questions remain about which taxes would be affected and how local governments would replace the lost revenue.
The property tax provisions in the West Virginia Constitution date back to the early 1930s, when the goal was to reduce property tax burdens on individuals with an eye toward keeping people in their homes.
"Right now, we're still saving farmers and homeowners from the Great Depression," said Deputy Revenue Secretary Mark Muchow, who called the taxes on inventory and equipment "the number one handicap" to economic growth in the state.
Members of the working group said an amendment to take tax policy out of the Constitution and put it in the hands of the Legislature would make the tax system more flexible and bring it in line with neighboring states.
"Right now, we impose a straitjacket through these statutory tax classifications and tax rates," said Tom Witt, director of the Bureau of Business and Economic Research at West Virginia University.
Those property taxes represent a significant source of revenue for county commissions and school boards, though. Muchow estimated they would bear about 60 percent of the cost of eliminating the taxes entirely.
County governments recognize the problem with the constitutional provisions on taxes, according to Greenbrier County Commissioner Brad Tuckwiller, but are wary of what revenue sources would replace them.
"The devil we know is the constitutional requirement, but the devil we don't know is whatever the Legislature might do to us," said Tuckwiller, who is not a member of the work group.
House Finance Chairman Harry Keith White discounted the prospects for advancing a proposed constitutional amendment during the regular, 60-day session.
The Mingo County Democrat cited the $100 million general revenue shortfall that Manchin administration officials warn may occur if recession-weakened tax collections continue their dismal trend. Lawmakers fear the deficit threat may grow even larger before the budget year ends June 30, White said.
"I can't see the Legislature taking that up right now," White said at the Capitol, where lawmakers were meeting for interim study sessions. "I don't think the Legislature is going to be in any mood for any tax increases, either."
The work group did vote to propose several measures to Manchin, including making it easier for homeowners to get tax credits for using solar energy and simplifying the property tax credits available to senior citizens.
Other measures suggested by the work group include increasing the number of taxpayers required to file electronically and studying a variety of tax-related issues, from coal to local sales taxes.
Associated Press Writer Lawrence Messina contributed to this report from the statehouse.