Commentary: Stephen G. Roberts

State Reform: Businesses Need Tax Restructuring

The Charleston Gazette, July 14, 2006

Representatives from business, labor, education, state and local governments and citizen groups gathered in Charleston last week to discuss West Virginia ’s tax structure and to deliberate on what changes are needed to modernize our system of taxation.

The driving force behind this is Gov. Joe Manchin, who is continuing to lead West Virginia into the future by tackling important issues. Gov. Manchin and his top leaders have been undertaking a complete analysis of our state tax structure to see where changes are needed. They are expected to release a report sometime this fall.

One area in particular where West Virginia needs to “modernize” its taxing situation is on large and small businesses. West Virginia ’s overall tax burden on businesses is one of the highest in the nation. West Virginia has one of the highest business tax rates for its Corporate Net Income Tax and is one of a handful of states that also imposes a Business Franchise Tax. As such, West Virginia continually ranks near the bottom in national studies regarding tax friendliness for business.

This situation is validated in a recent tax study completed by the Council On State Taxation. Periodically, the council analyzes state and local tax rates on business. The new study shows that in fiscal year 2005, West Virginia ranked among the highest states in terms of state and local business taxes as a percent of private-sector economic activity. West Virginia ranked third highest at a rate of 6.6 percent, equal with North Dakota . Only Wyoming (at 9.6 percent) and Alaska (at 9.3 percent) ranked higher. In addition, West Virginia businesses pay the highest percentage of local taxes — 80.3 percent — than in any other state.

For our state businesses to grow and invest, West Virginia ’s leaders must address the state’s high business tax burden. West Virginia ’s leaders have taken bold steps over the past several years to enact reforms in other key areas such as workers’ compensation, medical malpractice, civil justice and general insurance. Now it is time to fix the state’s business tax structure.

A special tax subcommittee of the West Virginia Chamber of Commerce is completing work on a plan that will focus not only on needed reforms to the state’s business tax structure, but also on how to make the state’s business community more competitive and healthier.

The committee is zeroing in on business taxes and rates that have made West Virginia uncompetitive with other states and will be recommending specific tax code changes that will improve our standing.

I want to note that our changes, which likely will result in short-term tax revenue reductions, must be coupled with other changes in order to preserve state government’s ability to generate sufficient revenues to meet its obligations. The business community is convinced that tax reform must be done in step with cutting expenses, restructuring government and generating greater outcomes.

As part of this, the chamber is examining the essential services state government must provide and developing ideas on how these can be done more productively. Using technology more broadly and effectively is one way to streamline government and improve outcomes. Many, many businesses have invested in and adopted technology in just the same manner.

I congratulate the state Tax Department for the efforts it has been taking to help educate diverse groups and to stimulate discussions about the state’s major revenue sources and the way the state spends its money. This is desperately needed because, as the state Tax Department has indicated, West Virginia is reaching its breaking point when it comes to taxation.

I suspect that few West Virginians know that two-thirds of the general revenues are swallowed by public and higher education, and I doubt if the public prefers to step backward on how students are prepared for life. However, many members of the chamber think the state should be producing better educational outcomes in a more cost-effective manner.

Some people are proposing that we should focus on the constitutional issues involved with the manner in which West Virginia raises taxes and funds public education. They cite the fact that West Virginia is one of the last states, if not the last state in the nation, that still funds its public school system within a rather strict constitutional framework of how property taxes are levied from county to county.

The view that we are taking is that all of us — business, labor, education, government — need to look at both the spending side and the taxing side and come up with recommendations that modernize West Virginia’s systems so the entire state benefits, particularly from a job and economic point of view. The key will be to strike a balance so core services are maintained under a new tax structure that is designed to make the state more competitive for future growth and development.

The goal of the West Virginia Chamber of Commerce is to strengthen our state’s competitive situation so all West Virginians will enjoy greater opportunities and a better quality of life in the future.

Roberts is president of the West Virginia Chamber of Commerce.