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West Virginia Senate passes competing tax cut plan

With the 2023 legislative session halfway complete, members of the state Senate on Wednesday passed their counterproposal to the tax cut plan presented by Gov. Jim Justice and passed by the House of Delegates early in the session.

The Senate passed a committee substitute for Senate Bill 424 on a 33-0 vote Wednesday afternoon, sending the bill to the House.

The Senate Republican Caucus held a press conference Wednesday morning in front of the Senate Chamber to announce and explain its comprehensive plan to cut a variety of taxes, including the personal income tax. The Senate plan would return more than $600 million to taxpayers if implemented.

“What we believe we’ve put together is a very comprehensive, safe tax reduction plan that is as wide as we could possibly make it to capture and help the vast majority of West Virginians across the state of West Virginia,” said Senate Majority Leader Tom Takubo, R-Kanawha.

The Senate Republican plan includes a 15% across-the-board cut to personal income tax rates effective Jan. 1, 2024. The plan includes triggers to further phase out the personal income tax. When the state’s consumer sales and use tax brings in at least 105% more than the previous fiscal year’s collections, it would trigger a dollar-for-dollar decrease in the personal income tax beginning in 2025.

“It starts at 15% and that’s just the beginning of it,” explained Senate Finance Committee Chairman Eric Tarr, R-Putnam. “There are triggers in this, a trigger that goes as our economy grows here in West Virginia. … It creates a smoothing mechanism to safely bring down our income tax to zero.”

More than 42% of the state’s $5.9 billion in tax collections for the general revenue budget in Fiscal Year 2022 ending last June came from more than $2 billion in personal income tax collections. A 15% personal income tax cut would return approximately $375 million to taxpayers.

The personal income tax plan is the Senate’s answer to Justice’s 50% personal income tax cut — House Bill 2526. Justice’s plan starts with a 30% cut retroactive to Jan. 1, then 10% in tax year 2024 and another 10% in tax year 2025. It also includes a $700 million fund in case of financial downturns while the state phases down the personal income tax.

According to a fiscal note from the Department of Revenue, HB 2526 would return more than $1.4 billion to taxpayers when fully implemented. The House passed the bill 95-2 on Jan. 18, but Senate Republican leaders have expressed concerns about the long-term viability of putting a $1.4 billion hole in the general revenue budget even with projections of $1 billion tax surpluses through fiscal year 2027 as long as the general revenue budget stays relatively flat.

“We were trying to figure out how we could do the 30-10-10,” Blair said. “Where we ran into a problem…was being able to have the resources long-term knowing that we weren’t going to increase taxes on the people into the future.”

The Senate Republican plan includes a rebate — in the form of a personal income tax credit — to taxpayers for the payment of tangible personal property taxes on motor vehicles. According to the West Virginia Association of Counties, the total county real tax dollar assessments for vehicles in tax year 2021 was $135.8 million.

The plan also includes a 50% tax rebate in the form of a personal income tax credit for the payment by small businesses on tangible personal property taxes on machinery/equipment; inventory; leasehold investments; computer equipment; and furniture and fixtures effective Jan. 1, 2024.

Tarr said the 50% personal income tax rebate would only apply to small businesses, sole proprietorships and pass-through entities that pay tangible personal property taxes on machinery/equipment and inventory. The tax rebate excludes corporate net income taxes, which applies to every domestic or foreign corporation doing business in West Virginia that are taxable as corporations under federal income tax laws.

It is unclear how much tax dollars would be returned through the 50% rebate on machinery/equipment and tangible personal property taxes. In tax year 2021, counties assessed more than $303.1 million in machinery/equipment and tangible personal property taxes combined.

County/city governments and county school systems rely on property taxes, including tangible personal property taxes, for tax revenue. But the rebates would allow counties to collect tangible personal property taxes up front, with taxpayers being reimbursed when they file their personal income taxes. The reimbursement to taxpayers would come from the state’s $4.6 billion general revenue fund.

During the fight leading up to November on Amendment 2, a failed state constitutional amendment that would have given lawmakers the authority to eliminate six categories of tangible personal property taxes, Justice first proposed a tax rebate on vehicle tangible personal property taxes. Senate Republicans, who preferred to see Amendment 2 pass and introduce their own tax cut plan, were not fans of the rebate idea at the time.

The plan would also eliminate the so-called “marriage penalty” for tax filers by collapsing the tax brackets so that those filing married filing jointly and individual tax rates are the same, and a homestead real property tax exemption for military veterans who are 90% to 100% service-disabled. The Senate Republican tax plan received praise from one of the three-member Senate Democratic caucus.

“It does a very good job of being very responsible in taking the next steps,” said Senate Minority Whip Robert Plymale, D-Wayne, “This measured approach allows us to still continue and give back something to people. But it also does something for businesses where it will allow us to grow the businesses that we’ve been able to grow. And I think it’s a very responsible plan.”

The proposal also received praise from the West Virginia Chamber of Commerce, an organization that supported the Senate and passage of Amendment 2.

“Reducing our personal net income tax rate is important because the numbers that are on the table here help make us more competitive.” said Chamber President Steve Roberts. “I’d also like to say that there’s a lot in this for consumers. The rebate of the auto tax is very, very important. There’s also a lot in this for small businesses, the opportunity to pay less tax on capital investment…So the proposal that is being outlined today does those things.”

Speaking Wednesday during his virtual administration briefing from his office in the State Capitol Building, Justice was appreciate to the Senate for presenting their plan. Justice and leaders of the House and Senate are meeting for breakfast Thursday morning to discuss the proposal and develop a compromise.

“Today, we thank the Senate,” Justice said. “We thank President Blair for coming to us with a proposal. There’s absolutely a lot of really good stuff in it. Now, we can get everybody on board and get to a compromise or get to a solution here.”

Speaking prior to the House floor session Wednesday, House Finance Committee Chairman Vernon Criss, R-Wood, said he had not yet reviewed the details of the Senate Republican plan but House members would give it a thorough review.

“We will take a look at it, whatever they present, once it gets over here and we receive it, then we’ll take a look at it in its entirety,” Criss said.

Senate Health and Human Resources Committee Chairman Mike Maroney, R-Marshall, said he believes the Senate Republican tax cut plan combines all the best ideas from his Senate colleagues, the House, and Gov. Justice.

“I really think this is a great tax relief plan for basically all of West Virginia,” Maroney said in an interview Wednesday afternoon. “When this process, the Senate had a plan, the Governor had a plan. The House had a plan. I don’t know if they were all right or all wrong, but this plan is a comprehensive collection of all those plans together…the best parts of each and every plan. Instead of digging down into the sand and having a firm stance, we decided to come out with a compromise.”

Story by Steven Allen Adams, Parkersburg News, WVNews


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