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G-Comm™: Hoppy’s Commentary - WV Taxes: Progress, But Still A Ways to Go

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Here’s another reason to celebrate the New Year. The final portion of West Virginia’s regressive Business Franchise Tax is coming off the books.

The state Legislature began phasing out that tax, as well as reducing the state’s Corporate Net Income Tax, in 2011.  Over the last five years the franchise tax has been reduced from .34% to zero while the corporate net has been brought down from 8.5% to 6.5%.

The 1999 Governor’s Commission on Fair Taxation’s comprehensive review of the state’s tax code called the franchise levy “anti-growth, anti-capital,” particularly for small businesses, that reduced the state’s competitiveness.

Governor Tomlin, who was the Senate President when the tax improvements were made a few years ago, was among those who supported the tax reductions

“The Business Franchise Tax, created in 1987, was one of the taxes that made it difficult for West Virginia to compete for new and expanding business,” Tomblin said in a statement Tuesday.  “Coupled with the reduction in the Corporate Net Income Tax and the dramatic decrease in workers’ compensation rates, these changes have helped our state secure additional investments and will continue to pay dividends now and for years to come.

The Governor is correct. The franchise tax was little more than a cash grab from business for the “privilege” of doing business in the state.  The corporate net was way too high.  The current rate, however, is closer to, or lower than, the rates of our surrounding states.

These reductions have prompted the non-partisan Tax Foundation to rank West Virginia as having the 21st best tax climate in the nation, a significant accomplishment for a state that struggles to present a business-friendly environment.

There’s more work to be done, however.  The personal property tax on inventory and machinery puts the state at a competitive disadvantage.  According to the Commission report, “The tax is complicated, difficult to enforce, inequitable and discriminatory in that only certain entities are typically monitored for compliance.

Also, the state’s Consumers Sales Tax is badly outdated.  It was added in 1931 as a tax on tangible goods, but over the years the economy has shifted from making things to providing services. Dozens of these services are exempt from the sales tax.  Ideally, this tax would be broader with a lower rate.

These additional tax changes should be right in the wheelhouse of the new Republican majority at the statehouse, but I’m not sure they want to tackle taxes in the session that begins in just two weeks.  GOP leaders know they need the revenue from the inventory tax to help balance a strained budget, and they haven’t likely had time to put together a complicated and controversial reform of the sales tax.

Governor Tomblin is rightfully crowing about the tax updates that have been made.  “I’m confident our state’s economy and business climate will continue to grow far in the future,” Tomblin said.  What he does not add is that we still have some unfinished business.

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