A broad group of companies says they have real reservations about Governor Jim Justice’s grand tax plan.
The Economic and Industrial Council distributed a memo to lawmakers this morning setting out these concerns.
Mike Clowser
“We all agree that abolishing income tax is a laudable goal, but BIC members believe that study, debate and public input are needed to develop a comprehensive tax restructuring plan,” the organization stated in Memo signed by Chairman Mike Clowser.
The Business and Industry Council represents retailers, manufacturers, gas and mining companies, contractors, auto dealers, professional services, hospitals, brokers, foresters, beverage and beer wholesalers, telecommunications providers, and more. That broad base makes it influential to West Virginia lawmakers.
BIC has been an ally of justice in its Roads to Prosperity efforts, which culminated in a vote by the citizens of West Virginia to borrow West Virginia money to improve highways.
The current proposal states: “We welcome Governor Justice’s initiative to do everything in his power to make West Virginia the most attractive state in the country to live and work in. However, our members are concerned about the impact of this income tax plan on every West Virginian and West Virginia business. ”
The memo contained several bullet points on corporate concerns in West Virginia.
The governor is proposing a 60 percent cut in state income tax, suggesting this will be a splash that will fuel population growth. He wants to completely remove the tax within three years and rely on this growth.
Income tax makes up about $ 2.1 billion of the state’s tax base, about 43 percent of the general fund for government services such as education and healthcare.
An overview of the governor’s plan estimates the initial personal income tax cuts of $ 1,035,650,000 and discounts of $ 52 million for lower-income residents – but also tax increases of $ 902,600,000 to offset most of those breaks .
The proposal would also impose a number of other taxes, including on soft drinks, tobacco, beer and wine. And Justice suggests taxing some professional services for the first time, including law firms, accountants, gyms, and more. He also advocates a “luxury tax” on some items that cost more than $ 5,000. And he proposes a tiering of severance taxes on coal, oil and natural gas that pays more when the markets are better.
Governor Jim Justice
Justice refers to the extra taxes than pulling the rope.
“For this to really work, we all need to pull the rope together as West Virgins,” he said in a document distributed this week.
The Business and Industry Council agrees that the tax plan could help individuals who pay income tax. But it was said that many companies would not benefit from it.
This is because the governor’s proposal specifically exempts Schedule C companies – essentially those classified as sole proprietorships – from the income tax cut. However, many of these companies would be subject to new sales taxes under the plan.
“The proposal reduces the personal income tax liability of an individual wage earner based on his income level, but does nothing to benefit a company,” the organization wrote.
“The majority of businesses in West Virginia operate as sole proprietorships, limited companies, limited partnerships, or partnerships. To our understanding of the proposed legislation, the owners of these companies will not benefit from the plan. “
BIC members highlighted several areas directly related to legislation, including:
- West Virginia will have the highest state consumer sales tax rate in the nation at 7.9 percent (or 8.9 percent for counties with a one percent local sales tax). With 60 percent of West Virginia’s population living on the border and border state sales taxes ranging from 5.3 to 6 percent, this legislation could encourage citizens to cross the border to make purchases, harming existing state-owned companies.
- The legislation would significantly increase taxes on tobacco products, beer, wine, liquor and soft drinks. West Virginia consumers would pay more for these products or, for those living near our borders, make these purchases outside of the state. West Virginia has done an excellent job building the craft beer industry. This will make West Virginia retailers and brewery businesses less competitive and hurt sales.
- Companies that do not currently pay consumer sales tax and fall under the professional services category (law, accounting, advertising, etc.) must do so. Only three states in the country tax professional services, and the impact of this will cause professional service companies in West Virginia to become less competitive and / or consider moving operations out of the state. In addition, this class will be adversely affected in three ways: 1) new tax on professional services; 2) increase in consumer sales tax; and 3) paying increased taxes on other goods provided for in the proposed plan.
- The bill includes a tax on “luxury items” (jewelry, boats, ATVs, appliances, furniture, electronics, etc.) starting at $ 5,000 and applying to the total of items sold. West Virgins, given the additional tax, may choose to buy these items in a surrounding state, harming the state-owned companies currently selling these products and resulting in low tax revenues for the state.
- The compensation for coal, gas and oil is taxed on a tiered basis, which means: “If the market price rises, they pay more and if it falls, they pay less”. The market prices for these resources are complex and West Virginia is already taxing these resources at some of the highest tax rates among its peers, potentially placing these industries in a less competitive position. The oil and gas and mining industries are currently examining what impact this will have on our already ailing coal and gas workers.
- The proposed legislation leaves a funding gap of nearly $ 150 million (the difference between the amount income tax brings in today and the amount the governor’s proposed tax increases would contribute). Legislators would have to find significant cuts in government services or programs to make up for the difference.
The judiciary was asked during a town hall event last week about concerns about how its tax plan would affect businesses. “I just read your proposal and it will kill a lot of companies like mine,” said one citizen identified as Greg von Kenova.
The judiciary responded, as he did with many questions to pledge population growth to address the concern.
“If you’re one of the professionals we’re talking about and you put you in the same category as a plumber or an electrician who pays the tax all the time, just step back and think about it. For the most part, the richer people use these services more than the poorest. The richer people will be able to afford a slight increase more easily than the people in our lower brackets.
“From a professional services standpoint, you can pass the tax we levy on professional services if you wish. Or, if you choose to be very, very competitive with your neighbors, you can find a way to maybe eat some of them yourself. But the biggest thing that will happen is just this: if you have X business today, if we do this and bring you multiple business, won’t you be better off? “
Concerns have emerged about the business impact of the plan in speeches to lawmakers and analysis from tax experts overseeing changes at the state level. One analyst predicted the West Virginia tax proposal could raise corporate taxes up to $ 330 million.
Patrick Reynolds
The Council on State Taxation, a not-for-profit trade association representing multistate corporations, also today expressed concern that “the proposal will ultimately shift the overall tax burden of the state from individuals to corporations.”
“The proposed increase in sales tax from 6 percent to 7.9 percent (a 32 percent increase) and the expansion of the tax base to include professional services would place a disproportionate burden on companies,” wrote Patrick Reynolds, senior tax counsel at the Council on State Taxation.
Currently, according to the organization, about 44 percent of its sales tax revenue comes from West Virginia from taxing business-to-business transactions.
“The bill would increase that percentage and increase the overall corporate tax burden,” Reynolds wrote. “The increased tax burden on corporate inputs is likely to prevent increased business activity (investment and jobs) in the state.”
Another analyst also concluded that West Virginia’s tax proposal would mean an overall boost to business.
Ryan Maness
Ryan Maness, senior policy analyst and tax advisor at MultiState, a state and local government relations firm, drew this conclusion in a post titled “West Virginia Tax Reform Wears a Historic Award for State Enterprises.”
While individuals will see a tax cut, Maness concluded, state-owned companies will be hooked for about $ 230-330 million in new taxes.
Maness also looked at the taxation of business-to-business transactions and the newly taxed professional services.
“When lawmakers in West Virginia are assessing whether this bill is the way to go for their state, they should have a clear view of all the costs and benefits,” wrote Maness.
“While individual taxpayers will see a net tax cut, tax increases in job creation could do more harm to people than a modest individual income tax cut.”