Personal Taxes

West Virginia Governor’s proposed discount in revenue tax

In his 2021 state speech, West Virginia Governor Jim Justice proposed the abolition of state income tax. While he did not have details in his address, the general framework was to halve the rate for most Western Virgins and to cut the rate for the “super high earners” by 1/3. In conjunction with the income tax cut, Governor Justice discussed increasing state sales and use tax by 1.5%, staggering tax rates for commodity producers to allow them to pay a higher tax rate when commodity prices are robust and broadening sales – and tax base through taxation of professional services.

Governor Justice’s announced plans followed public statements from new Senate President Craig Blair expressing a desire to eliminate West Virginia income tax. Governor Justice hosted a series of virtual town halls asking for contributions from citizens of the state, but he had yet to provide a bill. Finally, on March 4, 21 days after the beginning of the 60-day legislature, the governor submitted his bill to the legislature. Although the full version of the bill has not yet been published on the legislature’s website, it is on the Gov. Justice is available, and the full version of the bill is expected to be available on March 5th.

A summary of the bill provides a good summary of the provisions of the bill:

  • A 60% reduction in income tax, which is currently taxed on a tiered schedule with a minimum rate of 4% and a maximum rate of 6.5%
    • Applies to wages and salaries and pensions, annuities, social security, and unemployment only (note that West Virginia began phasing out state social security income tax in fiscal 2020).
    • The reduction does not apply to corporate profits, rents and royalties, pass-through business profits, capital gains, agricultural income, additional profits and losses, taxable interest or dividends
    • It is estimated that general revenue collections will be reduced by over $ 1 billion
  • Increase state sales tax from 6.0% to 7.9%
    • Over 50 communities in West Virginia have local sales and use taxes, so the effective tax rate in those communities is 8.9%
    • West Virginia’s state rate of 7.9% would be the highest in the United States (only the Commonwealth of Puerto Rico has a higher rate)
    • Estimated increase in sales and use tax revenue of $ 475 million
  • Extend the VAT assessment base by:
    • Computer hardware and software, select advertising, electronic data processing, health and fitness memberships, and sale of lottery tickets
    • Legal, accounting and other professional services (probably excluding medical services). West Virginia would be the only state east of the Mississippi to levy sales and use taxes on professional services
    • Estimated increase in collections of $ 180 million
  • Impose a tax on luxury goods
    • It is expected that vehicle sales will not be subject to luxury goods tax
    • Estimated increase in collections of $ 20 million
  • Increase the current severance tax of 5% on natural gas via staggered rates that rise as the raw material price rises, and vice versa
    • While the rate is staggered, the historic price of natural gas over the past decade would lead to a rate of more than 5%
    • Estimated to add $ 12.5 million to revenue collections
  • Control “wet gas” with a tax rate of 6.5%
    • Wet gas is generally produced by horizontal wells in the Marcellus and Utica Shale Formations in West Virginia
    • Estimated to add $ 5 million to revenue collections
  • Imposition of graduated severance tax rates for coal production
    • For thin-seam coal formations, revenue collections are estimated to increase by $ 7.5 million
    • Metallurgical coal and steam coal produced from deeper formations are expected to increase collections by $ 16 million
  • Imposition of graduated severance tax rates for oil production
    • Estimated to add $ 1 million to revenue collections
  • Raise taxes on cigarettes, tobacco products, and e-cigarettes
    • The tax on cigarettes would increase from $ 1.20 / pack to $ 2.25 / pack
      • Estimated to add $ 70 million to revenue collections
    • The tax on tobacco products would increase from 12% of the wholesale price to 19.5% of the wholesale price
      • Estimated to add $ 8.2 million to revenue collections
    • The tax on e-cigarettes would increase tenfold, from 7.5 ¢ / ml to 75 ¢ / ml
      • Estimated to add $ 8 million to revenue collections
    • Raise beer keg tax from $ 5.50 a barrel to $ 29.25 a barrel
      • Estimated to add $ 26 million to revenue collections
    • Raise the wine tax from 26,406 ¢ / liter (or $ 1 / gallon) to $ 4 per gallon
      • Estimated to add $ 5.5 million to revenue collections
    • Increase the wholesale spirits surcharge from 28% to 39.25%
      • Estimated to add $ 5.4 million to revenue collections
    • Increase the tax on soft drinks
      • From 1 ¢ / 9 fluid ounces to 6 ¢ / 16.9 fluid ounces
      • From 80 ¢ / gallon of syrup to $ 4 per gallon of syrup
      • From 1 ¢ / 28.35 g dry mix to 5 ¢ / 28.35 g dry mix

It is noteworthy that many of these concepts were part of Governor Justice’s massive proposed tax hike in 2017, the first year of his first term as governor. These proposals to increase sales tax, to broaden the sales tax assessment base, to levy trade tax and to increase taxes on beer and spirits met with opposition in the legislature and were not implemented. The tiered natural resource severance tax proposed by the governor suffered a similar fate in 2017.

It is noteworthy that in 2017 Governor Justice was a registered Democrat and the legislature was under Republican control. The judiciary switched parties and later registered as Republican in 2017. Republicans currently have a super majority in both the House and Senate. It remains to be seen whether this will tip the balance in favor of tax legislation that includes over $ 900 million in tax increases and new taxes across a wide range of industries.

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