CHARLESTON – The Senate Finance Committee modified the House Income Tax House exit Tuesday to create a compromise between the house plan and Governor Jim Justice’s plan.
The Senate Finance Committee on Tuesday passed an amendment to House Bill 3300 that addresses the general reduction in income tax rates. The committee vote was 9-8 with Senators Eric Nelson (R-Kanawha) and Patrick Martin (R-Lewis) along with members of the Democratic Committee voting no.
The Senate version of the bill appears to combine parts of the house plan with House Act 2027 and Senate Act 600, the judiciary’s tax reform plan first unveiled during his state-of-state speech at the beginning of the February 10 session.
“We are at a critical time right now” said Eric Tarr, chairman of the Senate Finance Committee, R-Putnam. “We’re seeing people moving to West Virginia from all over the country. This greatly reduces the tax burden for someone who wants to live and work in West Virginia.”
The Senate plan would cut income tax rates by more than 50 percent, even for small businesses and sole proprietorships, but not for investment income. The plan would cut income tax revenues by $ 1.09 billion.
By comparison, the governor’s plan would cut personal income tax rates by 60 percent for individuals, but keep tax rates the same for pass-through business and capital gains. It also includes a tax break for families and individuals earning less than $ 35,000 per year.
The house plan will gradually abolish income tax for the first full year and annually until the tax is removed by $ 150 million.
To fund the personal income tax cut, the Senate version of HB 3300 would increase consumer sales and consumption tax from 6 percent to 8.5 percent – more than Justice’s plan to increase sales tax to 7.9 percent. An 8.5 percent increase in sales tax would bring in more than $ 643 million a year.
Both the Senate and the governor’s plans would remove sales tax exemptions for services commonly used by businesses. The Senate amendment would remove exemptions from lottery ticket sales, software sales, downloaded digital products, electronic computing, advertising, and health and fitness memberships for computer hardware.
It would also remove exemptions for legal services, accounting services, and architecture and engineering services, but tax those services at 3 percent. The food tax would be reintroduced at 2.5 percent, and that on prepared foods at 8.5 percent. The new taxes include a 4.3 percent tax on short-term accommodation and an 8.5 percent tax on contingent liabilities. A new scratch game would also be created for the lottery, the proceeds of which would be dedicated to reducing income taxes.
In the Senate version, the 1 cent soft drink tax was lifted, but was restored through an amendment made by Senator Mike Maroney, R-Marshall. This tax, amounting to $ 15 million annually, goes to the West Virginia University School of Medicine.
“The income tax cut can be a huge population growth and economic stimulus for the state of West Virginia.” Said Maroney. “I had concerns… one was raised with the amendment. No bill is great for everyone … but this could be a big deal for West Virginia. I want to support this bill. “
The Senate amendment will also create a fund similar to the house’s income tax reduction fund, known as the SAFER fund (Stabilization and Future Economic Reform).
When the balance of the SAFER fund reaches $ 100 million, $ 50 million will be deposited into the general income fund, keeping the fund between $ 50 million and $ 100 million. The transfer would lower income tax rates by 12.5 percent in the following fiscal year. The revenue for the SAFER Fund would come from increases in tobacco taxes, steam and e-cigarette taxes, and other tobacco products. These tax increases would raise more than $ 73 million for the fund.
The bill also provides for the possible legalization of recreational cannabis and creates a tax structure in the event that the state or federal government takes these measures. The bill would delegate regulation of medicinal and recreational cannabis to the Department of Agriculture by July 1, 2021.
The Senate Finance Committee estimated the additional tax hikes would raise more than $ 932 million to offset the personal income tax cuts. In a report released Tuesday morning, the tax foundation estimated that revenues would be closer to $ 890 million without revenues for the SAFER fund. That leaves a $ 200 million gap that natural growth in government tax revenue could fill.
“I think there’s a lot of good in this bill.” said Jared Walczak, vice president of state projects at the tax foundation, who attended the committee meeting via video conference. “I think there are things that deserve further consideration. I believe that trying to reduce the tax pyramid associated with taxing corporate inputs is really important, and that slower adoption of tax cuts can be an appropriate compromise in attempting to address these issues. “
Steven Allen Adams can be reached at email@example.com
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