WV Capitol

In recent weeks, several iterations of tax reform have been debated in the West Virginia House and Senate aimed at broadening the base and lowering rates.

This week, the House Finance Committee amended Senate Bill 484, which now accomplishes many of the original stated goals of the House effort on tax reform, an effort that fell short just a week ago – with one major difference. Unlike the House’s first stab at this, the new version achieves net tax reductions as a sales tax rate cut is phased in beginning next year. Last week’s plan without amendments would have been a $215 million tax increase over 3 years.

The amended Senate Bill 484 bill does raise revenue in year one, to the tune of $137 million generated as a result of expanding the application of the sales tax to telecommunications services, several personal services such as barbering and hair washing, and some forms of contracting services. That base broadening and new revenue, however, is more than offset in future years as a statewide sales tax cut is phased in. These rate cuts are required as a matter of law and should be counted as offsets for the immediate revenue increase. Here’s what the amended SB 484 achieves, according to estimates provided by members of the House Finance Committee and Deputy Revenue Secretary:  

Year                State Sales Tax Change        Revenue Impact

July/Oct’ 17   Base broadening                   $137 million in new revenue

July, ‘18          Rate cut from 6% to 5.5%    $98.5 million tax cut

July, ‘19          From 5.5% to 5.25%             $206 million tax cut

Through 2019, this law would result in a net tax cut of more than $167 million dollars. The sales tax rate reductions in future years are not merely promises; they are requirements if SB 484 passes that would take a new law passed by the House and Senate and signed by the Governor to prevent their implementation. As such, ATR considers the reductions to be adequate offsets for the 2017 revenue hike. Legislators who have signed the Taxpayer Protection Pledge will not be in violation of that written commitment to taxpayers if they vote for SB 484, which moves in the right direction towards tax relief for West Virginia citizens.

The tax cuts don’t stop here, however. If sales tax revenues exceed the 2017 figures after 2019, a revenue trigger would kick in that further reduces the state sales tax in the year following higher tax collections. Here’s how that could look:

Year                State Sales Tax Change                Revenue Impact

July, ‘20          Rate cut from 5.25% to 5%          $258 million tax cut

July, ‘21          Rate cut from 5% to 4.75%          +$250 million tax cut

It’s important to note that these future tax cuts only take effect if future revenue collections exceed current collections (2017), after the phased-in tax cuts. As such, they are responsible caps on future spending should economic growth fuel increased consumption of goods and services in West Virginia.

This amendment was accepted by a 53 to 46 vote on Tuesday night and is up for a full vote in the House today. ATR applauds the work of the House Finance Committee and the effort to reduce the net tax burden on West Virginia taxpayers. ATR will update this post when an official revenue estimate is made available.