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County Revenue Replacement At Heart Of Senate Manufacturing Equipment Tax Rollback Debate

Will Price
West Virginia Legislative Photography

The introduction of a proposed state constitutional amendment that would repeal a tax on manufacturing equipment and Inventory sparked conversation Tuesday in the West Virginia Senate. 

Senate Joint Resolution 8, titled the “Manufacturing Growth Amendment,” was introduced Tuesday in the Senate. Such an effort has become a perennial issue in recent years — and offered in various forms — under the GOP-controlled legislature, but has yet to clear both chambers. 

While Republicans say the tax is a hindrance to developing the state’s economy, Democrats question how the estimated $100 million-plus in annual revenue, which funds education at the county level, will be replaced.

Sen. Mike Romano, D-Harrison, kicked off the discussion, arguing that the proposed tax repeal would require the GOP majority to work with Democrats. He also said the repeal would leave many unknowns, including the total loss of revenue and how it would be made up.

“There should be a fiscal note attached to this, we should be able to make our decisions based on the facts, not hyperbole,” Romano said. “As a former county commissioner, I can assure you that — if we eliminate the business personal property taxes with no replacement, with no replacement at all, except our word that we're going to make it up from the General Fund, which is about as good as the next budget crisis — we're going to bankrupt counties.”

But Republicans such as Senate Finance Chair Craig Blair, R-Berkeley, remain optimistic about repealing the tax without jeopardizing the financial well-being of local governments.

Blair explained that he believes the repeal of the manufacturing equipment and inventory tax could spur economic development and bring in revenue from businesses coming into the state. He also acknowledged that a mechanism to funnel money to counties was not yet in place in the resolution as it was introduced, but said they would work alongside Democrats as the measure makes its way through the legislative process. 

“I can't stress this enough: we've got to get off the severance tax roller coaster that we've been living on and get us on an escalator to prosperity for all people in West Virginia without hurting him,” Blair said. “We don't have all the answers in the plans that we have right now — with the resolutions coming forward. But, I'm quite confident with the 34 members that we have in this body that we can come out with the plan.”

Sen. Paul Hardesty, D-Logan, cautioned Blair and other Republicans who’ve said they anticipate natural economic growth to account for the loss of revenue currently coming in from the manufacturing equipment and inventory tax. He also pointed to struggling counties in the southern part of the state. 

“I'm a three-term former member and president and I’ve balanced the school board budget. I'm also a former county administrator. I've done budgets for county government,” Hardesty said. “If you want our help on this side of the aisle — and I'm gonna go ahead and take this latitude for my colleagues — don't come to me with the growth story that we're going to make up all this money by growth. Because, in southern West Virginia, that does not resonate.”

Sen. Eric Tarr, R-Putnam, argued that the decline of the coal industry and related severance tax revenue — has forced the state to diversify its economy. He said the repeal of the manufacturing equipment tax would create new economic opportunities and expand the state’s gross domestic product. 

“We all have constituents that have needs from the state's function — from what we do with governance. From the less-abled individuals that are in our constituency to the people that are needing assistance getting back into the workforce -- the people, the single mothers that need the help,” Tarr said. “That only happens — you can only grow the ability to serve them — if you grow GDP. Otherwise, it doesn't happen.”

In a 2017 study published in Economic Development Quarterly, Sian Mughan and Geoffrey Propheter analyzed a similar manufacturing equipment and inventory tax repeal in Ohio, which was phased out beginning in 2006. That study shows that Ohio lost manufacturing jobs when they repealed their Tangible Property Tax. 

Joint resolutions require the approval of a two-thirds majority of both the Senate (23 of 34 members) and House (67 of 100 members) before needing a simple majority West Virginia voters to amend the constitution.

Senate Joint Resolution 8 has been referred to the upper chamber’s Judiciary and Finance committees.

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