Lawmakers Wait on Another Tax Reform Proposal as Special Session Continues

May 15, 2017

Both the House and Senate gaveled in around 11 am Monday, but without the final version of a new tax reform bill, delayed their action into the afternoon, and then into Tuesday.

Senate President Mitch Carmichael said the legislation was sent by the Governor’s Office to bill drafting—an arm of the state’s legislative services division—but was in the wrong format and staffers needed additional time.

While the tax reform plan has not been officially presented, Carmichael said Monday it is similar to a measure passed in his chamber two weeks ago with some slight alterations.

The latest version would increase the sales tax to 6.85 percent instead of the initial 7 percent proposed by the Senate.

It spreads the lowering of the personal income tax rates out over two years and no longer includes a hike in the corporate net income tax.

Instead the bill would charge a sales tax on the purchase of communication equipment, like cell phone towers, and mineral transmission equipment, like that used to build natural gas pipelines.

Gov. Jim Justice has also introduced a bill to increase the sales tax on motor vehicle purchases from 5 to 6 percent to fill a budget gap in the 2018 fiscal year that’s some $450 million wide.

House Finance Chair Eric Nelson, right, speaks with Del. Steve Westfall on the House floor.
Credit Perry Bennett / West Virginia Legislative Photography

Carmichael said most of the changes were concessions made by the governor and the Senate to House leadership, but he’s still not sure if the chamber will pass the bill, a bill he said is necessary to balance the 2018 budget.

"For those who want to say no, it’s an incumbent upon them to offer an alternative. Saying no is not an alternative,” he said.

For now, House Finance Chair Eric Nelson said members of his caucus are saying no, for a simple reason.

“Not only are we looking at the '18 budget, but we’re looking at '19, '20 and '21, and we aren’t doing the citizens of West Virginia the correct service when year after year we’re worried about a budget instead of making it structurally sound and moving forward,” he said.

While the version of the tax reform plan likely to be introduced Tuesday does not have the accompanying analysis on its long-term impact, previous versions of the same bill showed it resulted in a balanced budget in 2018 and potentially 2019, but returned to large budget deficits in the future.

Carmichael believes those budget deficits will be filled by future economic growth.

“[The projections] underscore the fact that it’s a tax cut, and secondly it underscores the fact that this governor and the Senate are committed to the growth that these bills will produce,” he said.

Nelson said House leadership does want to reduce the personal income tax, but isn’t willing to do so at the expense of raising the sales tax. That’s because, he said, delegates in border counties are worried about the loss of revenue when consumers make their purchases in other states to avoid the increased rate.

The House has not introduced its own plan to resolve the budget crisis, but Nelson said his Finance Committee is continuing its work first thing Tuesday morning.