When it comes to tax policy during the 2022 West Virginia legislative session, what is most notable is arguably what didn’t become law rather than what did, as once again a bill seeking to eliminate the state’s personal income tax failed to pass. However, a number of other tax bills did make it through the legislative process. The impacts of the bills vary, with some having small, immediate impacts, and others having potentially large, future impacts. And while the Legislature and governor passed and signed their second consecutive year of a “flat budget” with no new investments for workers and families, lawmakers had no issue passing new tax incentives and credits for businesses that have the same impact on the state budget as new spending, making future investments all the more difficult to commit to. Here is a recap of those bills.
Municipal Business and Occupation Tax Cut (HB 4567): HB 4567 phases out the municipal business and occupation (B&O) tax on businesses selling new cars over the next three years. The bill was passed without a fiscal note estimating the bill’s financial impact on municipalities across the state. However, the bill’s sponsor indicated that HB 4567 is just a first step to fully eliminating the municipal B&O tax, which accounts for up to 40 percent of total revenue for some municipalities, raising concerns from local government officials.
Natural Gas Property Valuation (HB 4336): Unhappy with the results of last year’s bill changing how natural gas property is valued for property tax purposes, HB 4336 once again will require the State Tax Department to develop a new valuation process using actual operating costs and allowing for more expense deductions. With the current volatility in energy prices, the total fiscal impact on local governments is unclear, but previous versions of the bill and a fiscal note based on lower energy prices put the cost at between $8 million and $11 million.
The BUILD WV Act (HB 4502): The BUILD WV Act provides several tax credits and incentives for the development of “middle-income” residential housing in West Virginia. The Department of Economic Development will approve up to 12 “WV BUILD” geographic districts, and qualified projects in those districts will be eligible for a number of tax incentives, including a sales tax exemption for purchases of building materials and services, a municipal B&O tax exemption for rental properties, and personal and corporate income tax credits based on the value of the property. With no information on the number of projects or contractors who would be eligible, and no information on demand for housing applicable to the program, there is no estimate for the bill’s fiscal impact.
Certified Capital Addition Tax Incentive (HB 4451): HB 4451 modifies the existing certified capital addition tax incentive, which reduces property taxes for qualifying manufacturers who make capital investments in existing manufacturing facilities. HB 4451 removes the requirement that the capital investment must be located within two miles of an existing facility, making it easier for manufacturers to receive the incentive. No fiscal note was provided for the bill, but the existing tax incentive reduces property tax revenue by $40.5 million annually.
Film Tax Credit (HB 2096): HB 2096 reinstates the film tax credit, which had been repealed in 2017. The bill allows for a tax credit against the personal income and corporate net income taxes for the costs of film production incurred in West Virginia, with increased credits for productions that hire West Virginia residents. According to the Tax Department, the reestablished credit would cost up to $10 million annually.
Child Care Facility Tax Credit (SB 656): SB 656 provides a tax credit to for-profit and nonprofit corporations who establish child care facilities for the benefit of their employees, or for employers who sponsor child care benefits. The tax credit would be applied against the corporate net income tax for for-profit corporations and against personal income tax withholdings for non-profits. Once again, due to a lack of data, an estimated cost of the credit was not provided, but the fiscal note did state that the bill’s costs could have “some significance” on the state General Revenue Fund, and that the bill was “ripe for exploitation.” As a previous post noted, the bill could also exacerbate current inequities in our system –where child care is predominately accessible to high-wage workers living in more populous areas of the state – by reducing revenue that could lead to cuts to discretionary programs like child care subsidies for low-income families.
Soda Tax Repeal (SB 533): SB 533 will repeal the state’s soda tax by 2024. The current soda tax generates about $14 million per year, and the revenue is dedicated to WVU’s Schools of Medicine, Nursing, Dentistry, and other health programs. The bill will first move the soda tax’s revenue to the General Revenue Fund, and replace the funding for the WVU health programs with $14 million of insurance premium tax revenue. In addition, $5.5 million of insurance premium tax revenue will be dedicated to Marshall University’s School of Medicine and $3.9 million will be dedicated to the West Virginia School of Osteopathic Medicine. Once the soda tax is eliminated in 2024, the net cost to the General Revenue Fund, including the new transfers, will be a loss of $23.4 million per year.
Gone But Not Forgotten: Several major tax policies failed to complete the legislative process or were rumored to emerge but never materialized.
