During last month’s legislative interim session, the Joint Standing Committee on Finance heard a presentation from John Deskins of the West Virginia University Bureau of Business and Economic Research regarding the elimination of the property tax on business machinery, equipment, and inventory, which will be the topic of a constitutional amendment on the ballot this fall. While Deskins stated that he has long advocated for the elimination of this “bad tax,” he did not present any data backing up that position to the committee. However, there is plenty of data available about property taxes on business personal property. The data just doesn’t support claims that the tax is a “bad tax” or a “job killer” or that eliminating it would result in rapid job growth, as advocates have claimed for years.
So what does the data say and what myths does it debunk?
First, there is the claim that West Virginia is some sort of outlier when it comes to taxing business personal property, and that a property tax on business machinery, equipment, and inventory is “an unfair tax most states have eliminated.” But in fact, most states do tax business machinery and equipment, or business inventory. According to the Tax Foundation, 36 states apply their property tax to business machinery and equipment, while 14 states apply their property tax to business inventory.
Even with the personal property tax, West Virginia has very low property taxes overall. Among the 50 states, West Virginia ranks 38th for property taxes as a percent of personal income, and 43rd for property taxes per capita, well below several states that don’t have personal property taxes. Even for industries with lots of machinery and equipment property subject to the tax, West Virginia’s effective rates are comparable to the national average. In fact, despite having a “bad, job-killing” business personal property tax, the conservative Tax Foundation ranked West Virginia as having the 9th best business property tax climate in the country.
And just as claims that West Virginia’s property taxes are out of line with other states’ or make the state unfriendly to businesses are not supported by the data, so are claims that eliminating the property tax on business machinery, equipment, and inventory would result in rapid job growth. In fact, during the last decade-long economic expansion, states with property taxes on business machinery, equipment, and inventory saw more manufacturing job growth on average than the states without the tax.
Eliminating the property tax on manufacturing machinery and equipment did little to boost job growth in Ohio. Since beginning the phase out of the tax in 2005, Ohio has trailed the nation in manufacturing job growth, and a recent study found that Ohio’s elimination of the tax actually cost the state manufacturing jobs, as it created an incentive to automate and replace labor with machinery.
None of this should be surprising to those familiar with the data and evidence regarding taxes and economic growth. State and local taxes comprise only one to two percent of the cost of doing business, and taxes are one of the least significant cost factors in business location decisions. Instead, public services play a much greater role, with education as the most important public service businesses consider when making location decisions. As such, it’s notable that two-thirds of the revenue from the tax Amendment One is trying to eliminate directly funds West Virginia public schools.
The data is clear. The property tax, including the tax on business machinery, equipment, and inventory, directly funds the government services that West Virginians and businesses benefit from on a daily basis. Rhetoric suggesting that the tax is a “job killer” or makes West Virginia uniquely uncompetitive is not supported by data, which is why arguments for eliminating it rely on rhetoric alone. When making a decision this fall that will affect communities in every corner of the state, West Virginians deserve to have a clear understanding of the data and its implications, including the still unanswered question of what will replace the lost revenue if the tax is eliminated.
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