With the elimination of the business personal property tax once again a top legislative priority, the first piece of the plan has been introduced in the legislature, with Senate Joint Resolution (SJR) 7.
SJR 7 is identical to SJR 9, which failed to pass the legislature last year. SJR 7 starts the process for eliminating the business personal property tax by amending the constitution to give the legislature the power to exempt from or reduce property taxes on personal property, as well as reassess the value of personal property, while also doing away with the constitutional requirement that property taxes must be uniform across different types of property. Since the proposal amends the constitution, it would have to be voted on by the public during the next election. If passed, SJR 7 would be a significant shift of power away from local governments and to the state legislature.
In West Virginia, property taxation is largely the domain of local governments. Property taxes are an insignificant source of revenue for the state, totaling just $8 million in 2020, while counties, municipalities, and county school districts collected over $1.9 billion.
West Virginia has a broad property tax base, and as a result, enjoys lower than average property tax rates. The state’s property tax base includes homes and other residential real estate, commercial and industrial land and buildings, public utility property, and personal property, which includes personal vehicles, business machinery and equipment, and business inventory.
Property taxes from personal property account for just under 1/3 of all property tax revenue in the state. SJR 7 would take the authority of assessing and taxing this property away from local governments and give it to the state legislature, despite the fact that less than 0.5 percent of property tax revenue goes to state government.
Beyond taking control of 1/3 of property tax revenue away from local governments, SJR 7 would also take control away from voters. Nearly 40 percent of property tax revenue in the state comes from voter-approved excess or bond levies. Excess levies allow local governments to exceed the maximum property tax rates set in the state constitution, and levy an additional property tax used to provide supplemental funding for libraries, ambulance service, school buildings, extracurricular activities, and other essential community services.
Counties and municipalities may enact an excess levy for up to five years if it is approved by 60 percent of the voters in a special levy election. School districts can also impose an excess levy for up to five years if it is approved by 50 percent of the voters. Currently 28 counties and 47 school districts have active excess or bond levies. Under SJR 7, the legislature may reduce rates or exempt property from voter-approved excess or bond levies.
The proposed amendment to the constitution from SJR 7 would then set the stage for the legislature’s ultimate goal of eliminating personal property taxes on businesses. This would require additional legislation beyond SJR 7, and while no proposal has been introduced yet, we know that last year’s proposal — supported by current legislative leadership — would have created an overall tax increase for low- and middle- income West Virginians, while still resulting in an eventual $88 million loss in revenue for local governments.
The personal property tax directly funds the benefits businesses receive from local governments: police and fire protection for the personal property itself and high-quality local schools that attract and educate employees. SJR 7, like past proposals, would weaken local governments’ ability to make the investments that promote growth, in favor of more dubious tax cuts.
Like SJR 7, HJR 3 would give the legislature control over a significant portion of local property tax revenue. The resolution would amend the constitution to give the legislature the authority to exempt business machinery and equipment, business inventory, and personal vehicles from property taxation.
In 2016, property tax revenue from business machinery and equipment was estimated to be $136 million, $73 million from business inventory, $75 million in other business personal property (furniture, fixtures, etc), and $127 million from personal vehicles, for a total of $411 million, or 23.8 percent of all property tax revenue.
Based on the 2016 shares, the revenue for 2020 would be $150 million from machinery and equipment, $82 million from business inventory, $83 million for other business personal property, and $141 million from personal vehicles, for a total of $456 million.
Of that $456 million, approximately $301 million funds local school districts, $123 million funds county government services, $31 million funds municipal government services, and only $1 million funds state government. In addition, $178 million of the $456 million comes from excess and bond levies that were approved by voters in those counties. But, like SJR 7, HJR 3 would take control over the full $456 million away from local governments and voters and give it to the legislature.
*** UPDATE 6/13/2022***
The West Virginia Association of Counties presented updated numbers on the fiscal impact of HJR 3 (or Amendment One) at the June legislative interim session.
According to the West Virginia Association of Counties, for Tax Year 2021, property tax revenue from business machinery and equipment was $219 million, $84 million from business inventory, $26 million from other business personal property, $136 million from personal vehicles, and $50 million from “supplemental” property taxes, or taxes that were owed from previous years but paid in TY 2021, for a total of $515 million.
Of that $515 million, approximately $340 million funds local school districts, $138 million funds county government services, $35 million funds municipal government services, and only $2 million funds state government. In addition, $205 million of the $515 million comes from excess and bond levies that were approved by voters in those counties. But, Amendment One would take control over the full $515 million away from local governments and voters and give it to the legislature.
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