While the tax bills passed during the 2020 Legislative Session are awaiting the governor’s approval, most of the largest tax cut proposals failed to make it across the finish line but will likely return next year.
Specifically, the legislature failed to place on the November 2020 ballot a constitutional amendment to repeal part or all of the state’s personal property taxes ($578 million), and they also stopped short of passing a bill to eventually eliminate the state’s personal income tax ($2.2 billion) by replacing it with online sales tax revenues and lottery funds. Another bill that passed the Senate but died in the house would have reduced natural gas property taxes by an estimated $50 million per year.
That’s the good news.
The bad news is the legislature passed several tax bills aimed at propping up the declining coal industry and the already booming natural gas industry. Two bills that dealt with local level taxes passed, including the hotel occupancy tax and the real estate property transfer tax, while several other tax bills that passed will lower General Revenue Fund collections in the future. Below is a list of the tax bills that passed, along with several tax bills that passed at least one legislative body but were eventually defeated.
Closing Online Lodging Tax Loophole (SB 163): This bill is intended to close a tax loophole by requiring that online accommodation intermediaries (e.g. Expedia) and providers (e.g. Airbnb) collect and remit lodging taxes owed to local governments (counties and cities) in West Virginia. It is not clear whether the bill will actually accomplish this goal because the language in the bill fails to mirror model statutes provided by the Multistate Tax Commission. It is also unclear whether these online platforms will include their mark-ups and fees when applying the lodging tax. Be that as it may, this bill is a step in the right direction in ensuring that these companies pay their fair share and contribute the same as other lodging entities. Closing this loophole could increase local lodging taxes by several million dollars statewide.
Managed Care Organization (MCO) Tax (SB 719): As previously discussed, this bill places a health care provider tax on MCOs to allow the state to draw down federal Medicaid matching funds. If approved by the Centers for Medicare & Medicaid (CMS), the tiered MCO tax rate structure is expected to increase Medicaid matching fund by $44.7 million annually, drawing down nearly $235 million in federal Medicaid funds.
Transferring Property Transfer Tax Revenues to Counties (HB 2967): State and county governments collect revenue from an excise tax when there is a transfer of title on real property (land, buildings, and improvements). The state rate is $1.10 per $500 in value, while the county rate can vary between $0.55 to $2.75 per $500 in value. There are also exemptions.
In FY 2022, the state estimates that it will collect $12.4 million from the property transfer tax. Beginning July 1, 2021, the state will redirect 10 percent of the revenues it collects from this tax, and an additional 10 percent each year thereafter, back to the county of origin until 2031 when this tax becomes a county levied tax. Therefore, it will reduce General Fund revenues by $1.24 million in FY22, $2.48 million in FY23, $3.72 million in FY24, and so on until it reaches the full amount of at least $12.4 by FY32.
Reducing B&O Taxes for Coal-Fired Electric Plants (SB 793): After passing a similar tax cut last year for the Pleasants Power Station, this bill reduces the Business & Occupation (B&O) tax by an estimated $12.6 million per year beginning in FY22. The B&O tax rate is a unit-based tax on the capacity of the electric power generation of the plant. Specifically, this bill would reduce the B&O tax to just 45 percent of the plant’s operating capacity and contains a recapture or clawback provision if the plant closes before 2025. The bill is presumably aimed at providing relief to just one coal-fired power plant, the Mount Storm Power plant. Because the tax cut does not go into effect until July 1, 2021, it will not affect the FY21 budget but will add to state’s projected budget gaps.
Severance Tax Reduction on Marginal Oil and Natural Gas Wells (HB 4090): This bill reduces the severance tax on low-producing oil and natural gas wells from 5% to 2.5% and redirects this revenue to the Oil and Gas Abandoned Well Plugging Fund administered by the WVDEP. If after 2023 the Fund has more than $6 million in assets, the severance tax rate will be reduced to zero. These severance tax reductions are expected lower General Revenue Fund collections by $4.5 million in FY21 while transferring $3.5 million to the WVDEP and will decrease the local severance tax share by $600,000.
Downstream Natural Gas Manufacturing Investment Tax Credit: (HB 4019): would provide a sizable tax credit over 10 years on the personal income and corporate income tax for potential downstream manufacturers of natural gas (e.g. cracker plant) that make a qualified investment and create at least five jobs. While the fiscal note for the bill says it will not impact general revenue collections today, it could in the future if one of these facilities are built in West Virginia. The bill requires a Tax Credit Review and Accountability Report to be submitted by the Tax Commissioner every three years.
Natural Gas Liquids Economic Development Tax Credit (HB 4421): This bill is similar to HB 4019 but it provides a tax credit on the personal and corporate income tax for “natural gas liquid storer or transporter” equal to the property taxes they would pay in the state on their inventory and equipment. The fiscal note finds that passage of the bill would lower general revenue collection by $500,000 in FY 2022 but “[as] these sectors grow in response to increased future activity, local property taxes on associated machinery and inventory will likely increase significantly with revenue gains to local governments along with the potential loss in State General revenue associated with the tax credits for local taxes paid.”
Expanding Coal Tax Credit (HB 4439): Last year, the state passed HB 3144 that created a new “super tax credit” for coal companies that would allow them to deduct up to 35 percent of new investment costs (machinery/equipment/land) from their coal severance tax liability up to 80 percent of what they owe. The new tax credit stipulated that it could only be applied if aggregate coal production for coal producers increased above a benchmark. This bill modifies that provision to make eligibility for the coal tax credit based on severance tax liability. This change will likely mean additional companies will qualify for the generous tax credit, thus reducing coal severance tax revenues. A report on the impact of this credit will be published in July of 2022.
Personal Income Tax Credit for Volunteer Firefighters (HB 4558): This bill provides volunteer firefighters that meet certain requirements with a $1,000 credit on their personal income tax liability beginning in tax year 2023. According to the fiscal note, the bill will reduce General Revenue Fund collections by $5 million beginning in FY 2024.
Exempting some aircraft from sales tax (SB 530): This bill “would add an exemption from Consumer Sales Tax for aircraft sold in this state which are registered outside of the state as long as the aircraft is removed from this state within 60 days of purchase.” According to the fiscal note, it will decrease General Revenue Funds by an estimated $300,000 per year and is effective after enacted.
Tax Credit for Donated Vehicles (HB 4969): This bill provides a tax credit not to exceed $300,000 per year to taxpayers and auto dealers that donate cars to certain charitable organizations that provide vehicles to low-income West Virginians workers.
Constitutional Amendment to Repeal or Reduce Personal Property Taxes and Replace Some Revenue with Sales and Tobacco Taxes (SJR 9/SB 837): This was probably the most debated legislation in the WV Senate during the 2020 Legislative Session. Senate Joint Resolution 9 proposed a constitutional amendment to repeal some or all of the state’s personal property taxes, including business personal property (inventory, machinery, equipment, tools, fixtures, natural gas/oil property taxes, and vehicles) and personal vehicles ($579 million in FY20). A companion bill, Senate Bill 837, mandated that if the constitutional amendment passed in November 2020 during the general election that the state would enact a six-year phase out of the property tax on manufacturing equipment, machinery, and inventory, retail inventory, and business and personal vehicles, at a total cost of $294 million when fully enacted, accounting for about 16% of all property tax revenue. Meanwhile, the bill only provided about $180 million in replacement revenue, including raising the sales tax rate from 6% to 6.5% and raising tobacco taxes, which would have led to large budget shortfalls in the future. An analysis of the tax plan revealed that it would have meant tax increases for most West Virginians while giving large tax cuts for those at the top of the income ladder. SJR 9 was rejected in a bipartisan vote in the Senate, while SB 837 passed by one vote. Both died in the House.
Gradual Elimination of the Personal Income (HB 4892): Toward the end of the legislative session, the House swiftly passed a bill to reduce income tax rates and replace part of the lost revenue with online sales taxes ($3 million) and new lottery funds. The bill created a Personal Income Tax Relief Fund using lottery and sales tax revenues that when triggered to a certain threshold would then reduce each of the state’s five personal income tax rates. As an analysis of the plan showed, this would have given disportionally given large tax cuts to the wealthy while also punching large holes in future budgets. The bill died in the Senate.
Lowering Natural Gas Property Taxes (SB 655): This bill would have lowered local natural gas and oil property taxes by allowing companies to take more deductions on they property taxes they owe. This could have lowered local property taxes by an estimated $53 million per year.
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