A draft bill combining the tax reform plans of Gov. Jim Justice, the House of Delegates and the Senate could be considered next year if Amendment 2 is adopted by voters in November. (Photo courtesy of the WV Governor’s Office)

CHARLESTON — With the most recent special session ending with no cuts to the personal income tax, efforts to eliminate certain categories of tangible personal property taxes have put the focus on Amendment 2 on the November election ballot.
The Nov. 8 general election is more than 45 days away, with early voting beginning on Oct. 26. Voters will have four constitutional amendments to consider, including Amendment 2.
Amendment 2, the Property Tax Modernization Amendment, would give the West Virginia Legislature the authority to reduce or eliminate six categories of tangible personal property taxes: machinery and equipment, furniture and fixtures, leasehold investments, computer equipment, inventory, and motor vehicles.
County governments and county school systems rely on property taxes, including tangible personal property taxes, for tax revenue. According to the West Virginia Association of Counties, the total assessed value for the tangible personal property tax categories in Amendment 2 for the most recent tax year totaled more than $515 million for all 55 counties combined, though no information has been released on the actual dollar amount collected by counties, which is likely lower than the assessed value.
The Association of Counties, the County Commissioners Association of West Virginia, and the West Virginia Association of School Administrators have come out against the passage of Amendment 2. Individual county commissioners are beginning to weigh in. This week, the Marion County Commission came out against the amendment, while the Berkeley County Council came out in favor.
Amendment 2 is also opposed by the West Virginia Democratic Executive Committee, releasing a statement last month criticizing the amendment.
“The so-called ‘Property Tax Modernization Amendment’ will cost county boards of education, county commissions, and city governments hundreds of millions of dollars,” said Del. Danielle Walker, D-Monongalia, vice chair of the West Virginia Democratic Party. “Make no mistake about it; if passed, this Amendment will have the effect of cutting funding for the police, reducing money for our schools, and gutting numerous other city and county services simply to provide yet another tax break to wealthy out-of-state corporations. West Virginians can’t afford this bill.”
On the other side, business and industry groups, such as the West Virginia Chamber of Commerce and the West Virginia Manufacturers Association, support Amendment 2. A report released Friday by the economic development consulting firm Sanford Holshouser for the association found most states either don’t have a similar tax or offer broad exemptions.
The report determined that the state misses out on more than $580 million in annual direct, indirect, and other economic impacts with the six categories of tangible personal property taxes in place.
“There is no doubt, whatsoever, that replacing the Subject Tax with alternative sources of revenues will result in substantial gains for West Virginia, its localities, and its citizens,” the report stated. “Now is the time to take a step up to a brighter future for West Virginia.”
A poll commissioned at the end of August by the Chamber of Commerce and conducted by North Star Opinion Research found that 53% of the 600 respondents said they would vote for Amendment 2 while 36% said they would not support the constitutional amendment.
Support for the Amendment has also divided the executive and legislative branches. The joint resolution that created Amendment 2, House Joint Resolution 3, passed both the House of Delegates and Senate by wide margins in 2021. Both House Speaker Roger Hanshaw, R-Clay, and Senate President Craig Blair, R-Berkeley, support adoption of Amendment 2.
In 2018, Gov. Jim Justice made elimination of machinery/equipment and inventory tangible personal property taxes part of his Just Cut Taxes and Win platform in his State of the State address and a joint resolution to put the matter on the ballot was introduced on Justice’s behalf that year. But now, Justice is vocally opposed to Amendment 2. He traveled to Wheeling Friday to campaign against the amendment.
Speaking Wednesday during a virtual briefing with reporters at the Capitol, Justice called Amendment 2 and the likely effort to eliminate tangible personal property taxes next year if Amendment 2 passes a gamble.
“It would be like me walking up to you saying I want you to put your wallet out here and all of your money out of your wallet. I want to take all the money out of your wallet, every bit,” Justice said. “Not only that, any more money that you get to put in your wallet, I want the money. Then I’m going to promise you I’m going to get it back to you. That’s really what we’re doing.”
“We’re taking all the money away from local control of our counties, whether it be for schools or EMS or police departments or fire departments, and basically Charleston is saying ‘I promise to get it back to you,’” Justice continued. “There’s been too many political promises that have not been able to be kept. With all of that, to me that is irresponsible.”
Instead, Justice supported a 10% personal income tax cut in all six brackets, calling the Legislature into a special session in July to consider his plan. The House voted for it, but the Senate refused to take it up. Instead, the Senate passed a resolution expressing its position on supporting Amendment 2 and its intention to eliminate tangible personal property taxes.
Despite pleas from Justice for the Senate to reconsider his personal income tax plan, the third special session adjourned sine die on Sept. 13 with no further movement. However, a group of Republican lawmakers in both the House and Senate led negotiations behind-the-scenes and believe they found a way to do both tax reform plans.
If Amendment 2 is approved by voters in November and lawmakers can pass the draft bill for a combined 10% personal income tax cut and an elimination of the six tangible personal property tax categories, the Legislature would be returning more than $800 million to taxpayers beginning July 1, 2023.
“You’re giving the Legislature the ability to exempt from taxation your vehicles, business equipment and inventory, and other things that have to do with business in the State of West Virginia, and for the small businesses also in West Virginia,” said Senate Finance Committee Chairman Eric Tarr, R-Putnam, in an Sept. 12 video on his Facebook page. “It will result in the largest tax cut in the history of West Virginia should the Legislature follow the legislation this amendment empowers us to do.”
The draft bill would create a County Assessment Revenue Shortfall Fund. The fund would send quarterly payments from the general revenue fund to all 55 counties, replacing revenue from the eliminated tangible personal property taxes. Funding would be distributed to counties based on a comparison of their assessed tangible personal property tax values from 2021 and the total of the combined highest assessed value for fiscal years 2021 through 2017.
Each county would receive a distribution of the greater amount: either the highest assessed tangible personal property tax value for fiscal years 2021-2017; the assessed value of fiscal year 2021 taxes plus $1 million; or the assessed value of fiscal year 2021 taxes plus the amount the county owes for regional jail expenses, provided the county uses the additional funding to pay off their regional jail bill.
The draft bill would create the County Assessment Revenue Shortfall Fund-B. It would be funded anytime coal and natural gas severance tax revenue exceeds 8.5% of the state general revenue fund collections for a fiscal year until the account reaches $100 million. The new fund would deal with tax revenue shortfalls to the County Assessment Revenue Shortfall Fund.
The bill incorporates a 10% cut to six brackets of personal income tax rates beginning in fiscal year 2024. Those making $60,000 or more would see their rates drop from 6.5% to 5.85%, those earning between $40,000 and $60,000 would see rates decrease from 6% to 5.4%, those earning between $25,000 and $40,000 would see rates decrease from 4.5% to 4.05%, those earning between $10,000 and $25,000 would see rates decrease from 4% to 3.6%, and those earning $10,000 or less would see rates decrease from 3% to 2.7%.
“What this will result in is something that resonates nationally,” Tarr said. “This could set West Virginia on the path to being one of the very few states that neither tax equipment, inventory, or vehicles, and also to have no income tax. This bill is that powerful. It puts income right back into your pockets, and we’re in the perfect position to do it.”
“We feel like it ultimately ends up with both sides being able to get 100% of what we want,” said Delegate Daniel Linville, R-Cabell, in an interview Friday. “The Senate has made themselves very clear that they want to do meaningful large-scale tax reform that moves money, people, and markets, and I agree. The House position has been we want to see meaningful reduction in the personal income tax.”
The bill would create a Tax Reduction Fund to help make future reductions in personal income tax rates with the goal of eliminating the personal income tax altogether. Once County Assessment Revenue Shortfall Fund-B is funded, coal and natural gas severance tax revenue that exceeds 8.5% of the state general revenue fund collections for a fiscal year would be put into the Tax Reduction Fund.
Future reductions in personal income tax rates would be contingent on several factors: whether consumer sales and use tax revenue exceeds 5% during the previous fiscal year; anytime the Tax Revenue Fund exceeds $100 million, any amount over and above $50 million would be used to reduce rates proportionally as long as the reduction is not more than 15% of previous fiscal year’s personal income tax collections.
“Being able to put both of our plans together to do 100% of what Governor Justice and the House and the Senate would all like to do ultimately becomes an incredibly meaningful tax cut for the people of West Virginia, our employers, and results in more jobs coming to the State of West Virginia,” Linville said.
Despite the draft bill giving him his 10% personal income tax cut, Justice is opposed to doing both tax cut plans. He said doing both will make it virtually impossible to fully eliminate the personal income tax down the road.
“If you put it all together, it is rolling the dice on $900 million or maybe rolling the dice on $1 billion in our state,” Justice said. “It’s a really, really big risk, isn’t it? A big, big risk. And then, you’ve only done 10% of the income tax. To do the other 90% at some point in time, it’s going to cost $2 billion more dollars every year out of the state’s revenue. That’s what we’re looking at.”
Linville said that crafters of the joint personal income tax/tangible personal property tax cut bill factored in the possibility of reduced tax revenue collections and even the possibility of a recession and still believe the state can handle the joint cut. The bill’s supporters believe they can prove to Justice that their math is sound.
“We feel that it is very safe,” Linville said. “It does not require even one additional nickel of economic activity or one additional penny of tax dollars coming in as the result of having cut roughly $800 million of taxes and putting money back in people’s pockets and helping our employers employ new people and bring in new investment in the state. I think we all share that goal. The governor shares that goal with us … we just have to try to come together and agree on what is safe and what we can expect.”
Steven Allen Adams can be reached at sadams@newsandsentinel.com.