By Dominic Valentine

In November’s general election, West Virginia voters will decide whether to amend the state’s constitution to allow lawmakers to change the tax code. At issue is whether commercial and industrial machinery, equipment, and inventory can be exempted from real property tax, also known as ad valorem taxation. Currently, businesses pay yearly taxes akin to personal property taxes on all equipment and inventory. The proposed amendment, H.J.R. 101, would allow counties to choose whether to offer the tax benefit.

The current tax creates a disincentive for business to invest in new equipment. Tax research groups have cited property taxes on business inventory and equipment as the biggest obstacle to attracting new companies to West Virginia. Deputy Revenue Secretary Mark Muchow has called the taxes on inventory and equipment “the number one handicap” to economic growth in the state.

In West Virginia it takes a constitutional amendment to change tax policy. With the proposed amendment, Delegates want to turn tax policy over to the legislature. This would provide greater flexibility to the overall tax system, and streamline efforts to have  West Virginia compete with tax incentives offered by neighboring states.  Passing H.J.R. 101 would give the legislature the leeway it wants concerning property taxes on businesses. 

Property taxes, including property taxes on businesses, are a major source of revenue for counties and their boards of education—money that some counties cannot afford to lose and still remain solvent. And some estimates claim that county governments would bear about 60 percent of the cost of eliminating the taxes entirely.

Financial relief for counties that would be adversely affected by these exemptions could be offered by the West Virginia Development Office. Ironically, the development office now spends significant state tax dollars to help circumvent the current arcane system: It buys new equipment, then leases it back to companies for a nominal amount. According to Berkeley County Delegate Walter Duke, the need for this kind of state spending will be eliminated by the new amendment, and there are discussions underway to allow diverting those funds to counties that rely heavily on the current taxes to balance their budgets.

Proponents also believe that lost revenue would be replaced by attracting new businesses. They say the proposed amendment will make West Virginia an attractive place for new businesses and encourage existing businesses to stay and reinvest in new equipment. “This bill is essentially a jobs bill,” said Duke. “Other states don’t tax machinery and equipment. If you have a business with older equipment that is not as productive as equipment in other operations outside the state, you are forced to look for environments friendlier to business in order to stay competitive. This amendment will allow our businesses the opportunity to improve without relocating, essentially saving and creating jobs,” said Duke.

“We are in favor of any effort to keep us competitive with other states by attracting and keeping businesses here in West Virginia, especially in this current economic climate—tax break or otherwise,” said Heather Morgan, executive director of the Jefferson County Chamber of Commerce.

If ratified in the upcoming general election, H.J.R. 101 would return to the legislature where the process of amending the current tax code would begin.

Text of the proposed resolution can be viewed at www.legis.state.wv.us/Bill_Text_HTML/2010_SESSIONS/RS/BILLS/HJR101%20SUB.htm