CHARLESTON, W.Va. (WV News) — In November, voters will weigh in on four proposed amendments to the West Virginia Constitution.
The amendments cover a range of issues, from impeachment proceedings to church incorporation to government oversight of education.
Amendment 2, dealing with the Legislature’s authority over certain taxes, has been discussed widely over the past few weeks.
The amendment, called the Property Tax Modernization Amendment, would change Article X of the West Virginia Constitution to “(provide) the Legislature with authority to exempt tangible machinery and equipment personal property directly used in business activity and tangible inventory personal property directly used in business activity and personal property tax on motor vehicles from ad valorem property taxation by general law,” according to a summary of the proposal from the West Virginia Secretary of State’s Office.
The amendment does not make any taxation changes; it just gives the Legislature the authority to do so.
Proponents tout the potential elimination of these taxes, particularly the machinery and inventory taxes, as beneficial to the state’s business climate.
“This is a long-standing impediment for manufacturing investment and growth in West Virginia and makes our state an outlier as only one of a few in the country that impose these taxes on our industry without some sort of broad exemption,” said West Virginia Manufacturers Association President Rebecca McPhail.
Only a handful of states, about five, have a property tax that targets inventory, machinery and equipment, she said. West Virginia is the only state that constitutionally mandates it.
“What we keep reminding folks — we can’t really have a robust discussion about tax reform in West Virginia so long as there’s a constitutional barrier that prohibits us from including tangible personal property tax, including our inventory, machinery and equipment and personal vehicles, on the table for that discussion,” McPhail said.
If the amendment passes, the manufacturing industry would look to talk with legislators and stakeholders to discuss the best way to reform West Virginia’s tax structure, McPhail said.
While changing or eliminating these taxes won’t be a silver bullet and is just one part of developing the state’s manufacturing industry, the tax is a “clear impediment,” she said.
The amendment has drawn criticism, particularly from county and municipal government officials. They say the measure jeopardizes critical revenue streams without a clear indication of how — or even if — those revenues would be replaced.
Revenues from those taxes fund municipalities, counties and local school systems.
Because the amendment only involves giving the Legislature authority to exempt the taxes, there is no set plan in place for how lawmakers will implement the changes.
One of the strongest of these opposing voices comes from the very top level of state government — Gov. Jim Justice.
“We’re taking away an income stream and betting on good times forever and putting at risk our schools, our EMS, our firemen, our police and whatever it may be,” he said. “We have to step back and think about what we are doing.”
Justice’s opposition comes amid disagreements between the state’s Republican leadership about tax plans.
The governor had proposed a 10% reduction of the state’s personal income tax, retroactively beginning last tax season, calling a special session of the Legislature in July to consider the bill.
While the House of Delegates passed the measure, the bill was ultimately stalled in the Senate.
After reconvening the session last week to finalize legislation regarding abortion, both the House and Senate adjourned sine die, ending the special session and killing the tax bill.
Justice believed the personal income tax reduction was an immediate benefit lawmakers could give residents dealing with elevated prices due to high inflation, and the 10% figure was chosen to keep the state in compliance with federal regulations related to the American Rescue Plan.
After the bill stalled in July, Senate President Craig Blair said an income tax reduction alone would not aid the state economy or attract businesses and new residents, The Associated Press reported.
Also in late July, the Senate passed Senate Resolution 303, which acknowledged the vote on Amendment 2 in November and outlined the body’s intention “to carry out the will of the voters if the Property Tax Modernization Amendment is ratified.”
Republicans control a supermajority of both the House and Senate.
The resolution also stated that the Senate “strongly supports the long term, maintainable plan for providing meaningful personal income tax relief” but “does not believe that reducing the average West Virginia taxpayer’s monthly income tax liability by $20 will be an economic driver nor provide meaningful relief to the taxpayer.”
Seeming to address the concerns with Amendment 2, the resolution also stated the Senate “is committed to obligations in statute and base budget backfill to all counties for revenue replacement in perpetuity that is above and beyond the personal property taxes to be eliminated.”
But local officials and advocacy groups that represent their interests remain wary.
The boards of the West Virginia Association of Counties and the County Commissioners Association of West Virginia recently issued a joint press release encouraging residents to reject the amendment.
The associations said passage of the amendment would cause the loss of local control “over approximately $550 million of dedicated, constitutionally protected budget revenues, and handing that authority to the West Virginia Legislature.”
While Republican lawmakers have long indicated what they plan to do if the amendment is passed, there is no guarantee what will actually happen because “no certain, agreed-to plan between the House and Senate was presented that dedicates a revenue stream that solely backfills the $550 million to counties ...,” the associations said.
“This is monumental change to West Virginia tax policy, and the impact to local government is significant. And such change demands that everyone — all stakeholders involved — should all support Amendment 2 if a thorough review and comprehensive plan was first developed by all of us before placing Amendment 2 before the voters,” the associations said.
The tax reform measures are also opposed by the state’s Democratic Party. Democrats oppose Amendment 2, along with Amendment 1 (on impeachment proceedings) and Amendment 4 (on education accountability).
“These amendments collectively represent a power grab by the Legislature that disrupts West Virginia’s carefully crafted separation of powers,” said Democratic Second Vice-Chair Sam Petsonk.
Over the past two weeks, local governments have discussed the issue at various public meetings, offering explanations and voicing concerns to their constituents about the amendment.
Lewis County Administrator Cindy Whetsell said at a recent County Commission meeting that the amendment “would let big government and big business have control [over counties].”
Whetsell also asked that if there are no taxes on automated machinery, what could stop companies from installing machines and putting people out of work?
“There’s never been a study group that could sit down with county and state leaders, and those with vested interests, to discuss a plan,” she said. “Now counties that provide for schools, police, libraries, health departments, and extension services, those vital services, would not be able to do so. Do you want folks in Kanawha County telling Lewis County what to do?”
The possibility of an eliminated machinery tax leading to more automation and fewer jobs was one concern Kelly Allen discussed with Marion County commissioners.
Allen is the executive director of the West Virginia Center on Budget and Policy, a policy research organization.
“Proponents of the amendment would suggest that this would be appealing to create jobs in West Virginia, that eliminating this tax on businesses would bring more jobs to the state, particularly more manufacturing jobs, but we’ve seen research in other states, particularly in Ohio, that (says) eliminating this tax actually led to automation and fewer jobs,” Allen said. “You need fewer people to do jobs when you have more machinery and equipment.”
Marion Commission President Randy Elliott noted his concern that voters may go to the polls and find the idea of a reduction in taxes enticing without fully understanding the weight of the change.
“Given the individual who can say, ‘Hey, I don’t have to pay property taxes,’ it looks to me like a hard thing to defeat unless they get the message,” Elliott said.
Commissioner Linda Longstreth, who served several terms in the West Virginia House of Delegates prior to her county role, said she believes Amendment 2’s passing could have deeply detrimental effects on residents throughout the state.
“(The state worries) about their own budget … and hopes that the counties will take care of themselves, but we’ve got counties down south that, if you take something like this away from them, they’re done,” Longstreth said. “They have no other income. … It’s a big concern, and the public does not understand what this could do. It just sounds good, but in the long run, you’re going to pay for it on the back side if they make this move.”
In Preston County, commissioners are looking to educate their constituents on the amendment’s impact. They have planned a community meeting at which they hope to explain their concerns.
County Administrator Joe Hauger said the numbers state senators were using as of the beginning of August had Preston County’s assessments for 2021 in the affected categories at $5,153,600.86.
That included: Machinery and equipment, $1,214,222.58; furniture and fixtures, $68,316.26; leasehold investments,$27,055.85; inventory, $502,033.69; and vehicles, $3,286,080.59.
The last available proposal would give Preston County an additional $1 million of revenue replacement, for a total of $6,153,600.86.
Currently, Preston County’s assessments are divided into 71% for schools and 26% for county government, Hauger explained.
“With that split (not including the $1 million increase), the plan would affect $1,339,936.22 of our revenue, or 14.3% of the annual budget,” he said.
“I can see where Amendment 2 can be detrimental to our county government structure as we currently are, if we are not ‘backfilling’ our budget another way,” Commission President Samantha Stone said.
Commissioner Dave Price discussed the potential benefits of the amendment, saying legislators have made provisions to backfill county budgets for the next couple years, indicating he believes removing the taxes would be good for business.
He also argued new companies, enticed to come to the state thanks to the taxes’ elimination, would provide more revenue in the form of other business taxes.
Stone said that while she is not totally opposed to the notion, she remains concerned that there is not a concrete plan for ensuring county and municipal budgets.
The Monongalia County Commission passed a resolution warning the public about the “potentially devastating and far-reaching impacts that Amendment 2 could have on local government services in Monongalia County.”
“This is a very sensitive issue. We don’t want to be telling the public that they shouldn’t vote to reduce their property taxes,” County Commissioner Sean Sikora said. “But that’s not what this particular vote does. It removes power from local control and transfers into the Legislature. So we want to make sure that was perfectly clear.”
While the commission is “certainly not against” lowering taxes, “we think it should be done in a measured, thoughtful way,” Sikora said. “And not knowing how these dollars, approximately 25% to 30% of our revenue, or property tax revenue will be made up, causes us pause.”
Sikora also noted the potential impact to the county’s bond rating capacity.
The way the county does its bonds is passed off to future income projected 25-30 years out.
“With something like this, that would require yearly funding from the state, that would basically decrease our bonding capacity by 25-30%,” he said. “We can’t count on those dollars.”
Commissioner Jeff Arnett added that the affected taxes fund the county’s tax increment finance districts, pointing to the pointed to the Gateway, WestRidge, Morgantown Industrial Park and University Town Centre developments, and airport project.
“Those things are all predicated on tax incentive finance districts that use the very taxes that are generated to pay for those bonds,” Arnett said.
At the municipal level, the Harrison County Mayors Association discussed the amendment last week.
County Assessor Rocky Romano outlined his concerns to the attending mayors.
“When I read this amendment to people and ask the question, the first thing I hear is, ‘They’re going to do away with personal property tax on my vehicle,’ which is completely wrong,” Romano said. “That’s not their goal. That’s exactly what they want people to think because that’s the Christmas tree light that gets the voters to vote for it.”
The mayors are wholly against the amendment, which they say would deprive cities and counties of critical funds.
Fairmont Mayor Tom Mainella recently told his city council that he is “adamantly against” the amendment and urged residents to vote against it.
“Right now, the state happens to have a ton of money,” Mainella said. “It hasn’t always been like that, and it’s not going to be like that forever. If they eliminate these taxes and don’t find another funding string to replace them, one of these days, there’s going to be a lot of hurt, especially on boards of education.”
Del. Adam Burkhammer, R-Lewis, discussed the proposal with Weston City Council members during a recent meeting.
Burkhammer acknowledged there is not a tax reform plan currently available for cities and counties to examine.
“A lot of people would like for us to go ahead and say what we are going to do with that, and we have not done that yet,” he said.
“We are not defunding county government, and it will not affect city government,” Burkhammer said, adding that they are the backbone of communities and the reason for this proposed change is for economic growth.
Mayor Kim Harrison-Edwards and council members expressed their concerns about revenue if the taxes are cut.
Council member Sherry Rogers said the scary part is that there is no plan to make up that revenue.
The Property Tax Modernization Amendment will appear on all ballots in the Nov. 8 General Election. A yes vote will mean supporting amending the Constitution to authorize the exemption, while a no vote means opposing it.