Return to News

Mayors are briefed on proposed tax changes

Suggestions include major revamping of B&O taxes

by Torie McCloy

STAFF WRITER

(September 24, 1998) Local mayors were briefed Wednesday evening on proposals to revamp the state tax system. State Tax and Revenue Secretary Robin Capehart listed a number of recommendations, including the elimination of the personal property tax on automobiles, changes in personal income tax exemptions and repeal of the business and occupation tax.

Capehart reviewed the recommendations of the Governor's Commission on Fair Taxation during a meeting of the North Central League of Mayors at the Benedum Civic Center in Bridgeport. "We're talking about leveling the playing field,'' said Capehart.

The 14-member commission is expected to submit its report to the governor later this year along with a list of recommendations for changes in the state's tax system.

Capehart said the commission researched taxes on all levels of government and found a common problem.

"We have a one-size-fits-all system," he said, noting that not every city or county has the same problems. "What we are looking at is providing a fair and simpler tax system."

The commission suggested a repeal of personal property taxes on automobiles, machinery, equipment and inventory, but still allow local governments to use a real property tax.

The commission also suggested replacing the personal income tax with a progressive income tax that would increase exemptions on personal income tax to the federal poverty level of a $17,000 annual income for a family of four. Currently, the state operates under a $2,000 per person system which leaves the state exemption level at $8,000 for the same family. Capehart said that isn't fair.

If approved, Capehart said the change in personal income tax would allow 211,000 working poor in West Virginia to avoid filing income tax. Already, 98,000 West Virginians don't file.

Capehart said the business and occupation tax also needs changed. He said it worked fine when the tax system was set up in 1930, but doesn't fit today's economy.

Under the B&O tax, businesses are taxed according to their operations. Capital-intensive businesses, or manufacturing businesses, are taxed the most, he said. Capehart complained that some of the most profitable businesses today don't require a lot of equipment, yet those businesses are taxed as heavily.

"You don't need big machinery to make money anymore," Capehart said.

He said double taxation also occurs under B&O taxing. The manufacturer is taxed for the product. He sells to the wholesaler who is again taxed for the product. It is then sold to the retailer who is taxed. Capehart said that raises prices for consumers and raises accountability problems.

"B&O taxes don't reflect economic value," Capehart said.

Also targeted for repeal are the business franchise, corporate charter, state property, estate, business registration, telecommunications, health care provider, insurance premiums, auto privilege and soft drink excise taxes.

Taxes on gasoline, tobacco and alcohol would remain.

The corporate net income tax would be replaced with a single business tax and the consumer sales and use tax would be replaced by a general excise tax, while property transfer taxes would be used only for local governments.

Capehart said the plan takes into account that cities currently have only three money making choices -- property taxes and municipal fees (which they would keep under the plan) and B&O taxes.

Capehart suggests replacing the repealed taxes with a "piggybacking" system in which municipalities would receive additional taxing authority, allowing them to collect a small percentage of state tax revenues. Each county commission and city council would be free to decide which state resource to piggyback.

Capehart said he believes the plan will work. He argued that it will get rid of unfair and unnecessary taxes, but still keep enough revenue in the governments to provide services. It gives everyone a break, he said.

"We found people don't mind paying taxes if they feel they are getting their money's worth," he said.

The only concerns raised by the league of mayors were the arbitrary values of real estate property and the length of time it takes to get money from state agencies for piggybacking programs. Capehart said both concerns are being examined.