West Virginia taxes are headed in the right direction—down.
The start of the new year brought the latest step in tax reductions approved by the West Virginia Legislature back in 2006.
The tax on groceries dropped from three percent to two percent. Another one percent reduction takes effect in July and the food tax is scheduled to disappear completely on July 1st, 2013. The one caveat is that the state’s Rainy Day Fund must maintain a certain level for the tax to disappear.
West Virginia’s food tax reached a peak of six percent a few years ago. That tax has been particularly painful for middle and lower income West Virginians who have had years of higher grocery bills because of this regressive tax.
The state should be able to maintain the necessary levels in the Rainy Day Fund, meaning that soon West Virginians can say goodbye and good riddance to the immoral tax on groceries.
The corporate net income tax dropped January 1st from 8.5 percent to 7.75 percent. It will drop even farther over the next two years, declining to 7.0 percent next year and 6.5 percent in 2014.
The state’s corporate net peaked at 9.75 percent in the 1980’s, making West Virginia uncompetitive compared with other states. These reductions are bringing West Virginia more in line.
By 2014, West Virginia’s corporate net will be lower than Maryland or Pennsylvania and competitive with Virginia and Kentucky, making West Virginia more attractive to businesses.
State Deputy Revenue Secretary Mark Muchow said on Talkline Friday, “The hope is West Virginia will be more competitive over time and we’ll actually see a growth in associated tax collections.”
The hated business franchise tax also dropped slightly at the first of the year, from .034 percent to .027 percent. It will disappear completely in 2015.
The business franchise tax is a tax on a business’s wealth as measured by its net worth. The Governor’s Commission on Fair Taxation report in 1999 listed this revenue generator as anti-growth.
“The business franchise tax is not based upon the ability to pay and does not embody the value of benefits received,” the report said.
These tax reductions come as other states are putting even more of a burden on their citizens and businesses.
For example, Connecticut is raising its corporate income tax from 8.25 percent to 9.0 percent. California is considering a five-year, 35 billion tax increase to help pay for education. Illinois increased both its personal and corporate income taxes last year.
West Virginia’s tax structure could still use an overhaul. The Tax Commission’s report found that our system for collecting revenue is too regressive, has too many exemptions and is not adapting to a shifting economy.
At some point, the entire method of revenue collections needs to be updated. But in the meantime, at least state leaders have recognized the benefits of bringing at least some taxes down, or eliminating them entirely.