CHARLESTON, W.Va. – The House Finance Committee on Saturday approved a bill that would reduce the state’s sales tax rate in coming years while also expanding the tax base and improving overall fairness and simplicity in the system.
House Bill 2704, Relating to the West Virginia Consumers Sales and Service Tax, was approved by the committee. As adopted, the bill would decrease the state’s consumer sales tax rate from 6 to 5.5 percent on Jan. 1, while at the same time eliminating many of the special exemptions contained in code that waive sales taxes on certain types of services.
“This proposal is all about broadening our tax base, while reducing the rate,” said Finance Committee Chairman Eric Nelson, R-Kanawha. “Consumer sales taxes are second to the personal income tax in serving as the largest source of revenue for our state’s General Revenue Fund.
“While most consumers are familiar with the 6-percent sales tax they are charged at the register, they likely don’t realize there are a wide array of commercial services that have been exempted from this tax,” Nelson said. “This bill will repeal many of those special exemptions, and in return, regular consumers will see a reduction in the rate they are charged when they go shopping.”
The bill would eliminate the sales tax exemptions on a number of professional services, including legal, accounting and engineering services. Current estimates indicate that, at the current 6-percent rate, more than $200 million in revenue could be generated annually if the special exemptions for these services were repealed.
In return for eliminating the exemptions, the bill calls for simultaneously lowering the state’s overall consumer sales tax rate to 5.5 percent on Jan. 1. Even at the lower overall sales tax rate, the proposal is expected to boost General Revenue Fund collections by more than $70 million a year, using conservative estimates.
The bill calls for further reductions in the overall sales tax rate provided the state’s revenue situation meets certain benchmarks. If the state maintains a healthy balance in its Rainy Day funds – measured as at least 15 percent of the total of the General Revenue Fund budget on June 30 of each year – the sales tax rate would continue to drop in 0.25-percent increments each Jan. 1 through 2020.
Currently, the Rainy Day funds total roughly 18 percent of the $4.3 billion General Revenue Fund budget. If that percentage remains above the 15-percent benchmark, the sales tax rate would drop to 5.25 percent on Jan. 1, 2018; 5 percent on Jan. 1, 2019; and 4.75 percent on Jan. 1, 2020.
This schedule provides the Legislature with opportunities to annually revisit the plan.
“I believe this is a common-sense approach to simplify and promote fairness in our tax code,” said Finance Committee Vice-Chairman Eric Householder, R-Berkeley. “The state shouldn’t be picking winners and losers, and that’s the kind of behavior promoted by having all these existing exemptions and carve-outs in our tax code. We need to move to a simpler, fairer tax system that lowers the burden on all, and I believe this plan helps to accomplish that.”
The amended bill that passed out of the Finance Committee included proposals derived from the work conducted by the Joint Select Committee on Tax Reform, which held several hearings during the interim committee process last year.
The bill was read a first time in the House on Saturday evening. If passed, the legislation would go to the state Senate for further consideration.