Big Manufacturers Want a Big Property Tax Break

Once again, the West Virginia Manufacturers Association (WVMA) is coming to the Legislature with a proposal to give large manufacturers and mining companies a property tax break of over $100 million.

Most of these manufacturers are out-of-state companies. Some are, like Rockwool, multinationals. Should this idea be adopted, the tax burden would be shifted to small businesses and individuals.

There is a lot of misinformation being circulated about this idea.

The tax in question is being referred to as the “inventory” tax. It’s both more than that and less than that. The actual proposal is to eliminate the business personal property tax on manufacturing and mining, but to not remove it from any other business. The business personal property tax includes both inventory and equipment.

The proposal would require an amendment to the State Constitution, since the personal property tax is a tax levied in the Constitution. For an amendment to the Constitution to be adopted, a resolution proposing such an amendment must be passed by a two-thirds vote in each house of the Legislature. It would then be placed before the voters in a referendum at an election, where a majority would be needed to approve it.

Governor Jim Justice supports this measure, as does the West Virginia Department of Commerce. Both say that this tax is an impediment to attracting businesses to our state. I agree—this tax is a bad tax.

But the Tax Foundation, a conservative organization that studies taxation, says that West Virginia has the 17th most favorable overall business tax structure of the 50 states. The fact is that almost every state has some business taxes that are either unfair or inefficient. Overall, we’re in pretty good shape.

A Fool’s Errand

This tax is paid to local governments and school districts. At least two-thirds of it goes to local schools in each of the 55 county school districts. The WVMA says their proposal would guarantee a dollar-for-dollar replacement for the money. It does so by mandating that the Legislature replace the money each year.

But from whence would that money come? The amendment doesn’t say. The WVMA says there would be enough money in the “natural growth” of the budget to handle the guarantee.

There are several problems with that. Lately, the budget hasn’t been growing. And when there is natural growth in the budget, it’s usually accompanied by inflation in expenditures. And if natural growth alone would be capable of funding the subsidies to local governments, it would mean that the burden would be shifted to other taxes. These would be taxes paid by small businesses and individuals (you, dear reader).

Another argument advanced by both the justice administration and the WVMA is that the personal property tax on manufacturing causes the state to want to give out tax breaks in so-called PILOT (Payment-in-Lieu-of-Taxes) agreements. Rockwool has a 10-year PILOT that gives it $6 million per year ($60 million total). The state gives out an average of $40 million per year to these big companies.

Hey, I’d be up for giving these companies $40 million per year in tax breaks if the trade-off would be a constitutional prohibition against PILOTs.

For me to support removing this tax, we would have to guarantee in the Constitution a replacement tax paid by big businesses. You think they’ll go for that? But anything short of that would be unfair to small businesses and individuals. Hey, small businesses (like retailers) pay this tax, and this proposal gives them nothing.

I think pursuing this idea is a fool’s errand.

— Submitted by John Doyle. Mr. Doyle represents Jefferson County in the WV House of Delegates—District 67.