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Resolving tangible personal property tax Report

A working document prepared by WV Forward in Collaboration with West Virginia University

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This working document was written by Priscila Borges Marques dos Santos, a Research Scholar with WV Forward, in consultation with faculty from West Virginia University. The author would like to express her deepest gratitude to John Deskins, Director of the West Virginia University Bureau of Business and Economic Research, Joshua Fershee, Professor of Law at the West Virginia University College of Law, who conducts research as part of the Center for Energy and Sustainable Development and the WVU Center for Innovation in Gas Research and Utilization, and Karen Kunz, Associate Professor of Public Administration at West Virginia University, for their helpful comments and editing suggestions. Thank you so much for your time, input and assistance in the completion of this work. Your contributions were very much appreciated. The purpose of this working document is to provide a data-driven, nonpartisan and objective analysis of the taxation of tangible personal property in West Virginia, one of the issues raised in WV Forward’s blueprint, for possible policy considerations. If you have suggestions for improvement or would like to provide feedback, please email Priscila Santos at

Executive Summary

Concerns related to the taxation of tangible personal property (TPP) in West Virginia have been a recurring theme in studies that analyze the state’s potential for growth and economic competitiveness over the past couple decades. TPP in West Virginia mainly comprises machinery and equipment, inventory and motor vehicles. A number of industry and business leaders and economic development professionals cite TPP taxes as one of the top challenges for business growth, attraction and retention. They also assert that these taxes disincentivize capital investment. West Virginia is in the minority of states that tax business inventory. It also levies TPP taxes on machinery and equipment while a neighboring state replaced these taxes with an alternative tax intended to be more attractive to capital-intensive businesses. State business recruiters maintain that the elimination of such taxes would make the state more competitive and more capable of encouraging companies to base their operations in West Virginia.

During the 2018 tax year, the revenue generated from TPP taxes in West Virginia was $523.9 million – including both business and individual. This revenue amounts to one-third of the state’s property tax base. TPP tax revenues go to counties, school districts, the state school aid formula and municipalities and in some cases, they comprise the largest source of revenue. The following pages provide considerations and solutions for addressing this reported barrier to economic growth.

This working document is divided into nine sections that are designed to outline some of the benefits and challenges to reforming or repealing TPP taxes. Section one explains the importance of examining the taxation of TPP in West Virginia. Section two provides an overview of select sound tax policy principles in relation to TPP taxes: neutrality, ease of taxpayer compliance and responsiveness to competition. Section three addresses the impact of these tax policies on behavioral effects, or the consequences of a potential elimination of TPP taxes. Section four offers a condensed overview of the status of TPP and tax revenues in West Virginia. Section five outlines options, concerns and solutions to a potential reform or repeal of TPP taxes. Sections six and seven outline the approaches adopted by Ohio and Michigan to TPP tax reform. Section eight provides a short explanation of the legal mechanics of TPP tax reform. Section nine offers a concise discussion and conclusion.

Over the past couple of decades, several joint resolutions have been introduced in the West Virginia Legislature proposing some sort of reform to the taxation of TPP. The biggest challenges to any change are to find a dependable source(s) of replacement revenue for local governments and schools that coincides with the phasing out and repeal of the tax and to balance the interests of businesses, individuals, schools and local governments. The main strategies adopted by states that have reformed or eliminated such taxes include:

  1. Partial Repeal: repeals segments or a portion of the TPP tax base (e.g., business inventory, motor vehicles, de minimis exemptions) and replaces it with an alternative tax or a percentage of an existing tax (e.g., severance tax, value-added tax, use tax). Under this approach, a source of replacement revenue is created, optimally without causing strain on local governments, education funding requirements and other taxpayers. Reform or elimination of a portion of the TPP tax base allows states to experiment and evaluate the results of changes to the taxation of TPP to in-state economic activity. That is to say, decision makers would be able to assess whether the change in the state’s tax structure ultimately led to economic gains in the long run that justified the reform.
  2. Local Jurisdiction Option: gives local jurisdictions the option to choose whether a reform or elimination of TPP taxes is suitable for their communities. Since some counties and municipalities rely more heavily on TPP revenues than others (see addendum), a solution that is fit for one entity might not be suitable for another. This second approach allows local governments to make decisions concerning TPP tax reform that are fit for their civic needs.
  3. Repeal of All or Most TPP Taxes: reforms or repeals all or most TPP taxes and replaces them with state funds; a new or local tax; a portion of value-added, severance, and/or use taxes; or a combination of those options (for a more detailed explanation, see section 7 on page 14).

Possible strategies and options in this document are designed to assist stakeholders with a useful foundation for possible reform that could both boost business investment and address local revenue. The options are provided for consideration and assessment. This document is not advocating for any particular kind of change, or necessarily any change at all. Because the TPP tax is currently a constitutional provision, final decisions concerning its reform rest in the hands of West Virginia policymakers and, ultimately, voters.

Introduction →

Reference List and  Addendum

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*Citations available upon request.