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Concerns, Options and Potential Solutions

7. Concerns, Options and Potential Solutions 

Over the past 20 years, many resolutions 19 were introduced in the West Virginia Legislature proposing some sort of reform to the taxation of TPP. The biggest challenges in these proposals were to 

  1. find a dependable source(s) of replacement revenue for local governments and the school aid formula that coincided with the phasing out and repeal of the tax and
  2. balance the interests of businesses, individuals, schools and local governments.

The primary strategies adopted by states that have decided to reform or repeal their TPP taxes offer options for West Virginia to consider. 20  

  1. Local Jurisdiction Option for Exemption: gives local jurisdictions the option to reduce or repeal TPP taxes if deemed appropriate for their communities (Collins 2015; Errecart, Gerrish, & Drenkard 2012); 
  2. Statewide Exemption (a): provides a statewide TPP tax exemption and allows local jurisdictions to replace the lost revenue by imposing an alternative tax or raising the tax on the remaining property (e.g., real property 21 ) (Collins 2015; Errecart, Gerrish, & Drenkard 2012); and 
  3. Statewide Exemption (b): provides a statewide TPP tax exemption and replaces the lost revenue with state funds (Collins 2015). 

Other common strategies employed by states involve repealing TPP tax on business inventory and/or new property (i.e., acquired after a certain date) and/or offering de minimis exemptions, which establish a minimum threshold of TPP a firm must have before it is required to pay taxes (this benefits small businesses) (Errecart, Gerrish, & Drenkard 2012).

Lastly, the state could consider replacing business TPP taxes with an alternative tax that generates revenue more efficiently – one that does not disproportionately burden certain businesses and that it is less distortionary – and, as a result, accomplishes several positive outcomes: 

  1. enhancing the state’s business climate – optimally, the new tax would be more closely in line with sound tax policy principles (See section 2); 
  2. improving perceptions by outside investors and prospective companies ( i.e., West Virginia would no longer be on the list of states that tax business inventory, machinery and equipment); and 
  3. ensuring a sustainable revenue source for municipalities, counties and the school aid formula. 

Lastly, the state could consider raising severance and/or use taxes to make up for all or a portion of the lost revenue due to the reform or repeal of taxes on TPP.

Decisions concerning TPP tax reform ultimately rest on the hands of West Virginia policymakers and voters (see section 8). The options listed above have been employed in some manner by different states (Collins 2015). If state decision-makers do decide to reform or repeal TPP taxes for both businesses and individuals, one or more of these strategies may be adopted to ensure that West Virginia remains competitive and that the revenues of local governments and schools are protected.

8. Legal Mechanics of TPP Tax Reform: Procedures for Amending the West Virginia Constitution →

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