West Virginia is one of 37 states that tax business machinery and equipment, and one of 12 states that tax business inventory. The West Virginia Legislature plans to consider eliminating business personal property (BPP) taxes again in 2016.
Lawmakers have debated doing away with BPP taxes several times during the past few years but failed to ever reach a consensus. During the last legislative session, a proposed constitutional amendment to eliminate the tax was defeated.
The Tax Foundation testified that moving away from the business personal property tax would help attract business. However, a new study says eliminating the tax would be an ineffective way to boost the state's economy.
A Bad Idea?
The West Virginia Center on Budget & Policy released a policy brief speaking out against the proposal for the following reasons:
BPP tax accounts for 19% of all tax revenue in the state
Compared to other taxes, property taxes are a more stable source of revenue
Studies show BPP taxes do not play a significant role in business investment decisions
If BPP taxes are eliminated, local governments and schools will lose more than
$303 million in property tax revenue for FY 2015
The report explains that West Virginia has one of the lowest property tax burdens in the country. The authors say that's because both real and personal property are included in the property tax base. West Virginia’s broad property tax base also results in equal tax rates, with property taxes owed by businesses directly proportional to the amount of property they own.
Taxes Don't Affect Economic Growth
According to the policy brief, academic research largely does not support the claim that state and local business taxes significantly affect economic growth.
Of the 37 peer-reviewed studies published on state tax issues since 2000, 19 found no significant link between state and local taxes and economic growth. Even studies that examined state-level inventory and other personal property taxes concluded they rarely impact business location decisions or have a significant effect on employment in manufacturing, wholesale, and retail industries.
The report further explains that one reason state and local business tax cuts are a poor strategy for promoting economic growth and creating jobs is because taxes are a small fraction of the total cost of doing business.
Tax cuts “work” by reducing business costs, in the hope that the reduction in costs will generate growth. But because the cost of state and local taxes are so small compared to other costs like labor, utilities, occupancy, and transportation, tax cuts are largely ineffective.
In West Virginia, state and local business taxes make up only 3.2 percent of the cost of doing business, and the personal business property tax is only a fraction of this amount. Eliminating the personal business property tax would barely move the needle on reducing total business costs, with little influence on the economy, the report said.
To read the full policy brief from the West Virginia Center on Budget & Policy, click here.