June 29, 2007

As the new fiscal year begins, West Virginians will enjoy a further reduction of the sales tax on food down to 4 percent. This is the second reduction in the food tax – in 2005 the Legislature cut it down from 6 percent to 5 percent, effective July 1, 2006 – and it will drop further in 2008.

This is part of a larger effort by the Legislature and Gov. Manchin’s administration to modernize the state’s tax system and to reduce the tax burden on our residents.

It is worthwhile to look back on some of the tax changes we’ve made in the past couple of years, most of which took place during a special session last fall.

* As for the sales tax on food, the changes that are taking place this year and in 2008 were made during the taxation special session. Senate Bill 2003 reduced the consumers sales and service tax on most food, including candy not sold in vending machines, from 5 percent to 4 percent beginning July 1, 2007, and from 4 percent to 3 percent beginning July 1, 2008. However, the tax on soft drinks and food sold through vending machines was increased from 5 percent to 6 percent beginning July 1, 2007, while the tax on "prepared food" remains at 6 percent.

While lawmakers wanted to provide tax relief, we also were interested in encouraging West Virginians to make healthful choices. Legislators came to realize that taxing "junk" food differently, outside of those sold in vending machines, would be very difficult and burdensome for small businesses. The end result was the compromise legislation that makes a distinction regarding prepared food.

* SB2001 increased a refundable tax credit available to low-income disabled and senior homeowners. Prior to this bill, those taxpayers were exempted from paying property taxes on the first $20,000 of the value of their homes because of the homestead exemption, and they were allowed a credit against their personal income taxes for any property tax they paid on the next $10,000 of value of their home. The bill increased that amount to $20,000 of the value of their home. If the credit they get exceeds their personal income tax liability, they are entitled to a refund of the excess.

* SB2004 reduced the business franchise tax rate for tax years beginning after December 31, 2006, from .7 percent of the business’s apportioned net equity, or $50, whichever is greater, to .55 percent, or $50, whichever is greater.

Then, during the 2007 session, we further reduced the business franchise tax from .55 percent to .2 percent over five years. Those changes, combined with the new tax reporting rule, should cause a net reduction of about $20 million.

* SB2005 reduced the corporate net income tax rate from 9 percent of the business’ taxable income to 8.75 percent.

* SB2010 provides a nonrefundable low income family tax credit against state personal income tax that is based on family size and low income levels. The Low Income Family Tax Credit is applied against a household’s modified federal adjusted gross income and as a result fully exempts households with income below the federal poverty guidelines, and it reduces the state personal income tax liability of households with incomes of up to $2,700 above the federal poverty guidelines by providing a credit that is reduced by 10% for every $300 of income in excess of the federal poverty guideline income level.

* SB201 provides a consumer sales and service tax exemption for purchases by contractors of services, machinery, supplies and materials directly used or consumed in the construction, alteration or renovation of a new or existing building to be used primarily for manufacturing..

Of course, none of these tax changes would be possible were it not for the Legislature’s continued efforts over the past decade to pay down the state’s unfunded public pension liability. The recent securitization of the state’s tobacco settlement money should further provide fiscal stability.

I welcome and appreciate your input on these or any other legislative issues. Write to House Majority Leader Joe DeLong, Building 1, Room 228-M, 1900 Kanawha Blvd. E., Charleston, 25305, or joe@joedelong.com, or call 304-340-3220.