In his zeal to scare West Virginia workers into believing that an important business tax cut being considered will lead to “more robots and fewer West Virginia workers,” state Sen. Bill Ihlenfeld left out a few pertinent facts.
The senator’s recent commentary, “Tax break could affect our areas adversely” (published Feb. 9 in the Sunday News-Register), raises red flags about a proposal to repeal the Mountain State’s onerous personal property tax on manufacturing machinery, equipment and inventory.
Not only will the repeal lead to an estimated $18 million loss in tax revenue to four Northern Panhandle counties, it could help to escalate the state’s projected budget deficit, Ihlenfeld says.
But as The Tax Foundation noted last year, West Virginia’s tax structure isn’t exactly conducive to business. “Outmoded” and “uncompetitive” are two words the foundation used.
And the kind of taxes now up for repeal only do one thing — “discourage investment, since new, undepreciated equipment has a higher taxable value than older equipment, even if its continued use is inefficient, and since it may be possible to locate some new capital investment in other states,” the foundation concluded.
Additionally, The Tax Foundation reminds us that extending such taxes to inventory “imposes high compliance costs for businesses and can create strong incentives for companies to locate inventory in states where they can avoid these harmful taxes.”
West Virginia is one of only 10 states which still tax inventory, the foundation notes.
The bottom line is that such taxes “force companies to make decisions about production and distribution based on tax implications rather than sound business practices.”
“They also impose high compliance costs, since these taxes are what is known as ‘taxpayer active.’ That means that a company must track the acquisition price and depreciation of each piece of property, and the value and location of all inventory, along with the relevant assessment ratios and millages, and applicable credits, abatements, and refunds, to calculate and remit the tax,” The Tax Foundation further states.
Sen. Ihlenfeld, citing a study of a similar tax repeal in Ohio, fears that a West Virginia version of the repeal would result in what that study said were firms deciding “to invest in capital rather than hiring new workers when they receive this tax benefit.”
God forbid that a company invest in capital such as manufacturing equipment, which is key to companies remaining competitive and, yes, helping to create more jobs.
Indeed, as Ihlenfeld wrote, “the relationship between tax cuts and economic growth is complicated.” That’s especially true when the other side of the equation is given such short shrift.
McNickle was the long-time editorial page editor of the Pittsburgh Tribune-Review. A native of Colerain, he now lives in Wheeling.
