Charleston Regional Chamber of Commerce Issues Taxation Policy Paper

Issue:

Equal Tax Administration/Tax Modernization

Background Information:

Every West Virginia taxpayer has an interest in fair and equal tax administration. Our tax system relies on voluntary compliance as the cornerstone of tax collection. Taxpayers need to know that other taxpayers pay their fair share, according to the rules, and that the tax department is evenhandedly auditing, administering and collecting taxes.

State Tax Department

Independent audits of the tax department point out the need for increased training, equipment and modernization of the tax audit and collection functions. The efficient allocation of tax audit resources actually produces a multiple return on the state’s expenditures when properly selected, planned and executed.

Strides have been made in the past two years; the Manchin administration and the Legislature recognized the need for upgrading the Tax Department. Last year, a $22 million appropriation was made for the purchase and installation of a new integrated computer system. This new system will allow the Department to more efficiently administer the tax laws as well as better target noncompliant businesses through better report generating capabilities. Additional improvements can be made in the area of training for employees of the state tax department to modernize its workforce.

Tax Shelters

Many corporate taxpayers across the country are using sophisticated tax shelters such as Passive Investment Companies (“PICs”) to artificially reduce or eliminate their share of state taxes. Other states have passed statutes to modernize their tax laws to eliminate such artificial planning techniques. One independent study group rated West Virginia as having the largest proportional loss of revenue among all the states due to such tax shelters.

Tax Modernization

During the last special session, the Governor and Legislature initiated some of the recommendations made by the tax modernization study; we applaud these efforts. We also would encourage state government to continue with a reduction of the Business Franchise Tax and Corporate Income Tax. However, those reductions should be completed only when the appropriate off-setting savings or new revenues are found as to responsibly manage our government and its commitment to its citizens as well as making responsible and important debt reductions.

West Virginia’s property tax on inventory is also a deterrent for businesses. Again, to reduce or remove this tax a legislative solution must also include a method to make up the lost revenue to counties, school systems, and municipalities and other entities currently receiving revenues from this portion of the property tax. One way to provide alternative revenues for counties and municipalities would be to provide local options to encourage revenue autonomy among local governments.

Action Steps

The Charleston Regional Chamber of Commerce recommends that the legislature;

Review the allocation of resources by the tax department to insure fair, efficient and evenhanded tax administration, audit and collection; and assure the department has modernized tools and a trained and educated workforce to assure compliance;
Adopt legislation, commensurate with other states, to eliminate use of artificial methods of tax shifting and avoidance such as the PIC tax shelter.
Continue with implementation of the tax modernization study group recommendations.