Proposals call for sweeping tax changes: Governor's panel says current code too complex, unfair

Gov. Cecil Underwood today received a proposal to overhaul WestVirginia's tax code, calling the 129-page document a "monumentalpiece of work."

The year-long study by the governor's Commission on Tax Fairness"goes more deeply into the philosophy of our tax system than we'veever done," Underwood told an audience of more than 50 state taxofficials, lobbyists, members of the tax review panel and others whogathered at the governor's Capitol office.

The 14-member panel proposed consolidating numerous personal andbusiness taxes and tying income tax exemptions to the poverty rate.

The study also recommended that the Legislature approve aconstitutional amendment transferring authority from the courts tothe Legislature to decide how much is spent for education.

Amendments to the constitution must be approved by two-thirds ofthe Legislature and a majority of West Virginia voters.

Underwood said after the 90-minute presentation that he will placethe recommendations on the agenda of the 1999 session of theLegislature.

Asked if he is prepared to fight for enactment of the proposals,he said, "I certainly am."

Sen. Oshel Craigo, chairman of the Senate Finance Committee and amember of the panel, said Wednesday that the recommendations willlikely be approved by the Legislature, but only after lawmakers get achance to make changes.

Neither Craigo, D-Putnam, nor other members of the legislativeleadership attended the presentation.

Lawmakers will look closely at revenue projections that will bematched with recommended tax changes.

Tax Secretary Robin Capehart promised that the proposed taxchanges will not disrupt revenue.

"We don't want to run into the problems we had in the '80s when wehad serious revenue shortages," he said. The Legislature in the mid-1980s phased out the business and occupation tax.

Revenue projections, which are being drawn up at MarshallUniversity's Center for Business and Economic Research, are expectedto be completed by December.

Capehart, who headed the commission, said legislative changescould derail significant tax reform.

Calling the set of recommendations a balance to achieve taxfairness, he said, "If you remove a part, you will disrupt thatbalance."

As he presented the study, Capehart criticized the current taxcode for its "number of taxes, tax breaks, twists and turns."

"There has to be a better way," he said.

Among the commission's recommendations is a general excise tax onthe purchase, sale or use of personal property and services toreplace sales and service taxes.

A broad excise tax would replace as many as 50 sales taxexemptions with seven untaxed categories.

Commission members criticized current sales and service taxes for"their myriad, often arbitrary exemptions and exceptions."

The 6 percent sales tax raised $775.1 million in the fiscal yearthat ended June 30, 1997. It was outstripped only by the personalincome tax, which pumped $786.2 million into state coffers.

Similarly, the commission recommended a single business tax thatwould replace up to 10 business taxes that raised about $525 millionin 1996-97.

Current business taxes have led to a "more complex system,administrative inefficiency and cases of double taxation," the reportsaid.

The commission also linked tax changes to economic development,criticizing personal property taxes as a "serious impediment tocapital investment and economic growth."

The recommendations do not call for abolition of racing and bingofees and taxes on gasoline, cigarettes, liquor and wine, lotteryproceeds, mining of minerals and coal and estate inheritance.

Commission members held the line on proposed changes by keepingsin taxes, levies on extraction of natural resources and state taxesthat draw federal revenue, Capehart said.

The report also proposed to increase the personal income taxexemption to reflect, though not match, the federal poverty rate.

A family of four now receives $8,000 in state income taxexemptions. That would more than double if the federally definedpoverty level of $16,800 is applied to the state income tax liabilityof a family of four, Capehart said.

The proposal would add a progressive feature to the tax code,particularly to help poor families who may be hit hard by regressivesales taxes, he said.

Commission members suggested that the Legislature, not the stateSupreme Court, be the "sole and final arbiter" of how to best financeschools.

The tax panel also recommended that the Legislature abolishproperty taxes as a way to pay for public education and increasestate aid.

The commission will present its final report in December,providing details on changes in revenue, the proposed constitutionalamendment, standardized tax rates and a review of fees and licenses.

Stephen Singer can be reached at 348-4872.