Eliminating the Personal Property Tax: A Blog Series – Part 1
It seems every year, proposals are floated to remove West Virginia’s property tax on business personal property or personal property in general. My first report with the WVCBP looked at the fiscal impact of eliminating the property tax on business machinery, equipment, inventory, and other business personal property, as recommended by then Governor Manchin back in 2010. In that report, I found that eliminating the business personal property tax would have a profound impact on state and local government finances, with West Virginia’s schools bearing the brunt of the financial hit.
While the proposal in 2010 never gained traction, the issue has reappeared, most prominently from the West Virginia Chamber of Commerce, which is now looking to exempt, “any or all types of tangible personal property from ad valorem taxation,” not just business personal property. And while the Chamber requests that, “the Legislature to provide measures by which levying bodies may recoup revenues lost as a result” of the exemption, my report and these subsequent blog posts will show that replacing the lost revenue is no easy matter.
In FY 2012, a total of $453 million was raised through taxes on personal property, accounting for more than 30 percent of all property tax revenue in the state.
My next several blog posts will look at the issue of eliminating the personal property tax from several angles. The next few posts will focus on the fiscal impact, with estimates of what is at stake for counties, schools, municipalities, and the state budget.
After that, I’ll examine the claim that the personal property tax inventory puts West Virginia at a disadvantage in attracting jobs and investment, particularly from manufacturing by asking which if states without personal property taxes are attracting more manufacturing jobs and investment than those with personal property taxes.
Next I’ll look at various tax and business climate indexes to help answer the question if personal property taxes create an unfriendly business environment, according to those who measure such things.
Finally I’ll ask is the personal property tax prohibitively burdensome on businesses. I’ll address this question in two ways: I’ll ask are property taxes higher on businesses in states with personal property taxes, and I’ll look at property taxes as a cost of doing business. The answers to these questions help go a long way to explaining the impact of the personal property tax on jobs and economic growth.
But first, let’s talk about why property taxes matter.
Property taxes in West Virginia are primarily a local tax, with local governments relying heavily on it for revenue. Property taxes make up 45 percent of the total revenue for local city and county governments, providing important funding for libraries, public health, police and fire protection, housing and other public services.
Property taxes are also an important source of revenue for public education. In FY 2012, over 66 percent of total property tax revenue went to fund elementary and secondary schools in West Virginia. Overall, property tax revenue provides over one-third of total school district funding, helping educate 280,000 students statewide.