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A look at Amendment 2: the Property Tax Modernization Amendment

MORGANTOWN – Today we look at the second of four constitutional amendments that will be before West Virginia voters in November.

Amendment 2 is called the Property Tax Modernization Amendment.

As previously explained, the secretary of state’s office says that when there is more than one proposed amendment on a ballot, state code requires that the proposed amendments be numbered based on the date the Legislature approved the resolution placing the proposal before the voters.

An amendment is approved by a simple majority vote; it is rejected if it fails to gain a majority.

The state Constitution puts property taxation in the hands of the 55 counties. Amendment 2 would enable the Legislature to govern taxation of the personal property tax for business inventory, equipment and machinery, and for motor vehicles.

The Legislature adopted the resolution – HJR 3 – in 2021. The votes to adopt it were 86-16 in the House and 29-5 in the Senate, with Democrats in both houses providing some yes votes.

In Fiscal Year 2020, property taxes brought in about $1.926 billion. From that, $8 million went to the state, $516.8 million to the counties, $1.272 billion to the schools and $114.74 million to the municipalities.

Not all $1.926 billion is at play in this proposed amendment. The Senate revenue replacement plan for the counties puts tax 2021 assessments potentially affected at $465.2 million, with its plan replacing that loss with $558 million from state revenue surpluses (more on that below).

Approving the amendment doesn’t automatically authorize any tax cuts. That would take subsequent legislative action. As House Speaker Roger Hanshaw recently said, “It costs not one red dime. It costs not a penny to anyone” to pass it. Passage does nothing but give the Legislature options to consider tax reform.

The amendment has proven divisive in several ways.

One is discord between the House and Senate. While the House overwhelmingly approved the resolution to put it on the ballot, and while Senate President Craig Blair and House Speaker Roger Hanshaw recently sat at the same table to promote it, they don’t agree on when it should be implemented.

The House wants to pass the governor’s 10% personal income tax cut first, to put some money directly into taxpayers’ pockets. Gov. Jim Justice agrees, saying that apart from eliminating the vehicle tax, the Senate plan would chiefly benefit big businesses, including his own.

The Senate says that the business tax cuts would stimulate economic growth and job growth and benefit everyone in that way – along with the money vehicle owners will save starting in 2023.

Two, the counties loathe it. On Sept. 8, the West Virginia Association of Counties and the County Commissioners Association of West Virginia issued a joint statement opposing the amendment and urging voters to reject it by voting no.

They cite two reasons: “our loss of authority over approximately $550 million of dedicated, constitutionally protected budget revenues, and handing that authority to the West Virginia Legislature; and the fact that no certain, agreed-to plan between the House and Senate was presented that dedicates a revenue stream that solely backfills the $550 million to counties, and instead is subject to the pressures and competing interests of a general revenue outlay. Counties must have a protected, dedicated funding source that grows with economy, and no such plan exists today.”

The Senate does have a plan, even if not everyone buys into it. We’ve reported on it extensively. In short, the idea is to combine four years’ worth of revenue growth – about $590 million – as a fund to make counties whole should the amendment pass and the counties lose that property tax revenue.

There are three scenarios, based on county tax assessments, designed to replace revenue based on the highest tax assessments in six categories across five fiscal years – 2017-21 – plus regional jail invoices for certain counties where the assessments are insufficient.

As examples, Marion county has seen a steady decline across the five years, falling from $13,279,050.27 in 2017 to $11,722,671.29 in 2021. The 2021 jail costs were $2,390,401.50, putting 2021 assessments plus jail costs at $14,113,072.79. The plan uses the high figures across the five years to propose revenue replacement of $14,508,588.19.

Preston County has seen a steady rise in tax assessments across the five years, rising from $3,827,593.28 in 2017 to $5,153,600.86 in 2021. Regional jail costs in 2021 were $909,030, putting 2021’s total at $6,062,630.86. The total of all the high figures is $5,293,006.99 – not enough to cover assessments plus jail costs, so the plan proposes $6,153,600.86.

In 2021, Monongalia County’s personal property tax assessments were $24,552,078.42. Jail costs were $1,676,108.50. The two figures total $26,228,186.92.

Assessments across the five fiscal years were relatively stable – just above or below the $25 million mark. 2017 was the lowest, at $24,536,160.69. 2020 was the highest, at $26,015,856.09. The plans adds the highest assessment from each of the six categories for the five-year span to propose a replacement figure of $30,834,041.10 – more than 2021’s assessments plus jail costs.

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Amendment 2: Property Tax Modernization Amendment

Summary of Purpose: “To amend the State Constitution by providing the Legislature with authority to exempt tangible machinery and equipment personal property directly used in business activity and tangible inventory personal property directly used in business activity and personal property tax on motor vehicles from ad valorem property taxation by general law.”

Full Text of the Amendment: (The new language to be added appears in bold italic and comes near the bottom of this passage; the text appears as a single paragraph in the Constitution but has been broken into three here for easier reading.)

§1. Taxation and finance.

Subject to the exceptions in this section contained, taxation shall be equal and uniform throughout the state, and all property, both real and personal, shall be taxed in proportion to its value to be ascertained as directed by law.

No one species of property from which a tax may be collected shall be taxed higher than any other species of property of equal value; except that the aggregate of taxes assessed in any one year upon personal property employed exclusively in agriculture, including horticulture and grazing, products of agriculture as above defined, including livestock, while owned by the producer, and money, notes, bonds, bills and accounts receivable, stocks and other similar intangible personal property shall not exceed fifty cents on each one hundred dollars of value thereon and upon all property owned, used and occupied by the owner thereof exclusively for residential purposes and upon farms occupied and cultivated by their owners or bona fide tenants, one dollar; and upon all other property situated outside of municipalities, one dollar and fifty cents; and upon all other property situated within municipalities, two dollars; and the Legislature shall further provide by general law for increasing the maximum rates, authorized to be fixed, by the different levying bodies upon all classes of property, by submitting the question to the voters of the taxing units affected, but no increase shall be effective unless at least sixty percent of the qualified voters shall favor such increase, and such increase shall not continue for a longer period than three years at any one time, and shall never exceed by more than fifty percent the maximum rate herein provided and prescribed by law; and the revenue derived from this source shall be apportioned by the Legislature among the levying units of the state in proportion to the levy laid in said units upon real and other personal property; but property used for educational, literary, scientific, religious or charitable purposes, all cemeteries, public property, tangible machinery and equipment personal property directly used in business activity, tangible inventory personal property directly used in business activity, personal property tax on motor vehicles, the personal property, including livestock, employed exclusively in agriculture as above defined and the products of agriculture as so defined while owned by the producers may by law be exempted from taxation; household goods to the value of two hundred dollars shall be exempted from taxation.

The Legislature shall have authority to tax privileges, franchises, and incomes of persons and corporations and to classify and graduate the tax on all incomes according to the amount thereof and to exempt from taxation incomes below a minimum to be fixed from time to time, and such revenues as may be derived from such tax may be appropriated as the Legislature may provide. After the year nineteen hundred thirty-three, the rate of the state tax upon property shall not exceed one cent upon the hundred dollars valuation, except to pay the principal and interest of bonded indebtedness of the state now existing.