While there are four proposed amendments to the West Virginia constitution on voters’ ballots this year, one in particular has dominated state politics for months: Amendment Two, also known as the “Property Tax Modernization Amendment.”
Public disagreements between Republican leaders in the state Legislature (who support the amendment) and the governor (who no longer does) have become commonplace, with both sides accusing the other of lying and misleading the public over the issue. Local officials are worried that counties will lose a key source of revenue if the measure passes, and advocacy groups are sounding the alarm that the measure opens the door to tax reforms that they say could hurt the state in the long run.
The question is if legislators should have the power to change or entirely eliminate some tangible personal property taxes, which include taxes on business inventory, machinery, and personal vehicles. And if voters decide the answer is “no,” what tax changes should lawmakers push, if any?
It’s all led to a confusing and at times overwhelming discussion of the exact impacts of the ballot measure, and has also made it difficult for voters to understand exactly what will happen after November 8, whether or not Amendment Two is passed.
When it comes to passing Amendment Two, “everything that comes after is hypothetical,” says Sean O’Leary, the senior policy analyst for the West Virginia Center on Budget and Policy. “All of the policy plans are after the fact.”
Here’s what could happen.
What if Amendment 2 passes?
The amendment itself doesn’t actually change or repeal property taxes; rather, it will change the state constitution to allow the state Legislature to act how it sees fit. Lawmakers pushing for the change argue that as a body of officials elected by West Virginians, they should have the power to control and alter these taxes, but even so the effort has been criticized as part of a larger attempt at a legislative “power grab” this election season.
But if voters approve the amendment, there’s more than one way that the state Legislature could respond to getting the power that it wants.
So far, the most information has come from a draft Senate plan. It lays out an elimination of the current annual tax on personal vehicles as well as cutting inventory taxes businesses pay on unsold goods and taxes on heavy machinery and equipment. Legislators and some tax policy groups say that these taxes make it difficult to attract businesses to West Virginia, and that ending them will help make the state more competitive.
“West Virginia is unique in how much it relies on tangible property taxes and also in its taxation on business inventory,” said Jared Walczak, the vice president of state projects at the Tax Foundation. “Other states tax this equipment but they frequently have broad exemptions or tax at preferential rates.”
He adds that lawmakers in states like Louisiana have found ways to reduce the impact of the tax cut through state revenue transfers, something that could mitigate the shock of losing a big source of local revenue, making the money up elsewhere.
But the West Virginia Senate still hasn’t fully explained how it will permanently replace the roughly $500 million in revenue that counties and municipalities will lose out on by cuts to these taxes.
In previous years, legislators have proposed making up the difference through increasing the sales tax and taxes on tobacco products, changes that have been criticized for disproportionately shifting tax burdens onto people with lower-incomes. The latest version of the Senate plan promises that local governments will be fully funded and that the legislature will create two funds: a County Assessment Revenue Shortfall Fund that will be given money annually to replace what counties lose from the tax cuts, and a second backup fund that would be used to supply the first when there are revenue shortages. The plan also includes a possible reduction in personal income tax.
The Senate’s plan largely seems to rest on the belief that West Virginia will continue to see a budget surplus like it has recently, an assumption that groups like the West Virginia Center on Budget and Policy have criticized as being missguided due to several one-time pandemic-era programs coming to an end in the near future. Critics of Amendment Two have also argued that it is possible that the Legislature either fails or outright declines to return all of the money to the counties, a claim that legislators have dismissed.
In an email, Senate spokesperson Jacque Bland said that recent consistencies in the state budget have “built the base that is necessary to start this process,” and that the revenue allotment for counties “will never drop below” the base amounts listed in the draft plan.
Beyond the uncertainty about how the revenue will be replaced, House leaders have been quiet on the Senate’s plan. It’s possible that the House decides to simply back what the Senate has proposed in the coming months, but the chamber could also abandon that proposal for something entirely different.
House spokesperson Ann Ali said delegates have not met together to discuss the proposal since July, but that the most recent Senate draft plan does address some of the concerns House members had earlier this year. But for any change to become law, it will have to pass both chambers of the Legislature and be signed by Gov. Jim Justice.
What if Amendment 2 doesn’t pass?
The proposal has faced criticism as county officials and local advocates argue that the amendment gives too much power to the Legislature and shortchanges local public services that benefit West Virginians for the sake of businesses that would benefit the most from the tax cuts.
“It would be a really big financial hit to basically every county, every municipality in the state,” O’Leary said. He adds that the services affected by the possible cuts are the very things that could help attract people to West Virginia.
The West Virginia Association of Counties has come out against the amendment, as have the commissioners in many West Virginia counties. But perhaps the loudest critic of Amendment Two in recent weeks has been Justice, who has taken his strong opposition to the ballot measure on tour, traveling from Weirton to Berkeley Springs to Bluefield stumping against the amendment. While Justice supported changing these property taxes back in 2018, in recent years he has been focused more on passing a 10% income tax cut with the goal of eventually eliminating income tax in the state altogether.
So far, lawmakers have had limited interest in Justice’s income tax plan. Over the summer, Senate lawmakers declined to look at his proposed tax policy changes during a special legislative session, saying that they wanted to see what would happen with the amendment first. Lawmakers have also indicated that if Amendment Two passes and puts tangible personal property tax cuts on the table, they would rather focus on that over cutting income taxes.
Since then, Justice has intensified his campaign against the amendment, and he’s also proposed a vehicle tax rebate that he hopes will take away public interest in voting for Amendment Two. If the Amendment does fail, it is likely that Justice will push even harder to pass his income tax plan, though he will likely need the help of some of the lawmakers he has criticized in recent weeks. Justice’s office did not respond to a request for comment.
Justice’s plan is not without its own problems though, and has also faced criticism and skepticism if the plan, particularly the complete elimination of the income tax, would actually be economically viable.
Advocacy groups, meanwhile, argue that as inflation remains an issue and several critical pandemic-era programs in the state begin to expire, lawmakers should shift away from tax cuts entirely and instead use the current surplus to stave off rapidly escalating crises in child care, education, and health care.
It will ultimately be up to voters to determine what happens next and what issues state lawmakers will be able to focus on in the coming months. But at this point one thing is clear, the Amendment Two vote will mark the beginning of a new wave of tax policy debates in West Virginia. And no matter how the vote goes on Tuesday, those debates will remain contentious.