It was a mild Tuesday in October and Governor Jim Justice was taking a break from his statewide campaign against Amendment 2.
The day before he was in Wyoming County, imploring an audience at the Twin Falls Resort State Park to vote against the measure to cut some personal property and business taxes. The next day, he would be in Fairmont, his eleventh stop in the campaign.
But on that Tuesday, as he gave a live streamed address about a topic he had discussed numerous times before, Justice had something new. This time he wouldn’t simply be rehashing his prior criticisms of how Amendment 2 derailed his plans to cut the state personal income tax, or how the proposal would give more power to the “Charleston swamp” he so disliked. This time, he was offering an alternative solution.
“The proponents of Amendment 2 claim that we must change our Constitution forever to eliminate the car tax,” Justice said to the camera. “Not only is that untrue, it’s just plain deceptive. It can be done, and we have the way right here, without making a major amendment to our Constitution.”
Two months later in the wake of the defeat of Amendment 2, the Governor is still pushing his vehicle tax plan, arguing it’s the perfect way to provide immediate tax relief to West Virginians. But the actual result is more likely to be a convoluted process for taxpayers that may not have as much of an impact as the Governor says.
And with many Republican legislators still not publicly committing to back the Governor’s plan, it is possible that a proposal that Justice sees as an easy win could end up becoming more of a headache than he thought.
West Virginia’s car tax — and Justice’s plan to fix it
Justice’s proposal focuses specifically on the personal vehicle tax: the annual tax West Virginians pay to their counties for the cars, trucks, boat trailers, campers, and other vehicles they have registered in the state. The amount is based on the age and cost of the vehicles, and on average, runs West Virginians about $220 a year according to the state Chamber of Commerce.
This tax isn’t unique to West Virginia. Roughly half of states do the same, typically including the tax as part of a larger property tax structure.
“The unpopularity of the tax is more about its visibility,” said Sean O’Leary, the senior policy analyst for the West Virginia Center on Budget and Policy. Unlike many other taxes, which are taken out of paychecks or tacked onto mortgages, “with the car tax, you have to go on the county website and pay it either all at once or half at the beginning of the year and half at the end of the year.”
Justice’s plan wouldn’t outright eliminate the personal vehicle tax — that can only be done via a change to the state constitution. Instead, the governor’s proposal would offset the tax by creating a tax credit. This credit would be applied to what a person owes in state income taxes, reducing the amount of income tax owed that year. If a person paid more in vehicle taxes than they owed in income tax they would then be able to receive a refund for the difference so long as the rest of their taxes were fully paid. Businesses would also be able to use the credit against corporate net income taxes.
Justice says that the credit, which would be paid out of the state’s general revenue fund, would return $145 million to taxpayers every year.
Why experts are skeptical of the plan
In discussing his tax proposal, Justice has argued that his idea is fairly simple and easy to execute: people will continue to pay their vehicle tax to counties, and the state government will then reimburse taxpayers for that amount fully. This allows the state to effectively eliminate the tax while allowing counties to still collect the revenue they need. But a closer look at the actual draft released by Justice’s office suggests that the entire plan may be a bit more complicated to execute than he has suggested.
While Justice calls the plan a “dollar-for-dollar refund”, it is not set up to operate as a direct cash refund that every person who pays their vehicle tax would receive.
State officials have muddied the waters further, saying that they are still considering how to approach the program. “The first year, because we’ve already built the platform for our 2022 taxes, you’ll get a check back,” Revenue Secretary Dave Hardy told MetroNews’ Talkline in October. “Years going forward, we’ll have to decide whether you apply it as a credit for the tax owed or if you want to just get a check back.”
The draft legislation describes the program as a tax credit that would be used to reduce the amount of income tax a person pays. The benefit coming in the form of a credit means that after any refunds from 2022 are sent, the only way that a person would likely receive another check is if they paid more in vehicle taxes than income tax.
Data suggests that while there are some people who pay up to $2,000 in vehicle taxes in some counties, most people in the state probably don’t owe enough in vehicle taxes for a refund to happen. Tax policy experts said with the exception of West Virginians who own more than two cars and several additional vehicles like motorcycles and campers, it is likely that the majority of people will receive somewhere between $100 and $250 in tax credits under Justice’s plan.
Justice’s office did not respond to questions about how much it estimated people would receive in the tax credit and how many people were expected to be eligible for the credit. But Jared Walczak of the Tax Foundation, a nonpartisan tax policy group, said he’s skeptical it would have a significant effect on the state’s economy.
“Unlike other tax reform options available to West Virginia policymakers, it does very little to promote investment, job creation, or other economic growth,” Walczak said.
“The car tax is extremely annoying for many people, but it has very little impact on economic decision making,” he added, calling the proposal “inelegant” and “inefficient”. Walczak says that under Justice’s plan, taxpayers will be “essentially floating a loan to the government,” while they wait for the credit to be applied, a system he says could have been avoided if Amendment 2 had passed.
While Walczak’s nonprofit spoke favorably of Amendment 2, some of his criticisms of the vehicle tax plan have been shared by experts who opposed the constitutional measure. O’Leary from the West Virginia Center on Budget and Policy said that the proposal is “complicated,” and creates additional work not only for the government, but for taxpayers.
That latter point was echoed by people working with low-income West Virginians. Many of the state’s poorer residents struggle to access the resources and support needed to accurately file their taxes and are also more likely than others to be audited after filing a return. Justice’s office has noted that low-income taxpayers and people who do not make enough to file taxes will still be eligible for the credit so long as they submit the appropriate forms, which will be available online and in a paper version.
But: “It is not a poor person’s bill,” said Stephanie Coleman, the program director for the Low-Income Taxpayer Clinic at WVU’s College of Law. She says that given the access issues low-income taxpayers face when filing their taxes already, coupled with the fact that many low-income people in the state do not have cars or have relatively inexpensive vehicles and are unlikely to be paying much tax on them, it isn’t likely that Justice’s program will do much.
“I have questions about how information is going to be communicated and what assistance is going to be available,” she added.
The plan could face an uphill battle — even with a Republican supermajority
Beyond the potential issues experts see with the plan, Justice’s vehicle tax initiative might face another more immediate hurdle: it isn’t clear who will vote for it.
Republicans tightened their hold on the statehouse in November, meaning that Justice only has to sell his own party on his plan. So far, the reception to the tax proposal has been tepid at best among Republicans, though it has also faced more direct criticism from members of the party’s statehouse leadership in recent months.
This is largely due to a tug-of-war that Justice and legislative Republicans have been locked in for the past several months. Justice has argued that his proposals, in particular his ultimate goal of completely eliminating West Virginia’s income tax, are the best move for the state. But Republican lawmakers have largely avoided going all in on his plans, and instead pushed in favor of Amendment 2. The conflict between Republican senators and Justice created a political sideshow in the month leading up to Election Day.
Now that the amendment has failed, Justice is pushing legislators to use their supermajority to pass his tax proposals.
“At the end of the day, [Senate leaders] were very misguided,” Justice told Talkline in November. “We need to just patch up, move forward and let’s get on about doing the people’s work.”
As the session approaches, legislators haven’t given a strong indication that they’ll go along.
“I don’t know about my caucus but from my standpoint it’s a silly bill,” Senate President Craig Blair, R-Berkeley, said in November when discussing Justice’s vehicle tax plan.
Spokespeople for both the West Virginia House of Delegates and the Senate say it’s still too early for either chamber to have fully fleshed out tax plans for the session, and that while tax reform will likely be a priority for legislators, leadership in both chambers are keeping their options open on the exact way to go about it.
For advocates, the Justice plan also raises a deeper question about if this particular tax change — and other potential tax cuts — is the best use of the state’s current budget surplus, particularly at a time when several pandemic-era programs and funding streams begin to expire. And for some, that answer is a strong no.
“You may or may not get a small tax break on your vehicle right now depending on how this is structured,” O’Leary said. “But a couple of years down the line when PEIA needs a lot of money or Medicaid needs a lot more money, the people who are supposedly being helped by this tax break are going to be hurt by the cuts to services.”