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W.Va. business taxes rank in middle

Last week, I used this column to highlight West Virginia's top 10 ranking in Kiplinger.com's new Tax Friendliness survey. That high rank was due in large part to the state's low median property tax payments.

The Kiplinger index mainly focused on residential taxes, as authors wanted to gauge the best tax climates in which a person might want to live.

But what about the climate for business taxes?

Analysts at The Tax Foundation, a non-partisan Washington, D.C. think tank, offered their take last month with the release their 2014 State Business Tax Climate Index report.

The report gave West Virginia a middle-of-the-pack ranking of 23rd best overall business tax climate, a drop of two spots from the 21st ranking the state had the year before.

While not in the top 10, the state still beat out its neighbors in the business index, just like it did in Kiplinger's residential measure.

West Virginia's position as 23rd edged out Pennsylvania at 24th and also beat out Virginia's 26th, Kentucky's 27th, Ohio's 36th and Maryland's 41st rankings.

The index analyzes five areas in order to come up with its rankings: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and taxes on residential and commercial property.

West Virginia ranking across the individual categories didn't deviate much from the middle of the pack.

The state had the 20th best corporate income tax rate (a measure that will improve when the rate falls from 7 to 6.5 percent on Jan. 1, 2014). The state ranked 24th for individual income tax rates, 25th for sales taxes, 26th for unemployment insurance taxes and 27th for property taxes.

You'll notice the state didn't get as high of marks in categories like it did in the Kiplinger survey, particularly in the property tax area. That was because West Virginia is among the handful of states that impose a property tax on business inventories and a business franchise tax.

The franchise tax -- the state tax "on the privilege of doing business in West Virginia" -- is in the process of being phased out by the end of next year. But the inventory tax is baked into the state constitution.

To offset it, the state offers manufacturing inventory tax credits among its host of other tax credits enacted to attract business investment to the state.

The Tax Foundation, however, frowns upon these special tax incentives.

"Policymakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a bad business tax climate," analysts wrote in the 2014 tax climate report.

Researches said these credits complicate the tax system, narrow the tax base, drive up the tax rates for those businesses that don't qualify for the credits, distort the free market and often fail to achieve the desired economic growth effects.

"A more effective approach is to systematically improve the business tax climate for the long term," the report said.

Experts at the West Virginia Center on Budget and Policy have also criticized these credit programs because the state does little to track their effectiveness.

Statehouse leaders might want to give the credit programs another look. It could help the West Virginia get another leg up on the competition from our neighboring states.

 


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