New year brings tax changes
CHARLESTON, W.Va. -- Come Sunday, shoppers will pay a little less in the grocery store checkout line but will see gas prices rise a bit as West Virginia simultaneously cuts its food tax and increases its gasoline tax.
Starting Sunday, consumers will pay a 2 percent sales tax on groceries. That's down from the current 3 percent food tax.
The state's 6 percent sales tax still will apply to soft drinks, meals at restaurants and certain prepared foods at grocery stores.
Also Sunday, the state's motor fuel excise tax will increase from 32.2 cents per gallon to 33.4 cents.
The increase comes after state tax officials recalculated West Virginia's average wholesale gasoline price. That index will increase from $2.34 per gallon to $2.574 per gallon on Jan. 1.
For every gallon of gasoline sold, the state charges consumers a flat tax of 20.5 cents per gallon, plus 5 percent of the average wholesale gasoline price.
The Tax Department filed a notice of the change with the Secretary of State's office on Nov. 22.
Jan Vineyard, president of the West Virginia Oil Marketers and Grocers Association, said gasoline retailers received notices from the Tax Department about the increase in mid-December.
She said there was some grumbling among retailers. Some questioned whether the information was true.
"The notices they sent out had some typos in it, and (the retailers) were afraid it wasn't correct," Vineyard said. "I got some calls asking if this was correct, and I said, 'Yes, it is.' "
Vineyard's organization reported on the increase in its December newsletter to members across the state.
State gas taxes could have increased much more. The Legislature passed a bill earlier this year capping the average wholesale price index. Now, the index cannot rise or fall by more than 10 percent over the previous year's figure.
"Without the cap this year, it would have gone up substantially," Tax Commissioner Craig Griffith said.
The actual average wholesale price of gas was $3.16 from July 1 to Oct. 31, 2011, according to information from the tax department. Without the cap, the state gas tax would have increased by 3 cents to 36.3 cents per gallon.
Money raised through the motor fuel excise tax is funneled into the state's road fund, which helps pay for highway maintenance. In fiscal year 2011, the tax brought in over $397.7 million for the road fund.
State food taxes will decrease from 3 percent to 2 percent on Jan. 1, and will drop to 1 percent on July 1, 2012.
Griffith said the state would lose about $27 million in the coming year because of the food tax reduction. He said the state wouldn't really miss the lost income, however. Other tax revenue sources are exceeding the tax department's expectations.
Tax department spokesman Danny Forinash said the state had collected more than $1.6 billion in taxes through November.
"That's $28 million above estimate," he said.
Griffith said he doesn't expect to see those tax revenues decrease anytime soon, especially once Marcellus shale natural gas drilling begins in the state.
"We've been fortunate over the last few years, to be in a position other states are not in," he said.
He estimates the food tax decrease will save the average family of four about $52 a year.
The food sales tax could completely disappear before 2013.
Griffith said if the state's Rainy Day Fund A holds an amount equal to 12.5 percent of the general revenue budget on Dec. 31, 2012, the food tax will be eliminated.
"If it is less than 12.5 percent, it will be pushed back until the next Dec. 31," Griffith said.
The state's general revenue budget was about $4 billion this year and is expected to increase in 2012. The Rainy Day Fund A contained about $500 million in September, comfortably above that 12.5 percent mark.
Only 19 states, including West Virginia, currently have a sales tax on groceries. Of the five surrounding states, only Virginia has a food sales tax.
The food tax decrease won't have any benefit for Huntington residents, however. The city's new 1 percent municipal sales tax goes into effect on Sunday, according to an Associated Press report.
The city's new sales tax takes the place of its manufacturing business and occupation tax, which will be eliminated. Retail and service business and occupation taxes also will be reduced starting Sunday, according to the AP.
Mayor Kim Wolfe says in a news release that reducing business taxes will help create jobs, and eliminating manufacturing taxes will help the city recruit employers.
West Virginia's corporate net income tax and business franchise tax rates also will decrease next year.
The corporate net income tax has sat at 8.5 percent since 2009, Griffith said. It will drop to 7.75 percent on Jan. 1.
That tax will drop to 7 percent in 2013 and 6.5 percent in 2014, as long as the state's two Rainy Day Funds hold amounts equal to 10 percent of the state's general revenue budget.
"That threshold is not that high. Those two funds have been really healthy," Griffith said.
The business franchise tax, which required companies to pay a percentage of their total worth, will decrease to 0.027 percent in 2012.
It was at 0.034 in 2011.
The state is phasing out the franchise tax, which has decreased every year since 2006. It will be eliminated in 2015.
Writer Jared Hunt also contributed to this report.