CHARLESTON, W.Va. - The state Legislature startled city officials Thursday by passing a bill allowing the state Tax Department to keep as much as 5 percent of cities' municipal sales tax revenues.
As a result, Charleston city leaders now plan to adjust their plans for a municipal sales tax. They'll collect a little more to offset the higher share that may be retained by the state.
House and Senate members, meeting on the second day of the year's first special session, approved House Bill 105 to give the state tax commissioner authority to collect any special local sales taxes, use taxes and excise taxes.
Senate Finance Chairman Roman Prezioso, D-Marion, said the tax bill was necessary because the state's newly extended home rule pilot program would give cities the freedom to enact municipal sales taxes.
House Finance Chairman Harry Keith White, D-Mingo, amended the bill to allow the state Tax Department to keep up to 5 percent of those local taxes.
The House passed the bill on a 77-22 vote, with six members not voting. The Senate approved the bill 25-9.
Charleston Mayor Danny Jones said the city now would change its plans for a municipal sales tax.
The city originally planned to lower its business and occupation tax on retail businesses from 0.5 percent to 0.35 percent while introducing a new half-cent municipal sales tax.
Now, the B&O tax will decrease to only 0.4 percent, or 40 cents on every $100. The sales tax will remain at a half-cent on the dollar.
The municipal sales tax has not been approved by the Charleston City Council but is expected to pass if the state Home Rule Board approves the city's plan.
"I want to give council some comfort. There's some members that think we nip and tuck anyway, and this will raise the extra money," Jones said. "They put 5 percent in the bill, so that's what we have to deal with."
He said he talked with representatives of the state Tax Department who assured him the agency would not take 5 percent of the city's municipal sales tax collections.
"We have to be prepared for anything," Jones said.
At 5 percent, the Tax Department fee would take about $300,000 of the city's anticipated municipal sales tax revenue.
The Tax Department currently keeps a little more than 1 percent of municipal sales tax revenues to cover the cost of the extra work required to process those taxes.
Jeff Oakes, the state's acting deputy tax commissioner, said the 1 percent rate is not enough to fully reimburse the agency. He said as more cities join the home rule pilot program, those costs likely will go up.