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Charleston Daily Mail
Craig Cunningham/Daily Mail Sen. Ryan Ferns, left, and Sen. Bob Williams, listen to a presentation about other state taxation failures and successes at a meeting of the Joint Select Committee on Tax Reform at the Statehouse. State lawmakers once again gathered at the Capitol on Monday to listen to experts who offered guidance as officials hope to move forward with a plan to reform West Virginia’s tax system. The Joint Select Committee on Tax Reform spent the majority of the day listening to tax experts, ranging from members of tax policy groups to representatives of the economics departments from the state’s two major colleges. “Improving our tax climate is not likely to be a silver bullet,” said John Deskins, director of West Virginia University’s Bureau of Business and Economic Research. Deskins told the 16-member panel that changes to the state’s tax code will not make it an economic powerhouse overnight. “But it will help our state grow,” he said. Stressing the three fundamentals of tax policy, which lawmakers learned when they last met were a tax code that is simple, efficient and fair, Deskins posed the question of whether the state’s tax system should primarily be composed of a reliance on income taxation or consumption taxation. “Fundamentally the difference here is the income tax taxes savings whereas savings is exempt from a sales tax or a consumption tax system,” he said. Deskins urged lawmakers to act cautiously when considering a drastic move such as the elimination of the state’s income tax. “I would argue that extreme move probably isn’t feasible,” he said, noting that the elimination of the income tax would call for a much higher sales tax rate. Deskins did say a move in that direction would be worth consideration but cautioned against going to the complete elimination of the income tax. Jose Sartarelli, dean of West Virginia University’s College of Business and Economics, said one of the things officials need to keep in mind is not only the importance of tax reform but the ability to communicate the changes made in order to adequately attract people to the state. “This is not the field of dreams,” he said. “If you build it, they’re not going to come.” Sartarelli said West Virginia has to establish a way to adequately communicate with companies interested in moving to the state. “You have to create a system that’s attractive and you have to go out and talk,” he said. Reflecting some of what lawmakers learned two weeks ago from representatives of the state Department of Revenue, Jennifer Shand, director of Marshall University’s Center of Business and Economic Research, told the panel that West Virginia’s tax system has many strengths and weaknesses. On the plus side, Shand said the state finds itself in the middle of the pack in many tax categories, including corporate tax, individual income tax and sales tax. On the opposite end, she said the state does not fare as well as its neighboring states when you consider the state’s regulatory environment, prospect of growth and labor supply. The state is further threatened by an aging population which will have an increased demand on social services, Shand said. After breaking for lunch, Joseph Henchman and Jared Walczak, both of the Tax Foundation, presented the committee with more ideas to think about when considering tax reform. With many of the previous discussions centering on how West Virginia compares to its surrounding states, Henchman warned that officials need to also consider the discussion in a national and even global context. “A tax system has to reflect the strengths and the weaknesses of a state,” he said, noting that New York’s tax system would not work in a state like South Dakota. Henchman also noted that while taxes are important for businesses interested in moving to a state, they also consider education, transportation and regulatory policies. Both Henchman and Walczak offered up a few solutions, including a phase out of the state’s business and occupation tax, a removal of the business personal property from the tax base and the elimination of what is called the “throwout rule,” which allows receipts from sales destined to a state where the taxpayer is not subjected to an income tax to be thrown out of the sales tax factor. West Virginia is one of two states with a throwout rule. The committee also heard from Ferdinand Hogroian, senior tax and legislative counsel for the Council on State Taxation, and Mandy Rafool, fiscal affairs policy staff member from the National Conference of State Legislatures. Rafool reiterated a warning that Henchman and Walczak mentioned earlier, which was to avoid implementing tax reform in the way that Kansas did. “Don’t do it all at once,” she said. Sen. Mike Hall, R-Putnam, who serves as co-chairman of the committee, said the big conclusion from Monday’s meeting was clear. “There are a number of small things that could make a big difference in terms of making our state more competitive,” he said. The presentations from the various experts of what other state have done in terms of tax reform led Hall to conclude that most other states had not made huge change in terms of their tax rate. “But what they did was they found little things in their code,” he said. Hall said the resounding message that everyone has delivered in terms of what lawmakers should avoid when considering tax reform is what he described as “the Kansas experience.” “They ended up legislatively passing a tax cut … that they can’t afford,” he said. “We don’t want to go there. We’re not trying to drive the state to bankruptcy. But we’re looking for a (tax) code that’s more friendly, easier to access.” The committee will continue discussing tax reform when it next meets on June 9. That’s when representatives of the state’s cities and counties, as well Russell Sobel, author of “Unleashing Capitalism,” and West Virginia Secretary of Commerce Keith Burdette will be invited to joint the ongoing conversation on tax reform. Contact writer Joel Ebert at 304-348-4843 or joel.ebert@dailymailwv.com. Follow him on twitter.com/joelebert29.