A Rational Tax Structure Now Needed for the State of West Virginia

In Search of Sustainable Taxation Practices

From the Article by Nyoka Baker Chapman, League of Women Voters, Nov. 2023

Earlier this year Gov. Jim Justice announced, “that West Virginia’s cumulative revenue collections for Fiscal Year 2023 will come in at $1.8 billion over estimate – shattering the all-time record for biggest single-year revenue surplus in state history for the second straight year in a row.”

Well, that was on 6/30/23 but since the guard rails have weakened. Per The WV Policy Center WV’s general revenue collections are down compared to this time last year.*

The discouraging $210.7 million gap is substantial and due not only to a fluctuating fossil fuel market but to the changes brought by the passage of HB 2526. WV has long been dependent on collections from severance taxes, which has continued as a primary contributor to our WV surplus, seen as defined by the WV tax dept.

Severance Tax ~ A severance tax is imposed on the privilege of engaging within this state in severing, extracting, reducing to possession or producing coal, limestone, sandstone, timber, coalbed methane, waste coal, oil, gas and other natural resources for sale, profit, or commercial use.

WV currently imposes a severance tax of 5% on gross receipts attributable to the production of oil and natural gas. Collections for other natural resource industries vary. You can get a clear picture by reviewing the multi-source data reporting sheet which is transparently displayed.

State of West Virginia / General Revenue ~ With WV leaving itself dependent on taxes collected from fossil fuels to maintain solvency, there is no wonder that we consistently hear a pushback on Environmental Social Governance (ESG) from those who are motivated to protect those interests. ESG has become an international preference to diversify from fossil fuels toward investments in cleaner sustainable energy sources. There will no doubt be a substantial amount of political rhetoric in the coming year from candidates who have cited such policies as bad, which they are not.

WV has yet to fully capitalize on greener solar energy production which could evolve as a source of taxation. Blue Hydrogen may see it’s day as a taxable energy source, but ARCH2 may never even get off the ground without customers, making the billions more needed to make it a reality a very risky investment. Such may be all for the better as steam forming hydrogen from methane will end up meaning even more fracking and lethal fracking waste, which our legislature seems glad to tolerate for the sake of those severance taxes. Also in the mix are the potential liabilities of botched sequestrations.

So, with all the noted surplus why aren’t we seeing more being used for the good of the people of WV?

We know that the children of WV (with the highest rate of poverty in the US at 25%) cannot withstand any further reduction of services in funding for schools, parks, libraries, day care, nutritious food programs and healthcare availability. With federal monies from the American Rescue Plan from the days of COVID coming to an end, WV must be prepared to maintain not only the status quo but achieve a higher standard of excellence that would seem to be clearly possible under appropriate fiscal management.

We are counting on the WV legislature to prove that they are aware of the socio-economic problems that continue to arise from misguided financial management. Rescue bills must be passed to take up the cause of the people. The legacy of an inability to resolve WV’s horrible statistics and failure to take care of its own should be felt at the ballot box in 2024.

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*- West Virginia’s Revenue Gap Grows to $210.7 Million as Hundreds of Millions in Spending Obligations Loom, WV Center on Budget & Policy, November 8, 2023

For the first four months of FY 2024, West Virginia’s General Revenue collections are down $210.7 million compared to the same period in FY 2023, despite the state exceeding the fairly modest revenue estimates set by the Governor Justice administration in an effort to maintain a ‘flat budget.’

The combination of self-inflicted tax cuts and a collapse in severance tax revenue explain the revenue gap. Personal income tax collections are down $26.5 million compared to this time last year, while severance tax collections are down $306.3 million. Global factors remain the primary cause of low energy prices and, by extension, the tanking of severance tax revenues, and are out of the West Virginia Legislature’s control. However, a lack of growth in income tax revenues to offset the expected decline in the severance tax is the direct result of income tax cuts passed earlier this year by the Legislature. Those tax cuts were enacted despite widespread understanding that personal income tax collections are a far more stable source of income than volatile severance tax collections, which were responsible for about 40 percent of the FY 2023 ‘surplus.’