West Virginia Governor Joe Manchin has announced a plan to gradually abolish the state’s 6% sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on food. When the legislature reconvenes for a special session on Sept. 7, he will ask legislators to consider two proposals: a one percent rate reduction with the goal of complete repeal during his administration, and a monthly food sales tax holidaySales tax holidays are periods of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. . Read the full story here.
Republican legislators, who have long wanted to abolish the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , welcomed this news, but many Democrats do not share their enthusiasm.
The sales tax on food was abolished in the 1980s by Gov. John D. Rockefeller IV, only to be reinstated at a higher rate during a 1989 budget crisis. Now that the state is enjoying a budget surplus, Gov. Manchin believes it can afford the estimated $25 million price tag of either of his plans.
Opponents argue that the fiscal future is uncertain and it is foolish to change tax policy on the basis of just one prosperous year. The budget surplus is due in part to an increase in the price of and demand for coal, which could change in the near future.
Proponents of repeal argue that the state would make up for lost revenue by keeping shoppers in the state. An estimated 400,000 West Virginians buy groceries in neighboring states that do not tax food. If those shoppers stayed in the state, they would not only generate more revenue for West Virginia grocers, they would also purchase some taxed non-food items on their shopping trips, which means more tax revenue for the state.
The governor’s plan for gradual repeal would be a much better choice than his tax holiday proposal. Tax holidays are poor tax policy, and a monthly sales tax holiday would create an administrative nightmare for retailers. If enacted, a food sales tax holiday might eventually meet the same fate as the state’s back-to-school sales tax holiday, which was cancelled earlier this year.
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