TAX NEWS - June 2010
West Virginia Tax: Huntington City advances proposed sales tax
The committee gave city attorney Scott McClure the green light Monday to draft an ordinance for first reading at the council's June 14 meeting. McClure, however, will spend the next two days researching whether the council should pursue the tax with authority under existing state law or whether Huntington's home rule plan is a better route.
The decision to move forward with a 1 percent sales tax comes after City Council spent several weeks debating a 1 percent occupation tax. Council Chairman Jim Insco acknowledged last week that the occupation tax has been pushed aside for now because of lack of support from the public and council members.
A task force consisting of Insco and councilmen Nate Randolph and Steve Williams will continue to study the tax proposal and could bring it back for consideration this fall.
Randolph said a sales tax is the appropriate way to deal with the city's latest cash crunch, primarily brought on by recession-weakened revenues. He said he hears cries from the public that the city is not doing enough to look for cost-cutting measures.
"The fact is this city has laid off 72 people in the past 10 years," he said. "People really don't understand how strapped we are.
"A sales tax still moves us toward a fairer form of taxation. You only pay it if you purchase an item. It's not being pushed on you. Constituents have even approached me saying that it's more palatable than other alternatives."
The city was given the authority to implement a 1 percent sales tax under its home rule plan, but it also has the authority to adopt it under existing state law, according to a letter that city Finance Director Deron Runyon received from the state Tax Commissioner's Office.
Under state law, a city may implement a sales tax only if it repeals its Business and Occupation Tax or if it dedicates all of the proceeds toward its police and fire pension obligations, Runyon said. No other city in West Virginia has adopted a sales tax, he said.
The city's home rule plan does not include any stipulations regarding a sales tax, McClure said.
While the city might have more leeway with how it could spend sales tax revenue under its home rule plan, it could sunset in 2013, Insco said. There also are concerns that the city will get sued if it passes any form of taxation under home rule, he said.
"I'm ready to vote on a sales tax today if you ask me," Insco said. "We don't need home rule. We just need to dedicate it toward pensions."
Doing so would allow the city to direct some of the money now going toward pensions elsewhere, Insco added.
There are numerous caveats with the pension law that need to be researched before the council proceeds with any ordinance, Runyon said. Similarly, the city should seek guidance from a state panel that approved Huntington's home rule plan in 2008 if McClure determines that is a better framing for the ordinance, Insco said.
A 1 percent sales tax would generate about $3.7 million a year, although Runyon said that is a rough estimate. It wouldn't generate revenue for the city until at least nine months after passage, he said.
According to state law, the city could not implement the tax until six months after passage, Runyon said. That gives the state and merchants time to adjust their computer systems for charging and collecting the tax, he said. It would be another three months before the city started collecting the tax.
By law, the municipal sales tax must apply to the same goods and services as the state sales tax, Runyon said. The state also would serve as the collections agent for the city and keep 1 percent of the revenue gained from the sales tax as a fee.
Unlike the occupation tax, the sales tax would not require the repeal of the $3-a-week user fee. The user fee generates about $4.5 million a year for the city.
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