The Retrograde Nature of West Virginia’s Taxes on Business Equipment

 

Robin Capehart, West Liberty

A longtime West Virginia academic leader, Robin Capehart formerly served as the president of West Liberty University in West Virginia, where he oversaw enrollment growth and campus improvements. Since leaving his role at West Liberty University, Robin Capehart has been actively involved in efforts to reform West Virginia’s tax system.

One major area of focus has been on reducing the tax burden that companies face when undertaking capital expenditures involving the purchase of machinery, inventory, and equipment. Robin Capehart explained in a 2015 interview that this is primarily due to the fact that the equipment depreciates in value over time. A piece of equipment that is held for several years will decrease in valuation each year to the point where the taxes assessed are significantly reduced. For instance, equipment originally purchased for $120,000 would decline in value to $30,000 after seven years.

Since purchasing a new piece of equipment will cause the taxes to increase, companies do not have a strong incentive to modernize and invest in new infrastructure that is needed to remain competitive. In addition, new businesses are dissuaded from entering the state.

Fortunately, the West Virginia state legislature is gearing up to discuss this issue and – with the support from State Commerce Secretary Woody Thrasher and Senate President Mitch Carmichael – potentially enact tax reform in 2018.

The Roots of West Virginia’s Opioid Crisis

 

Opioid Crisis
Image: thefiscaltimes.com

Formerly the president of West Liberty University in Wheeling, Robin Capehart now serves as a senior resident fellow with the Public Policy Foundation of West Virginia. A tax reform advisor, researcher, and attorney, he also works as a senior consultant with Georgetown Solutions, LLC. Robin Capehart’s policy analysis background has led to his publication of solution-oriented papers on topics such as the opioid crisis currently ravaging his state.

Statistics from the Centers for Disease Control and Prevention (CDC) show West Virginia with the highest rate of opioid overdose deaths in the country. One Capehart paper notes that, on a single day in 2016 in Huntington, officials reported 26 heroin overdoses within a few-hours’ span.

Multiple causes come together to create an epidemic of such magnitude. In the case of West Virginia, experts have identified several key reasons for the problem:

– The rate of opioid prescriptions issued is among the highest in the nation. West Virginia additionally falls among the top 10 states for prescriptions for high-dose opioid medications and opioids with extended release, both categories being especially conducive to abuse.

– In the 1990s, physicians nationwide–often prodded by glowing pharmaceutical advertising that neglected to emphasize the potential for addiction–wrote numerous new prescriptions for OxyContin and other opioid painkillers. Once addicted, many patients who could not continue to access these prescription medications turned to heroin.

– Because West Virginia industry concentrates in labor-intensive jobs like mining, more individuals experience chronic pain, and the state’s high unemployment rate often translates into the depression and hopelessness that can lead to addiction.

WV Test Scores Lag While Other States Pursue Education Reform

 

Test Scores
Image: wvpublic.org/

As a senior resident scholar of the Public Policy Foundation of West Virginia (PPFWV), former West Liberty University President Robin Capehart studies and addresses some of the major challenges affecting his state. A former senior consultant for Georgetown Solutions, LLC, he brings his extensive background as an attorney, a researcher, and an advocate of government efficiency to his work at the PPFWV. In a 2015 article published in Public Policy Quarterly, Robin Capehart outlined his ideas on education reform.

In that piece, he observed that education as traditionally practiced in the United States, with its top-down, one-size-fits all, regulation-bound approach, has served multiple generations of students poorly. He went on to write that whereas dozens of other states have incorporated tenets of the 1989 Education Summit supported by President George H. W. Bush and subsequently by President Bill Clinton, West Virginia has not.

The summit’s recommendations include offering a broader range of school choice options for families, decentralization of decision-making focused on empowering local schools, and a greater reliance on results instead of rule-compliance when evaluating performance. In addition, the summit emphasized the vital importance of community and parent involvement with local education.

West Virginia’s continued reliance on the same educational structure that was obtained during the time of the Great Depression, wrote Mr. Capehart, has resulted in its continued poor educational performance. He noted that scarcely more than half of fifth graders scored at a proficient level on a test measuring language skills, and less than one-third achieved a proficient score in mathematics.

Could Ohio’s CAT Serve as a Model for West Virginia Tax Reform?

 

Ohio’s CAT
Image: tax.ohio.gov

Tax law expert Robin Capehart has advocated for tax reform in his home state of West Virginia for more than two decades. From 1997 to 2000, he chaired the Governor’s Commission on Fair Taxation. The report produced by the commission in 1999 continues to stand as the most comprehensive review of state tax structure in West Virginia’s history. Following his term on the Commission, Robin Capehart went on to serve as president of West Liberty University, but he has remained a strong champion of state tax reform and continues to explore new tax models and initiatives in other states that could benefit West Virginia.

One such model, which Capehart mentioned in a recent interview with the Tristate Update, is Ohio’s Commercial Activities Tax (CAT). Enacted in 2005, this tax represented Ohio’s attempt to levy a broad, low-rate tax.

Notably, the CAT is similar to a business activities tax that Capehart and his coauthors proposed in the commission’s report in terms of its low rate and broad base. Operationally, they are different. The CAT is a gross receipts tax while the BAT is a consumption based value-added tax similar to the BAT in New Hampshire. Studying the effectiveness of Ohio’s CAT could provide West Virginia with some helpful lessons about how to optimize a low rate, broad based tax. For example, reaction to the CAT has been relatively favorable due in part to the fact that it not only replaced Ohio’s corporate franchise tax and tangible personal property tax, but also was paired with reductions in the individual income tax rate, which resulted in an overall tax cut.