Incentivizing Capital Improvements through West Virginia Tax Reforms

Public Policy Foundation of West Virginia pic

Public Policy Foundation of West Virginia
Image: ppfwv.org

As the president of West Liberty University from 2007 to 2015, Robin Capehart oversaw sustained administrative development and growth initiatives. Increasing West Liberty University enrollment, he also enlarged the degree and certificate programs in ways that attracted returning adult students. With a background as an attorney, Robin Capehart has also been at the forefront of tax reform efforts as West Virginia’s Secretary of Tax and Revenue.

In a 2015 interview, Mr. Capehart gave an example of the need for business tax reform that lessened the burden for capital expenditures on companies. A business that held a $120,000 piece of machinery for seven years would hypothetically get the value down to $30,000.

However, purchasing a new piece of equipment at the same price would raise taxes paid to those due on equipment valued at $120,000. With the taxed value of the equipment declining only gradually, this provides a distinct disincentive to modernize. The key, then, is to get the business tax system beyond one devised in the 1930s and reflect transitions that have taken the economy from one based primarily on agriculture and natural resources to one centered on manufacturing and services.

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The Need for Tax Reform in West Virginia

Tax Reform pic

Tax Reform
Image: theet.com

A JD graduate of West Virginia University with an LLM in taxation from Georgetown University, Robin Capehart served for eight years as the president of West Liberty University. Since departing West Liberty in 2015, Robin Capehart has functioned as a consultant on several public policy issues, continuing his work as a strong advocate of tax reform.

Mr. Capehart has offered insight on matters of taxation to the West Virginia state legislature for several years, previously serving on the Governor’s Commission on Fair Taxation. As the chairman of the commission, he was one of the primary authors of a groundbreaking report analyzing the history and efficacy of the West Virginia tax code. Co-authored by vice-chairmen Cal Kent and Michael Caryl, the extensive report concluded that the state tax code suffered from an unnecessary degree of complexity, abundance of exemptions, and generally regressive slant.

West Virginia’s tax structure was once well-suited to its manufacturing-focused economy. However, as service delivery companies have grown to comprise a larger portion of the state’s business landscape, many elements of the tax code have become outdated. The 1999 report by the Governor’s Commission on Fair Taxation outlines the need for a tax code with a broader base and lower rates. The report also highlights the detrimental impact that taxes on inventory, machinery, and equipment can often have on manufacturing companies, at the same time noting that many local governments rely heavily on this form of tax revenue.

Efforts to modernize West Virginia’s tax structure have persisted throughout multiple congressional sessions. The state legislature recently met for a special session in the summer of 2017 to finalize several budgetary concerns, including tax provisions. However, the body did not come to an agreement on tax reform, leaving the issue on the table for future legislative sessions.

West Virginia and Other States Work to Modernize Tax Systems

 

Robin Capehart

With experience in law, academia, and tax policy, Robin Capehart spent eight years as the president of West Liberty University in West Virginia. An advocate for tax reform, Robin Capehart has worked to draw attention to West Virginia’s outdated tax structure, stating that it fails to reflect the state’s shift from manufacturing to a service-based economy.

As with other states across the country, West Virginia has struggled to align its tax code with the modern service economy. The state’s current tax structure—geared toward the economy of the early 20th century—places a heavier tax burden on manufacturing-oriented businesses while allowing service delivery companies, which account for more than two-thirds of the nation’s economy, to fall through the cracks.

This imbalanced system leads to budgetary shortfalls that affect the ability of local governments to cover the cost of infrastructure and public services. In 2017, lawmakers in nearly two dozen states, including West Virginia, attempted to reform the tax code and institute a sales tax on professional services. Although the proposed reforms in West Virginia and other states included revenue-neutral cuts, all of them failed to pass.

The failure of West Virginia and 22 other states to pass measures imposing taxes on services demonstrates the challenges that state governments face in attempting to broaden the tax base. Despite these challenges, however, states such as West Virginia will still have to find a way to update a tax structure that is based on an old economic model.

The Work of the Public Policy Foundation of West Virginia

Public Policy Foundation of West Virginia pic

Public Policy Foundation of West Virginia
Image: ppfwv.org

An alumnus of Georgetown University Law Center with an LLM in taxation and a former president of West Liberty University, Robin Capehart has written several scholarly articles and other works, including a chapter in Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It, over the course of his career. Robin Capehart now serves as an independent consultant and a Senior Resident Fellow of the Public Policy Foundation of West Virginia (PPFWV).

The PPFWV brings together scholars from throughout the country to address issues that affect West Virginia. The scholars on which it relies for this expertise hail from multiple institutions, encompassing West Virginia University, West Liberty University, Marshall University, The University of Tennessee, and Ball State University.

The PPFWV’s Research Team includes prominent figures such as the former administrator of the U.S. Department of Energy’s Energy Information Administration and the former Cabinet Secretary of the West Virginia Department of Tax and Revenue. Over the years, it has contributed to a number of economic impact studies and published several books, including both Unleashing Capitalism and Real Tax Reform, which have facilitated the evolution of the state’s public policy.

To learn more about the PPFWV and its research, visit www.ppfwv.org.