Barboursville Mayor Chris Tatum

The B&O tax cut will hurt West Virginia cities. They worry the next one might devastate them.

Editor’s note: This story was originally published by Mountain State Spotlight. Get stories like this delivered to your email inbox once a week; sign up for the free newsletter at https://mountainstatespotlight.org/newsletter

By Douglas Soule, Mountain State Spotlight

As Mayor Chris Tatum walked around the Barboursville city garage, he didn’t just see an array of equipment and vehicles, their metal gleaming in the morning sun. He saw the essential services his town provides for the people who live there. 

There was the garbage truck that hauls trash away every weekday from city homes. There were the vans that provide transportation for the senior citizens center. Beside the entrance was the camera truck, which sends a small robotic device into sewer lines to inspect damages, meaning the city no longer has to dig up pipes for the same purpose. 

Tatum said that truck was worth its weight in gold.

“[It has] saved us countless of times and saved the taxpayers countless dollars,” he said.

Barboursville is in a position most of West Virginia’s towns would kill to be in: located right on Interstate 64 between Huntington and Charleston, the small city has a lot of businesses and a shopping mall. All of these shops pay taxes directly to Barboursville in the form of a business and occupation, or B&O, tax. But as state lawmakers chip away at local municipalities’ abilities to tax local businesses, Tatum says city services like trash pickup and senior transportation could be on the chopping block. 

Earlier this month, lawmakers passed House Bill 4567, which, if signed by the governor, will phase out the B&O tax on new car purchases over the next few years. That’s a loss that Barboursville and most other local governments can manage, said Tatum, who’s also the president of the West Virginia Municipal League, an association of the state’s cities, towns and villages. But the bill’s sponsor has indicated he wants this to be the first of many B&O tax cuts, and Tatum says eventually Barboursville will reach a point where services will have to be slashed and fees raised.

“Cities will die the death of a thousand cuts if they continue,” Tatum said.

‘Measured approach’ 

There’s certainly an appetite for more cuts in the Capitol. 

Delegate Brandon Steele, R-Raleigh, sponsored the recent bill and said it’s his hope that the B&O tax is eventually entirely removed. He said local government leaders are going to have to “trust” lawmakers to make those changes.

“That might take 10 years, I don’t know. But this is something that I plan on keeping my eye on as long as I’m in the Legislature, and I think a lot of other people are too,” he said. “I think it’s something that we will have to take a look at step-by-step and take a measured approach.”

The West Virginia Automobile Dealers Association, which pushed for the new car B&O tax cut, said it believes other industries will soon be knocking on lawmakers’ doors. 

“I think that while we may be the first industry to ask for a reduction, I believe there’ll be more to come,” said Jared Wyrick, president of the association. “And I would like to see [the B&O tax] go away entirely.”

He said there’s a reason why the new car B&O tax cut is warranted. The cost of new cars is very high, he said, but the overall profit margins are slim. 

“This bill is not aimed at picking winners and losers,” he said. “It’s a fairness issue.” 

But West Virginia cities are facing a future where they have to figure out how to make up for this lost revenue.

In Barboursville, Tatum says B&O tax on average makes up nearly 40% of the budget. The percentage of that coming from new car sales is small, but losing all of the revenue would be devastating. He says the city’s abilities to remove snow, recycle, respond to emergencies and pave the roads all count on the tax that businesses pay. 

“They’re going to force cities to go back and go back into the pockets of their residents,” Tatum said. “We’re going to ask an awful lot of our residents if they make that larger cut.”

Home rule

Steele says another reason to cut B&O taxes goes back to a concept called “home rule.” Cities in West Virginia can apply to be part of the Municipal Home Rule Program, which gives those cities greater power to pass laws governing their jurisdiction. Part of this is the ability to implement a local sales tax up to 1%, in exchange for reductions in B&O taxes.

There are more than 50 home rule cities in the state. Steele says some of them haven’t reduced B&O taxes enough and have used the two taxes to dramatically expand their budgets. 

“The cities weren’t following through on what they’re supposed to do, and at some point the Legislature’s got to step in,” he said, adding that people who had advocated for the sales tax option had offered it as a way to eventually entirely remove the B&O tax.

In Barboursville’s 2019 home rule application, the city projected it would lose more than half a million dollars in taxes annually from its cuts, though it anticipated getting a good bit more from the sales tax. The remaining B&O revenue — nearly $3 million as of the 2021-22 budget — goes to the services Tatum sees standing in the city garage.

And home rule city or not, Barboursville has limited ability under state law to raise revenues. Tatum says that means if cuts continue beyond new cars, it could not only mean a reduction in services, but an increase in city fees. 

But there are cities in West Virginia who aren’t part of the home rule program, and aren’t able to create a sales tax to offset lawmakers’ B&O tax cuts. One of those is Summersville, where the B&O tax makes up about 25% of the city’s revenue.

Steele’s solution for these cities facing the loss of B&O taxes is to apply for home rule and implement a sales tax. But Summersville Mayor Robert Shafer said his city had previously decided against going that route. Now, he said he feels they’re being forced to apply for the home rule program by “the Legislature’s attack on local revenue.” 

Shafer says the recent legislation and other possible future cuts on the horizon mean cities like his have to either reduce services or reverse course, apply for home rule status and implement the sales tax. 

“I would prefer the state government run state government, and let us cities run our cities,” he said.

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