Born of need to make up lost revenues, tariff has been eliminated only to return in various forms
CHARLESTON, W.Va.--Acting Gov. Earl Ray Tomblin isn't the first governor to want to reduce what he calls the state's "unfair, regressive" tax on food.
Tomblin said last week he wants to reduce the 3 percent tax to 2 percent beginning next January and eliminate the tax entirely in coming years.
The history of the food tax in West Virginia, only one of a dozen or so states that tax groceries, is a tortured one. Besides Virginia, no neighboring states have such a tax, although they have higher property taxes and higher taxes on other retail sales.
West Virginia's food tax came about during the Great Depression and led to a complete shakeup of the state's political power structure. Then it was eliminated in the late 1970s, brought back in the 1980s and has gradually been reduced over the past several years.
The "regressive" tax was first imposed in 1934 at 2 percent.
Before then, about 90 percent of the state's revenue came from property taxes that were handled mostly by local governments, which collected the taxes and spent much of the money.
But in 1932, during the depths of the Depression, West Virginians went to the polls and, by an 8-1 margin, voted to amend the state constitution to limit property taxes.
The goal of the Tax Limitation Amendment, which created the state's modern property tax classifications and sharply limited the power of governments to tax personal property, was to help save farmers and homeowners who faced the prospect of losing their homes because they couldn't pay their taxes.
What ended up happening came from the law of unintended consequences.
In 1933, incoming Gov. Herman Guy Kump was left with a real crisis.
The year before, the state had received about $40 million in property tax revenue. Suddenly, that was halved.
During his inaugural address, Kump was forthright about what had to be done next.
"This compelled us to seek new sources of revenue for state and local purposes in excess of $15 million, to propose an elaborate system of state aid for local schools, to plan for the relief of counties from their present road levies and to establish administrative machinery to put the new plans into effect," he said. "Time alone can tell the wisdom of all this. From the standpoint of the new administration, it is merely a condition to be met; and with all the resources at our disposal, we have worked diligently to meet it."
That was delicate way of saying that a whole host of new taxes now had to be imposed to make up the lost revenue. Among them was the new food tax, which at first was just a sales tax on all retail purchases.
What came next, this "elaborate system" and new "administrative machinery," was the modern state bureaucracy. Local governments were now starved of money and the state was the one collecting all the new taxes. In turn, the state took increased control of the secondary roads and the school system because politicians in Charleston now had the power of the purse.
Kump made up for the lost revenue in a series of proposals, according to historian Jerry Bruce Thomas's "An Appalachian New Deal," a history of the Great Depression in West Virginia.
In 1933, a year before it went into effect, the state House and Senate fought over the final form of the sales tax. The House "bitterly opposed" the consumer sales tax and, at one point exempted "essential food stuffs," according to Thomas.
But the House lost the battle and West Virginia became one of the first states to have any sort of sales tax.
All the while, the Tax Limitation Amendment's main goal - giving relief to the struggling and the poor - was unmet, according to Thomas.
Not only did the number of farms decline, but the state also had to cut services as a result of the lost revenue and new taxes, like the food tax, ended up falling on those least able to pay.
"The greatest savings under the amendment accrued to large owners of real estate and absentee owners of property who enjoyed the tax reductions but avoided the new indirect taxes and generally suffered no loss of inconvenience from the reduction of government services," Thomas wrote in his chapter on the tax called "A 'Jump in the Dark.' "
Gradually, lawmakers began to separate the tax on food from the overall sales tax.
In July 1941, lawmakers exempted bread, butter, eggs, flour and milk bought for home consumption from the tax, according to Mark Muchow, the deputy secretary of the state Department of Revenue and a student of history who wrote an entry on taxation for the West Virginia Encyclopedia.
That exemption for essential foods was repealed in 1951, when all food was again taxed at the same rate.
CHARLESTON, W.Va.--Acting Gov. Earl Ray Tomblin isn't the first governor to want to reduce what he calls the state's "unfair, regressive" tax on food.
Tomblin said last week he wants to reduce the 3 percent tax to 2 percent beginning next January and eliminate the tax entirely in coming years.
The history of the food tax in West Virginia, only one of a dozen or so states that tax groceries, is a tortured one. Besides Virginia, no neighboring states have such a tax, although they have higher property taxes and higher taxes on other retail sales.
West Virginia's food tax came about during the Great Depression and led to a complete shakeup of the state's political power structure. Then it was eliminated in the late 1970s, brought back in the 1980s and has gradually been reduced over the past several years.
The "regressive" tax was first imposed in 1934 at 2 percent.
Before then, about 90 percent of the state's revenue came from property taxes that were handled mostly by local governments, which collected the taxes and spent much of the money.
But in 1932, during the depths of the Depression, West Virginians went to the polls and, by an 8-1 margin, voted to amend the state constitution to limit property taxes.
The goal of the Tax Limitation Amendment, which created the state's modern property tax classifications and sharply limited the power of governments to tax personal property, was to help save farmers and homeowners who faced the prospect of losing their homes because they couldn't pay their taxes.
What ended up happening came from the law of unintended consequences.
In 1933, incoming Gov. Herman Guy Kump was left with a real crisis.
The year before, the state had received about $40 million in property tax revenue. Suddenly, that was halved.
During his inaugural address, Kump was forthright about what had to be done next.
"This compelled us to seek new sources of revenue for state and local purposes in excess of $15 million, to propose an elaborate system of state aid for local schools, to plan for the relief of counties from their present road levies and to establish administrative machinery to put the new plans into effect," he said. "Time alone can tell the wisdom of all this. From the standpoint of the new administration, it is merely a condition to be met; and with all the resources at our disposal, we have worked diligently to meet it."
That was delicate way of saying that a whole host of new taxes now had to be imposed to make up the lost revenue. Among them was the new food tax, which at first was just a sales tax on all retail purchases.
What came next, this "elaborate system" and new "administrative machinery," was the modern state bureaucracy. Local governments were now starved of money and the state was the one collecting all the new taxes. In turn, the state took increased control of the secondary roads and the school system because politicians in Charleston now had the power of the purse.
Kump made up for the lost revenue in a series of proposals, according to historian Jerry Bruce Thomas's "An Appalachian New Deal," a history of the Great Depression in West Virginia.
In 1933, a year before it went into effect, the state House and Senate fought over the final form of the sales tax. The House "bitterly opposed" the consumer sales tax and, at one point exempted "essential food stuffs," according to Thomas.
But the House lost the battle and West Virginia became one of the first states to have any sort of sales tax.
All the while, the Tax Limitation Amendment's main goal - giving relief to the struggling and the poor - was unmet, according to Thomas.
Not only did the number of farms decline, but the state also had to cut services as a result of the lost revenue and new taxes, like the food tax, ended up falling on those least able to pay.
"The greatest savings under the amendment accrued to large owners of real estate and absentee owners of property who enjoyed the tax reductions but avoided the new indirect taxes and generally suffered no loss of inconvenience from the reduction of government services," Thomas wrote in his chapter on the tax called "A 'Jump in the Dark.' "
Gradually, lawmakers began to separate the tax on food from the overall sales tax.
In July 1941, lawmakers exempted bread, butter, eggs, flour and milk bought for home consumption from the tax, according to Mark Muchow, the deputy secretary of the state Department of Revenue and a student of history who wrote an entry on taxation for the West Virginia Encyclopedia.
That exemption for essential foods was repealed in 1951, when all food was again taxed at the same rate.
Then the tax was raised from 2 percent to 3 percent in 1961 under the administration of former Gov. W.W. Barron, a move that was made to fund a public works program for 5,000 men.
Gov. Arch Moore, a Republican, fought for eight years without success to convince a Democrat-controlled Legislature to remove the tax.
But Democratic Gov. Jay Rockefeller, who followed Moore into office, ran promising to strike the tax down.
In 1979, three years after taking office and just before the beginning of the next campaign season, Rockefeller got his wish when both houses passed the measure by a 2-to-1 margin. The state gradually eliminated the 3 percent tax by a percent a year and was zero by the summer of 1981.
"Others have failed, I have succeeded," Rockefeller, now the state's senior U.S. senator, said the day he signed the law that would end the tax.
He added, "This is my proudest moment since taking office."
But Rockefeller's victory didn't last long.
Faced with another budget crisis - the state was simply not paying its bills at the time - Gov. Gaston Caperton came to office in 1989 and re-imposed, then doubled the food tax.
The year before, the sales tax, which had risen but continued to exclude food since Rockefeller's administration, went from 5 percent to 6 percent, even though that increase was only meant to last a year.
Caperton brought the food tax back and set it at 6 percent, too.
Both the sales tax and the food tax stayed the same until Joe Manchin's administration.
Manchin halved the tax from 2006 to 2008, taking it down 1 percent a year until it was where it is now: 3 percent.
At the time, he estimated that lowering the tax to 3 percent would save the average family $145 a year.
Tomblin's pledge during last week's State of the State was apparently one of deep conviction. He is a native of the southern coalfields, one of the poorest regions in the country.
His Chief of Staff, Rob Alsop, said Tomblin believes the tax is a "moral issue."
"Several years ago - in a responsible manner - we moved toward removing this regressive, unfair tax," Tomblin said last week. "And while we do not have the capability to remove it all at this time - I believe we can make this fiscally responsible reduction. It is this type of broad tax relief that will help our working families, our seniors, and all those trying to make ends meet. Every little bit counts."
Except for Virginia, which has a 2.5 percent tax on food, West Virginia is the only state in the region that imposes a food tax. But other states have higher residential property taxes - West Virginia's are kept low by the Tax Limitation Amendment - and they also have higher sales taxes on non-grocery items.
It's not clear if the Legislature will go along with Tomblin's plan, but the overall effect on the $4 billion state budget will be a modest one.
The food tax brings in about $78 million a year, all told. A reduction of 1 percent will only amount to $26 million in lost revenue each full year it's in place. Tomblin hopes to begin the reduction next January, in the middle of the state's budget year, meaning the effect will be about $11 million in that fiscal year.
Muchow said the goal is to eliminate the tax without raising others, even while continuing to eliminate some business-related taxes that could spur investment.
"The objective is that the economy will increase in overall growth and we don't need to make that up," Muchow said.
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