March 31, 2021 was "Cross-Over" Day at the West Virginia Legislature. This is the day when all bills must pass out of their house of origin and on to the other chamber. Historically, just over 23 percent of all bills clear this hurdle and, once over to the other side of the Capitol, 65 percent of them end up being enacted. This year, a total of 2,037 bills have been introduced or originated in the Legislature. By the time both chambers recessed on Cross-Over Day, 389 bills had made the journey. Since the Legislature has already completed action on several dozen of those, there are now only 294 active bills pending. Among those bills are Governor Justice's tax proposals, together with competing versions from both the Senate and the House. In other significant news, however, is the passage of a bill creating an Intermediate Court of Appeals in West Virginia. This legislation has been a priority of the Chamber of Commerce and other allies for almost a decade.
With just over a week remaining in the 2021 Regular Session, the concept of tax reform and reduction of the personal income tax is still alive and well. Governor Justice and Republican leaders in both the House of Delegates and the Senate all agree they want to cut the personal income tax. But, exactly how to accomplish this herculean task is where the similarities end.
The plan advanced by the Governor's Office estimates initial personal income tax reductions totaling just over $1 billion and rebates totaling $52 million for lower income residents. The Governor's plan contemplates tax increases of $902,600,000 to make up for the lost revenue with the reduction in the personal income tax.
A plan currently under consideration by Senate Republicans cuts the personal income tax initially by $1.09 billion and would offset that cut with a variety of tax increases anticipated to be right around $890 million. The Senate plan raises the sales tax to 8.5 percent and reinstitutes the food tax at 2.5 perecent.
Legislation passed by the GOP majority in the House of Delegates cuts at least $150 million a year in income taxes, projecting full elimination of the personal income tax in approximately 12 years. With a rather dire fiscal note submitted by the Justice administration, the House plan does not include offsetting taxes, and the concern is whether natural economic growth could keep pace with the corresponding cuts that would need to be made in the state budget over time.
Late Thursday, the Senate Committee on Government Organization considered Engrossed House Bill 2002 dealing with broadband infrastructure. Among other things, certain aspects of this bipartisan legislation is intended to expedite rights-of-way, produce a broadband availability map and compel high-speed internet providers to submit to greater legislative oversight. HB 2002 also expressly provides for the powers, duties, and responsibilities of the Office of Broadband that will be included in the newly created Department of Economic Development.
After a Friday conference committee meeting, both the House of Delegates and Senate remain at odds over legislation dealing with the Governor's ongoing powers during a declared state of emergency or state of preparedness.
During the legislative process, certain critical deadlines imposed by the Legislature impact the consideration of pending bills and their chances of success. Those remaining dates are as follows:
- April 7: Bills are due out of last committee to ensure three separate days for reading.
- April 10 (midnight): Session ends.
Governor Justice recently approved these bills of interest:
Senate Bill 5 sets forth procedures and standards by which attorneys' fees may be recovered under the West Virginia Consumer Credit & Protection Act. The bill essentially codifies certain factors considered by a court for an award of attorneys' fees such as the time and labor required; novelty and difficulty of the questions presented; the skill requisite to perform the legal service properly; and the experience, reputation, and ability of the attorneys. Also, it provides a process by which offers of judgment are evaluated. Simply stated, if a defendant makes an offer of judgment that is rejected by the plaintiff, the plaintiff may not recover fees or expenses from the date of the offer through the entry of judgment if the final judgment is one of no liability or if the final judgment obtained, exclusive of attorney’s fees and expenses, is less than 75 percent of the offer. If the judgment entered does not exceed 75 percent, the defendant may be entitled to reasonable fees and expenses incurred from the date of the offer to the entry of final judgment if the court finds that the plaintiff acted without substantial justification or without good faith in rejecting the defendant’s offer. Finally, the bill provides that a prevailing party may be entitled to fees and costs if the court determines that the opposing party presented a frivolous claim or defense. In that event, the court would hold a separate bifurcated hearing wherein it shall make a determination of whether the frivolous claims or defenses were asserted and to award damages, if any, against the party presenting the frivolous claims or defenses. The provisions of this bill shall apply to all causes of action filed on or after June 16, 2021, the effective date of these amendments to the West Virginia Consumer Credit & Protection Act.
House Bill 2764 would allow the Division of Financial Institutions to enter into agreements with state, federal or foreign regulatory agencies to allow persons who make an innovative financial product or service available in West Virginia through the regulatory sandbox program to make their products or services available in other jurisdictions and to allow persons operating in similar regulatory sandboxes in other jurisdictions to make innovative financial products and services available in West Virginia. The regulatory sandbox concept was created by the West Virginia Legislature in 2020 and is designed to enable entities that would normally require licensure in West Virginia to test an innovative financial product or service for a limited period of 24 months. At the conclusion of that time period, if the test of the product or service has been deemed successful, the entity would be able to continue operating in West Virginia subject to any appropriate licensure requirements. The program is intended to encourage start up activities and entrepreneurship. This bill becomes effective on June 17, 2021.
House Bill 2013 creates publicly funded education savings accounts through the Hope Scholarship Program. The program is for public school students interested in switching to private or home school and would give parents the option to use a portion of their per-pupil expenditure from the state School Aid Formula for certain educational expenses, such as private school tuition, tutoring, educational learning aids, standardized tests, and other qualified expenses. According to present estimates, that amount would equal to about $4,600 a year to start, but that could fluctuate depending on the annual state School Aid Formula.
The total cost to the state for its initial rollout, according to a fiscal note provided by the West Virginia Department of Education, is expected to be about $23 million a year, though that amount may rise dramatically after 2026 when all private school or home school students will be eligible for the scholarship. This bill becomes effective on June 15, 2021.
House Bill 2009 limits the use of wages and agency shop fees for political activities and prohibits employers from withholding or diverting any portion of an employee’s wages or salary for political activities without express, written annual authorization. This prohibition against withholding or diverting wages for political activities applies to any agreement entered into, modified, renewed or extended on or after July 1, 2017. The bill becomes effective on June 17, 2021.
In what amounts to a significant victory for the business community and the Republican super-majority, and after years of failure, Senate Bill 275 was enacted and creates a statewide Intermediate Court of Appeals with a single three-judge panel. The initial judges are to be appointed by the Governor, with the advice and consent of the Senate, to staggered terms. At the expiration of their initial terms, the full term of the office would be 10 years and would be filled by the voters in non-partisan elections. The Intermediate Court of Appeals would not have any original jurisdiction and, after June 30, 2022, would have appellate jurisdiction over such matters as final judgments or orders of a circuit court in civil cases, final judgments or orders of a family court, and decisions of an agency or an administrative law judge. Appeals from its decisions to the Supreme Court of Appeals would be taken by discretion. The Intermediate Court would not have jurisdiction over certain matters such as certified questions, interlocutory appeals, or extraordinary writs. Even still, and upon motion, a party may bypass the Intermediate Court in certain cases of fundamental importance or involving exigencies in which time is of the essence. The bill alters the reorganization of the workers' compensation appeals by abolishing the Office of Judges after September 30, 2022 and transferring its duties to the existing three-judge panel of the Board of Review. The Intermediate Court would then have exclusive appellate jurisdiction over all decisions of the Board of Review after June 30, 2022. While the court is expected to use existing facilities on an as-needed basis, the cost to establish the intermediate court is an estimated $3.6 million, with an annual operating cost expected to be just over $2 million. The bill has not yet been presented to Governor Justice, who would have five days, Sundays excluded, after presentment to act on the bill.
Another bill of interest pending before Governor Justice is House Bill 2024, which recognizes audio-only telehealth; limits those services to a maximum of one year before requiring an in-person appointment; permits prescribing of certain controlled substances to established patients; provides the licensing boards with greater oversight of out-of-state applicants; and, importantly, establishes payment parity for services provided via telemedicine and those provided in-person. An established patient is a person who has received professional services face-to-face within three years prior to the telemedicine services. Further, the one-year limitation on telemedicine services may be suspended on a case-by-case basis by the practitioner.
SB 600 and HB 3300
Perhaps the most significant bills of interest still working their way through the legislative process relate to the competing plans for reducing the state's personal income tax. As you may recall, Governor Justice proposed Senate Bill 600, which included an immediate partial elimination of the personal income tax, with tax increases in certain other areas such as consumer sales, tobacco products, sugary beverages, alcohol, and professional services, to name a few such areas.
Instead of taking up the Governor's bill, House Finance originated House Bill 3300. This bill would cut at least $150 million in personal income taxes a year until the personla income tax is eliminated. In doing so, the bill would create a “personal income tax reduction fund” that would consist of moneys from other sources, including lottery proceeds. This fund would be used to accelerate the overall pace of income tax reduction by transferring moneys to the General Fund to permit the additional permanent $150 million annual income tax reductions.
While House Bill 3300 passed the House along party lines, when it was taken up in Senate Finance, that committee struck all of the House bill and, instead, inserted an entirely new bill in its place. Similar to the Governor's proposal, the Senate Finance version would cut the personal income tax initially by $1.09 billion. Moreover, like Governor Justice's proposal, it would then offset that loss of revenue with a variety of tax increases, though the amount and type of such increases differ. The Senate Finance plan would raise the consumer sales tax from 6 to 8.5 percent; the plan would re-establish the food sales tax at 2.5 percent, thereby reversing a long-held Republican position against that particular type of tax; beverages would be taxed at the 8.5 percent; the consumer sales tax would be applied to certain professional services, such as computer hardware and software, digital goods, advertising, electronic data processing and health and fitness memberships at the new rate of 8.5 percent, while legal, accounting, architectural, and engineering services would only be taxed at 3 percent; a hotel occupancy tax of 4.3 percent would be applied to all bills; and, finally, the Senate Finance version anticipates an annual $45 million from the legalization of recreational cannabis. Interestingly, the bill does not actually legalize recreational cannabis in West Virginia.
House Joint Resolution 3
The Legislature has under consideration an additional far-reaching tax proposal. Specifically, the House has adopted a joint resolution to amend the state Constitution and communicated the same to the Senate. House Joint Resolution 3, known as the Property Tax Modernization Amendment, would amend the constitution to permit the Legislature by general law to set the rates and make adjustments in taxation for tangible personal property, including machinery, equipment and inventory of manufacturers, inventory held by small businesses, and personal property tax on motor vehicles. The House adopted the joint resolution with more than the required two-thirds majority. Upon communication to the Senate, it was referred to the Judiciary Committee, with a second reference to Finance. If this joint resolution is adopted by two-thirds of the Senate, and is ultimately approved by the Governor, the question would then be placed on the ballot at the next general election where a simple majority of the voters is required. The state Office of Tax and Revenue estimates the property tax on machinery, equipment and inventory raises about $300 million annually, while the vehicle tax adds another $100 million. Two-thirds of the revenue raised by this tax presently goes to support education, approximately 28 percent goes to counties, and the balance to cities.
House Bill 3310 exempts from the jurisdiction of the Public Service Commission any solar energy facility located on the premises of a retail electric customer under certain specified conditions. Notably, the output of that facility must be limited to meet only the electrical needs of the premises of the retail electric customer and cannot exceed 25kW for residential customers, 500 kW for commercial customers, and 2,000 kW for industrial customers. Yet, since the aggregate of all such power purchase agreements and net metering arrangements in the state for any utility shall not exceed 3 percent of such utility’s aggregate customer peak demand during the previous year, customers who enter into these power purchase agreements must first provide the utility with a 30-day notice of their intent to enter into such a transaction. This time period would permit the utility to determine if any of the caps have been reached. If the utility does not respond within 30 days, the generator may proceed and the caps will be presumed not to have been reached. While the Public Service Commission is granted rulemaking authority to over the interconnections for these power purchase agreements, it does not have authority over the power rates in those arrangements between the on-site generator and the customer. The bill passed with bi-partisan support and is now pending in Senate Judiciary.