Deputy Revenue Secretary Mark Muchow estimates that a $2 billion cracker plan would see its taxes cut by nearly $30 million in the first year alone under Tomblin's proposal.
The measure applies to non-real estate property, in this case business machinery, equipment and inventory. Labeled "personal" property by the West Virginia Constitution, these assets are normally taxed at 60 percent of their market value. The proposal would instead assess this property at 5 percent by declaring it salvaged.
Muchow said that would value a $2 billion cracker facility at $100 million for property tax purposes, instead of at $1.2 billion. The counties considered likely sites for a cracker tax such as an industrial property at 2.5 percent, resulting in a $1.5 million annual tax bill, Muchow said. A cracker would otherwise be charged around $30 million that first year, though the amount would gradually drop over time as its machinery and equipment age and lose value, he added.
The West Virginia Center for Budget and Policy has questioned this and other proposals targeting "personal" property taxes. It argues that government spending can play a positive role in economic development, and scrutinizes tax cuts pursued to attract business.
Neither Ohio nor Pennsylvania tax non-real estate property. This has been a key point for those seeking to lure a cracker. The Center for Budget and Policy contends that taxes on "personal" property are offset by West Virginia's rates for real estate property, which tend to be lower than that of other states. The center estimates that a $1.2 billion cracker would pay $34.4 million in property taxes in West Virginia, absent Tomblin's proposal, but nearly $40 million in Ohio because of that state's higher real estate rates.
Muchow said that while West Virginia tends to charge lower real estate property rates, commercial property is taxed at twice the level as residential property. He also said that more than half of the property of a typical industrial site is machinery, equipment and inventory, not real estate.
"In manufacturing, an overwhelming share of the property is going to be personal," Muchow said. "The tax puts us at a competitive disadvantage."
Muchow also said that even $1.5 million in annual property taxes would be huge for the host county, and that property would not be subject to depreciation.
"It's not every day that a county gets a $2 billion-type investment," Muchow said. "That's far above the level of investment we're used to."
Tax incentive legislation: http://tinyurl.com/79d7jhc
American Chemistry Council cracker plant estimates: http://www.americanchemistry.com/shalegasimpact