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Statehouse Beat: Small changes cost big bucks

CHARLESTON, W.Va. -- Continuing some CSI-type reconstruction of how a last-minute amendment turned a rather innocuous tax credit for natural gas-powered vehicles turned into a heyday for buyers of all types of hybrid and flex-fuel vehicles -- and is costing the state some $100 million in lost tax collections:

We know the strike-and-insert amendment to the Marcellus Gas and Manufacturers Development Act was offered on the evening of the final day of the 2011 session by then-House Finance Chairman Harry Keith White, D-Mingo, about an hour into the 7 p.m. floor session.

Not unusual that it would be a Finance Committee amendment or that it would be strike-and-insert (which replaces the entire contents of the bill, and is frequently done to avoid screwing up numbering of code sections that can occur with cut-and-paste amendments.)

Even in the era of transparency, with delegates able to see the 40-some-page amendment on their laptops or tablets, it would have been a near-impossibility to decipher in the few moments before the vote on the bill how it greatly broadened the types of vehicles that could qualify for the generous tax credit.

In fact, it passed 95-4, with Andes, Cowles, Jonathan Miller and Savilla voting no.

White said that, with all the recent controversy, he tried to go back to recollect what happened.

He said he couldn't recall who requested the tax-credit expansion included in the amendment, but said it was agreed-upon (meaning the House and Senate leadership had signed off on it), and said no one from the Tax Division or governor's office raised any objections.

(Suspicions are that auto dealers pushed it, but I couldn't reach lobbyist Ruth Lemmon for comment Friday.)

By the time the bill got back to the Senate, it was one of the last bills acted upon before the session ended at midnight. (In fact, a motion to change the bill's effective date to that July 1 was the final vote by the Senate before sine die.)

Sen. Brooks McCabe, D-Kanawha, said the main crux of the bill was to provide incentives to attract a methane cracker plant to the state.

He said the language in the House amendment was the same as an alternative fuel tax credit that had been available from 1997 to 2007, and had had minimal impact during that time, while the original bill originally limited the credit to natural gas vehicles.

"The bill I sponsored initially took them all out, but the House put in back in," McCabe said of language to include other alternative and flex-fuel vehicles.

In order to assure passage of the bill, and the cracker plant incentives it included, McCabe said he did not oppose the change, assuming it would not have a major financial impact.

What everybody discovered in retrospect, he said, is that flex-fuel vehicles -- which account for the vast majority of the $100 million in tax credits -- really started pouring onto the market in the late '00s.

As that impact started to become evident, McCabe said he thought the Tomblin administration was going to have a bill to scale back the credit in 2012. When that didn't happen, the Senate introduced its own bill (SB624), which passed the Senate, but was never taken up by House Finance.

This year, Tomblin did, of course, offer the bill to roll back the credit, with a cut-off date of Dec. 31, 2012.

White said there was a lot of resistance among delegates to eliminate the credit retroactively, fearing it would set a bad precedent, so the legislation was made effective from passage -- and publicity about the repeal led to surge of car buying before the April 14 date.

And, judging by the numbers of amended tax returns Deputy Revenue Secretary Mark Muchow said were filed, there were a lot of taxpayers who realized after the fact they had purchased vehicles that qualified for the credit.

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White said that while the $100 million hole in income tax collections isn't good, there should have been an uptick in privilege taxes (the 5 percent tax on vehicle purchases) and in personal property tax collections in the counties.

Sure enough, according to figures from DMV Commissioner Steve Dale, privilege taxes for this April-June (dealers have 60 days after the sale to submit the taxes) of $51.08 million was up 11.6 percent over the same period in 2012.

For fiscal 2013, privilege taxes bought in $187.43 million, up 6.1 percent over FY12 -- and Dale noted that new car sales have been going up as the economy has approved.

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Finally, White tells me that, in order to plug holes in the upcoming 2014-15 budget, Gov. Earl Ray Tomblin and Revenue Secretary Bob Kiss are looking at raiding legislative accounts.

(The Legislature has about  $75.7 million put away in various accounts, including $55.7 million in its TRAFFIC account, set up as its mini-Rainy Day fund in the event of natural or financial disasters, or serious downturn in tax collections.)

White said that's ironic since the TRAFFIC account was created when Tomblin and Kiss were Senate and House Finance chairmen, and noted they would have fought tooth-and-nail if an administration had tried to raid it back then.

Reach Phil Kabler at philk@wvgazette.com or 304-348-1220.


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