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Editorial: Agency gets too much leeway on fee for collecting local taxes

Apr. 22, 2013 @ 11:40 PM

After approval of an extended and expanded home rule program for West Virginia cities, the Legislature this month gave the state's Tax Department a little more authority. The question now is whether the department was given too much leeway, to the potential detriment of the program.

The home rule program, which allows participating cities more freedom to try new approaches to municipal problems, was set to expire July 1. Lawmakers this month passed a bill to extend the program for six years and allow up to 16 more cities to participate. Currently, Huntington and three other cities take part.

Cities still face many restrictions regarding what they can do, but they will have the authority to impose a 1 percent sales tax on purchases of goods and services at businesses within their borders. To do so, they must lower or eliminate their business and occupation taxes also.

Huntington tried this approach under the initial pilot program, and it has been implemented with little grumbling and allowed lower taxes on businesses. That amounts to a good tool for cities, and many in the expanded home rule program may pursue it.

To prepare for that, legislation passed last week authorizes the state tax commissioner to collect any special local sales taxes, use taxes and excise taxes on behalf of local governments.

The bill also allows the Tax Department to keep up to 5 percent of the money collected to offset its costs. That's a rate nearly five times more than it keeps now for collecting Huntington's new sales tax.

For cities, that means a reduction in the amount of revenue they will collect. For example, during the first three months of this year, Huntington's sales tax brought in $1,759,790, and the Tax Department kept $17,776. If the Tax Department had kept a full 5 percent, Huntington would have netted about $70,000 less in revenue.

Tax Department officials said the department does not intend to profit from the processing fee, but that the approximate 1 percent charged now isn't covering the department's costs in setting up the collection system for the local tax.

Jeff Oakes, the state's acting deputy tax commissioner, said the tax office hasn't determined yet if it needs to raise the rate to 5 percent. "That work is ongoing. It may be 2 percent, it may be 3, it may be 5," he said.

That ambiguity is what is troubling. Lawmakers should have insisted on a detailed cost analysis before authorizing a fee of up to 5 percent.

The bill does require the Tax Department to seek legislative approval for the fee it charges, but Sen. Robert Plymale, D-Wayne, said he worries the agency would issue an emergency rule and increase the fee until legislators could meet again to vote.

We hope lawmakers and legislative auditors closely scrutinize the department's specific fee request, demand justifications on all costs and ensure that home rule cities aren't paying more than they should. Overcharging cities would undercut what the home-rule program intends to accomplish.

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