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For first time in years, state must tap into $45 million reserve

CHARLESTON, W.Va. -- For the past few years, West Virginia hasn't had to tap into a $45 million reserve fund set aside to pay state income tax refunds on a timely basis.

This year, though, the government will spend all or most of the money in that account, Deputy Revenue Secretary Mark Muchow said Thursday.

State tax collections are running $7.8 million below estimates, and that deficit will become worse Friday, when February's tax collections are tabulated, he said.

"We expect that to go up considerably when the February numbers come out," Muchow said of the revenue deficit -- a deficit he expects to get worse over the remaining four months of the budget year.

"I have reason to believe, when we get to the end of the year, it will be significant," he said.

Asked if the tax revenue shortfall could reach the $45 million figure, Muchow said, "It's a good possibility, by the time the year ends."

He said tax collections are taking a hit because the three biggest revenue sources -- income taxes, sales taxes and severance taxes -- have seen downturns.

Muchow said the first two categories were hurt, in part, when a federal 2 percent payroll tax cut expired on Jan. 1.

"When people's paychecks are reduced, they tend to spend less," he said.

Severance taxes, meanwhile, continue to be hurt by a decline in coal production and by near-record low natural gas prices.

Also during Thursday's Department of Revenue budget presentation to the House Finance Committee:

• Muchow was asked how much the state would need to increase the sales tax in order to eliminate the gas tax.

Since each 1 percent of sales tax brings in $200 million, he said, it would require increasing the sales tax from 6 percent to 8 percent, with a rate of about 7 1/2 percent, if the fuel tax on diesel remained in place.

The question was prompted by legislation in Virginia to replace that state's excise tax on gasoline with a wholesale tax, and to raise the sales tax from 5 percent to 5.3 percent to make up the difference.

Virginia also dedicates 1 percent of its sales tax to its state road fund, Muchow said. Like many states, Virginia has tried to come up with alternative ways to fund road construction and maintenance, as high-mileage vehicles drive down gas tax collections.

• Revenue Secretary Charlie Lorensen said the governor's bill to require online retailers that have distribution centers or retail outlets in West Virginia to collect sales taxes on purchases by West Virginia residents (SB377, HB2754) will not jeopardize the state's participation in the national Streamlined Sales Tax initiative.

Like many bills, legislation to create a standardized system of taxing online sales has been caught in congressional gridlock, he said.

Over time, opposition from major online retailers to the concept has faded, Lorensen said.

"Remember, AOL was very much against it," he said. "AOL is not a major player

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


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