Governor Jim Justice (R) signed House Bill 2526, the West Virginia Property Tax Reduction Act, into law in March 2023, reducing income tax rates by approximately 21.5 percent across the board, including lowering the top rate from 6.5 to 5.12 percent—the largest rate reduction in the state’s history.
The law also includes a provision that if the fiscal year-adjusted general revenue fund collections from the previous fiscal year exceed the inflation-adjusted base year revenues, personal income tax rates will be reduced proportionally, with a maximum reduction of 10 percent per year.
For the past fiscal year, tax revenues totaled around $5.7 billion, higher than the adjusted previous year’s $5.24 billion. Consequently, income earners across all levels and tax brackets will see a 4 percent tax reduction starting January 2025, with the top rate projected to decrease to 4.92 percent.
A reduction in marginal tax rates is expected to increase labor supply and stimulate economic growth, which is crucial given that West Virginia’s unemployment rate is slightly higher than the national average. Despite strong economic growth during the governor’s term, there has been some softening in recent quarters.
In June, total general revenue fund collections exceeded $609 million, against the target of $638 million. Individual income tax collections were more than $236 million for June and over $2.2 billion for the year, surpassing the target of $2.05 billion, despite last year’s 21.25 percent rate reduction.
5 percent
Governor Justice has urged legislators to approve an additional 5 percent tax rate reduction in the upcoming special session in August, alongside a new competitive child and dependent tax credit, first proposed during his latest State of the State address. However, some lawmakers, including prominent Republicans, criticize this proposal as too rapid, considering the existing mechanisms for phased tax relief linked to sustained economic growth. There is also frustration with Justice’s opposition to structural reforms, such as addressing the state’s tangible personal property tax.
Recently, West Virginia abolished its longstanding beverage tax, which had been in place since 1951. This tax, raising only $14 million annually, was deemed a nuisance due to its minimal revenue and high compliance costs. Its removal ends 71 years of tax crowns, stamps, and associated filing requirements for beverage businesses.
West Virginia is one of 14 states that have cut income taxes this year. Recent tax relief has already provided $1 billion in savings, benefiting a state with the second-lowest per capita income in the country.
Proposed Income Tax Rates
### Table 1. Overview of Current and 2025 Proposed Income Tax Rates for Single Filers, Heads of Households, and Married Filing Jointly
| Taxable Income | Current Marginal Rate (2024) | Estimated Rate (Jan. 2025) |
|——————-|——————————|—————————-|
| $0 to $9,999 | 2.36% | 2.27% |
| $10,000 to $24,999| 3.15% | 3.02% |
| $25,000 to $39,999| 3.54% | 3.40% |
| $40,000 to $59,999| 4.72% | 4.53% |
| $60,000 + | 5.12% | 4.92% |
_Source: West Virginia Tax Division._
### Table 2. Overview of Current and 2025 Proposed Income Tax Rates for Married Filing Separately
| Taxable Income | Current Marginal Rate (2024) | Estimated Rate (Jan. 2025) |
|——————-|——————————|—————————-|
| $0 to $4,999 | 2.36% | 2.27% |
| $5,000 to $12,499 | 3.15% | 3.02% |
| $12,500 to $19,999| 3.54% | 3.40% |
| $20,000 to $29,999| 4.72% | 4.53% |
| $30,000 + | 5.12% | 4.92% |
_Source: West Virginia Tax Division._
Given recent support for tax reform and a legislature eager to do more than just adjust rates, this is an opportune moment for West Virginia to improve its 22nd-place ranking in the Tax Foundation’s State Business Tax Climate Index. Along with further rate reductions tied to continued growth, the state could enhance its tax system by moving toward a single rate tax, addressing the inventory tax, and reducing or eliminating the taxation of tangible personal property.
Potential areas for reform include revising the economic nexus criteria for collecting sales taxes. West Virginia is one of 17 states requiring marketplace facilitators and remote sellers to collect and remit sales taxes based on either a sales dollar threshold or a transaction count threshold. This can be burdensome for smaller vendors, with compliance costs potentially outweighing the revenue received. Shifting to a dollar-denominated threshold alone could encourage small businesses to operate within the state.
West Virginia has shown initiative to emerge from the shadow of more business-friendly states. Policymakers now have the chance to implement reforms that not only reduce the tax burden on citizens and businesses but also set the state on a sustained growth trajectory.