UPDATE 8/23/11 @ 1 p.m.
CHARLESTON, W.Va. (WSAZ) -- The food tax in West Virginia is on its way out.
Governor Earl Ray Tomblin signed Senate Bill 1001 Tuesday, which reduces the tax and phases it out.
The current food tax is 3 percent. On January 1, 2012, the tax will drop to 2 percent. On July 2012, the tax will drop to 1percent. On December 31, 2012, the tax will be removed completely, as long as the percentage of general revenue budget in the Rainy Day Fund is at least 12.5 percent.
"I fully recognize the importance of this piece of legislation and the positive impact it will have for all West Virginians," Gov. Tomblin said. "In addition to reducing the food tax, we have outlined a responsible plan to phase out the tax, so long as our emergency revenue fund remains strong and stable. This bill will benefit our citizens, our businesses and our state."
Senate Bill 1011 also increases the cap on mandatory surplus transfers to the Rainy Day Fund from 10 percent to 13 percent of the general revenue budget.
Gov. Earl Ray Tomblin (D) amended his original call to lower the tax by another half-cent, now urging lawmakers to adopt a plan that would stop West Virginia from taxing groceries entirely.
Charleston shopper Peggy Barrett says prices at the grocery store continue to climb.
"Anything's going to help with the economy being bad like it is," Barrett says.
The full Senate voted unanimously in favor of the food tax reduction plan Wednesday.
Senate Finance Chair Roman Prezioso (D-Marion) says the move is something "all of us want to do, but we want to do it in a responsible manner."
The tax is already approved to come down in January from 3 percent to 2 percent.
Under this plan, the tax would drop another half-cent in January and continue to drop based on the state hitting certain thresholds with the rainy day fund.
Under state law, half of any surplus at the end of the fiscal year has to go into the fund until the account reaches 10 percent of the general revenue fund.
Tomblin is calling for that requirement to be increased to 15 percent of the rainy day fund.
Each time the tax goes down a penny, the state takes a loss of about $24 million per year.
The tax would continue to drop until 2014, when it would no longer exist.
But, with that approach some shoppers doubt they'll really see savings.
Barrett says, "Because it's going to be over a period of time. If they do it altogether at once, maybe. But, other than that, no, I don't think so."
Prezioso acknowledges the short-term savings for consumers may not be large. "But, over the course of a year, it does add up," he says.
But shopper Richard Khoury questions whether this is just an attempt for lawmakers to appeal to voters. "It's not going to make a difference one way or another, but it certainly is something that should not be there," Khoury says.
With the Senate’s action Wednesday, the bill heads to the House of Delegates, where Republicans say they still plan to push for an immediate repeal.
But, earlier this year, a fight over the food tax in the House led to a few days of chaos where regular operations were dramatically slowed.
"We're not going to let politics enter into that one way or another. If we can give money back to the people, we're going to do it," says House Minority Leader Tim Armstead (R-Kanawha)
Tomblin has repeatedly called this tax “regressive” and has promised to end it eventually.
His opponent in the governor's race, Republican businessman Bill Maloney, says Tomblin never should have voted for the food tax in the first place.
Senate Democrats say when the tax was approved a couple decades ago, the state was bankrupt and needed a way to pay the bills.
Acting Gov. Earl Ray Tomblin proposed the phased-in repeal. He amended his special session agenda before Wednesday's vote.
Tomblin wants to increase a cut to the tax, scheduled for Jan. 1. That would drop its rate to one-and-a-half cents per dollar spent.
The bill would then knock an additional half-penny from the rate in 2013, if the state's main emergency reserve equal at least 12.5 percent of general revenue spending. Reaching 15 percent of general revenue would erase the remaining tax in January 2014.
The bill also increases the reserve's threshold for surplus deposits to 15 percent.
Acting Gov. Earl Ray Tomblin said Tuesday that he's signed legislation cutting the rate. Beginning Jan. 1, consumers will pay 2 percent on each $1 worth of food purchased for home consumption. Currently they pay 3 percent.
The tax cut is the latest in a series of reductions. West Virginia has steadily whittled away sales taxes on food in recent years.
Tomblin made the latest cut a centerpiece of his legislative agenda this year. He says the measure will let consumers keep about $26 million annually.
The tax cut ran into opposition from members of the House of Delegates. House Speaker Rick Thompson and some members of the Republican minority wanted to eliminate the tax entirely.
This came up amid a fight about pay raises for state workers.
People pushing for the tax cut said if raises are going out, the public should get some kind of tax relief.
The tax is being cut one penny from the current 3 cents per dollar to 2 cents.
But, some lawmakers say it should be eliminated altogether.
Acting Gov. Earl Ray Tomblin (D) had been pushing for the one-cent reduction since his State of the State address in January.
"It would not be acceptable to pass any pay raises in the public sector without providing tax relief for all West Virginians," Tomblin says.
Earlier this week, he said he'd call lawmakers in for a special session if they didn't pass this cut. He also threatened to veto legislation giving state employees pay raises if the food tax was not cut.
Tomblin met with Senate leaders leading up to Wednesday’s vote. Under this plan, the state would lose about $11 million in revenue the first year, since the tax cut will only be in effect for six months of the fiscal year. The tax cut is expected to go into effect Jan. 1, 2012.
In the first full year, state officials estimate the state will lose about $25 million in revenue.
“The realization that it was only going to be a half-year on the penny this year, that freed up additional dollars that we were not maybe anticipating at first blush," Acting Senate President Jeff Kessler says.
The tax cut passed the Senate unanimously.
This move comes as lawmakers debate millions of dollars in pay raises for state employees, many whom haven't gotten a raise in years.
But House Republicans say if the state can do that, it should eliminate the tax completely.
"How can we spend any money that we have rather than giving it back to the people to let them spend it in the economy? Then I think we're on the wrong track,” says Del. Tim Armstead (R-Kanawha), who is the House Minority Leader. “And, I think that makes the other issues, such as OPEB (other post-employment benefits) and some of the other long-term issues that we have to deal with, more difficult to deal with."
"We realize there's a problem with OPEB out there. And, we will continue to work on that throughout the year," Tomblin says.
The House approved the tax cut by a vote of 89-4.
Lawmakers say they're going to look at this again in next year's session to see if the tax will continue to be lowered.
"Next January 1, it will go from three cents to two cents," says Governor Earl Ray Tomblin. "And obviously it's one of those things that we would love to continue to reduce and finally remove in West Virginia."
The food tax that is. Gov. Tomblin proposed lowering the tax from three percent down to two percent in Wednesday's State of the State address, something Tom was a bit surprised by.
"I very seldom ever hear about taxes going down, very seldom," says Tom.
"It would take a lot of pennies to really make a difference," says Lucretia Webb, of Kenova. "But people are willing to do what they have to do to save money."
Lucretia admits she's definitely willing to go the extra mile to save cash.
"There are times when I do save certain items to buy at stores in Ohio to save on the tax," said Lucretia.
Even kids can see the potential benefits of this proposal.
"One or two dollars means to me like a candy bar or couple pieces of gum," says nine-year-old Luke Jordan.
"A dollar means a lot to me because I'm trying to save enough money to buy a new video game," says Harrison Taylor.
"I think it's a regressive tax and we've got a lot of people in this state, especially seniors citizens, who are really having a hard time deciding whether to spend the few dollars they have on food, medicine or heat," says Gov. Tomblin.
Gov. Tomblin says it's time to help families get back on their feet, and lowering the cost of essentials like food, helps speed up the process.
The legislature still has to sign off on this proposal which would save West Virginia tax payers $26 million annually. If it passes, it would begin January 2012.