BRADENTON, Fla. – In the hunt for new revenue, two Southeast governors made proposals that could signal the revival of a taxing mechanism that was widespread in the pre-World War II era.

The governors of West Virginia and Louisiana, both Democrats, see gross receipts taxes on businesses as an avenue to boost state budgets hit hard because of declining economies and reliance on energy production.

It will be a tough sell.

Both governors face Republican-led Legislatures whose members have preferred spending cuts and measures such as removing exemptions on state sales to raising taxes or imposing new ones.

Both states have experienced rating downgrades as a result of persistent budget imbalances.

Currently, only five states – Ohio, Texas, Delaware, Nevada and Washington – impose gross receipts taxes like the ones proposed in Louisiana and West Virginia.

But gross receipts taxes on businesses are also being considered in Oklahoma and Oregon.

For West Virginia, the timing for Gov. Jim Justice's tax proposal is at a critical stage.

Lawmakers in the Mountain State are scheduled to adjourn this week and are in the final push to complete the fiscal 2018 state budget with proposals that rely mostly on cuts to close a $500 million gap.

Justice has promised to veto the budget in a "millisecond" if lawmakers send him a spending plan that continues – as it has in the past - to rely on more cuts, especially to education and healthcare, while rejecting his "Save Our State" plan to boost the economy and create jobs.

"We've got people who [would] rather sit on rock and let people die, they would, than they would raise a tax even though it may be the very ticket to take us somewhere," Justice said Monday at a meeting that showcased support from business, labor, education, tourism and healthcare advocates for his plan.

Past years of budget cuts and decreasing corporate income taxes have failed to spur promised economic growth, he said, adding that the budget must be balanced as "painlessly" as possible for everyone.

Justice, one of the state's few billionaires, has proposed the "Wealthy West Virginians" plan, which would raise $8 million a year by charging an extra $500 a year to those who make more than $200,000; $750 to those who make more than $250,000; and $1,000 to those making more than $300,000.

"Then I ask our businesses to pay the tiniest CAT tax, the Commercial Activities Tax," he said, adding that a gross receipts tax of 0.00045 of 1% on businesses would raise $45 million annually.

In Louisiana, where the annual legislative session starts Monday, Gov. John Bel Edwards recently unveiled a series of tax reform proposals to stabilize the state's structurally imbalanced budget.

Edwards needs to replace $1.3 billion in revenues that will not be available in the upcoming fiscal year because temporary measures enacted in response to the state's recession expire June 30, 2018.

"The current tax and budgeting practices simply aren't working for Louisiana and don't provide a level playing field for both individuals and businesses," he said.

Under his plan, the state's corporate franchise tax would be phased out over 10 years, while a Commercial Activity Tax would be implemented to create what he calls a tax system that ensures "we all pay our fair share."

The CAT plan would entail charging a flat tax between $250 and $750 on businesses with annual sales of $1.5 million or less.

Companies earning more than $1.5 million annually would be charged a 0.35% gross receipts tax.

The proposed gross receipts tax plan has proven to be a stable revenue source for Ohio and Texas, according to the governor's office.

In Texas, the franchise tax – also known as a margins tax – generated more than $9 billion in fiscal 2015.

However, the Texas Legislature is considering Senate Bill 17, which would phase out its business franchise tax over the next 10 years. The Senate passed the bill on March 21, and sent it to the House for consideration.

While few state currently assess taxes on gross receipts, the fact that other states are consider it is worrisome, according to the nonprofit Tax Foundation, a conservative-leaning tax policy think tank.

Tax Foundation economist Nicole Kaeding said many states taxed business receipts in the 1920s and 1930s. Many states repealed them by World War II, according to the Tax Foundation.

"The flaws of gross receipts taxes are well documented," she said in a March 28 column. "Hopefully, these states and others realize instituting a gross receipts tax is the wrong approach."

Kaeding said that history has shown that gross receipts taxes lead to higher consumer prices, lower wages, and fewer job opportunities because the tax is assessed at every stage of production, a process that is called pyramiding.

Despite the negative consequences of pyramiding, Kaeding said some states are now considering taxes on gross receipts because they "produce large and stable amounts of revenue."

"Since gross receipts taxes are assessed on sales, not income, they are not as volatile," she said. "They are less impacted by the ebbs and flows of the business cycle as business income varies year-to-year."

In states that assess corporate income taxes, firms do not pay the tax if their profits are zero or negative, Kaeding said.

Louisiana has encountered that problem, while experiencing a drag on various revenues supporting the state budget the past few years requiring multiple mid-year reductions.

In 2015, the state Department of Revenue found that of 149,287 corporate tax filers, more than 129,000 did not pay state income taxes – a point stressed by the governor during a recent presentation on his tax reform plan.

The Tax Foundation said it advocates that states expand current tax bases to produce new revenue, as opposed to adopting gross receipt taxes.

In West Virginia, broadening the sales tax remains on the Legislature's agenda as the session nears an end, although at least one measure would not necessary increase revenues for the state's general fund in the long term.

Senate Bill 409 – the 2017 Tax Reform Act – passed the Senate on March 29.

If passed by the House, the act would raise the state sales tax to 7% from 6%, eliminate most sales tax exemptions, restore a 3.5% tax on groceries, while implementing a phased reduction of the state's personal income tax until it is eliminated.

Initially, the measure would result in a net gain of about $88.7 million in fiscal 2018 general revenue fund tax receipts because the higher sales tax rate would take effect tax three months before reductions in the personal income tax rate begin, according to a fiscal note on SB409.

After that, state general revenue fund tax collections would decrease by about $18 million in fiscal 2019, $40 million in fiscal 2020, $65 million in fiscal 2021, and by $83 million in fiscal 2022, the fiscal evaluation of the bill said.

The bill would eliminate the personal income tax when sales tax collections exceed $1.8 billion, a point at which West Virginia would join Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming as the only states that do not assess personal income taxes.

However, West Virginia's fiscal analysis also said that the proposed tax reform plan should be considered within the context of historical tax collection trends.

Combined, the state's personal income tax and state sales tax collections were more than $3.1 billion in fiscal 2016, or about 80% of total general revenue fund tax collections.

Between 2001 and 2016, those taxes also represented nearly 97% of the $1.2 billion in general revenue fund tax growth, the analysis said.

Justice said he negotiated with lawmakers on the budget, and various proposals to adjust the state sales tax while broadening the tax base. He said those ideals resulted in "funny math."

"It's smoke and mirrors to say we didn't raise taxes, we just got rid of exemptions," he said.

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