Prior to 1900, demands on state government in West Virginia had been limited to minor support for local schools, hospitals, charitable institutions, the criminal justice system and paying salaries and costs for the three branches of government. Local government provided most of the funding for two major responsibilities -- roads and schools.

The early 20th century, however, saw a wave of progressivism sweep across the country, and West Virginia was not immune. From 1900 to 1920, the West Virginia Legislature created numerous agencies, including the Department of Agriculture, Department of Public Safety, Department of Mines, State Road Commission, Insurance Commission, various licensing boards and a rapid expansion in health services, welfare, education, corrections and other public functions.

This tremendous growth in government produced an equal demand for state revenues. Since statehood, minor taxes had been imposed: an insurance premiums tax in 1864; a corporate charter tax in 1885; a limited inheritance tax in 1887; and a .5 percent to 1 percent excise tax on the net incomes of corporations in 1915.

Still, during this time, the state's primary source of revenue was an ad valorem property tax on both real and personal property. The state levy on property tax increased from $.01 to $.20 per $100 of assessed value from 1912 to 1921.

Despite these increases, the state still was unable to pay for the growth in government. Citing an economic shift in the state's economy toward manufacturing and natural resource development, H.C. Ogden, a Wheeling newspaper publisher, wrote a prophetic report calling upon the state to shift its reliance away from a property tax on wealth to consumption taxes.

The Great Depression, which began in 1929 facilitated that shift. Relatively high property taxes forced many West Virginians to lose their homes.

In response, the Legislature proposed and voters approved the 1932 Tax Limitation Amendment (TLA), which permitted the classification of property for taxation at differing rates; imposed low ceilings on those rates; and made it difficult to raise tax rates for special purposes.

More specifically, TLA divided property into four classifications, each with its own maximum levy rate.

Class I property includes personal property used in agriculture and intangible personal property if the Legislature chooses to subject it to tax. (Currently, it is exempt.) The maximum aggregate levy rate on Class I property is $.50 per $100 of assessed value.

Class II property includes residences and farms. The maximum aggregate levy rate on Class II property is $1.00 per $100 of assessed value.

Class III property includes all other property located outside a municipality. The maximum aggregate levy rate on Class III property is $1.50 per $100 of assessed value.

Class IV property includes all other property within a municipality. The maximum aggregate levy rate on Class IV property is $2.00 per $100 of assessed value.

Thus, homeowners pay a tax one-half the rate for a business located outside the city limits. Also, personal property taxes on cars and trucks will be higher depending where the owner lives.

The "aggregate levy rate" is determined by adding together the levy rates of all of the levying bodies authorized to use the property tax. Each of these bodies is subject to a maximum levy rate set by statute.

Currently, the maximum levy rates the state Legislature -- not the local school boards -- may impose per $100 of assessed value for the funding of schools are: Class I property -- 22.95 cents; Class II property -- 45.90 cents; Class III property -- 91.80 cents; and Class IV property -- 91.80 cents.

The maximum levy rates the counties may impose per $100 of assessed value are: Class I property -- 14.30 cents; Class II property -- 28.60 cents; Class III property -- 57.20 cents; and Class IV property -- 57.20 cents.

The maximum levy rates the cities may impose per $100 of assessed value are: Class I property -- 12.50 cents; Class II property -- 25.00 cents; and Class IV property -- 50.00 cents.

The state still maintains a maximum levy rate per $100 of assessed value, as follows: Class I property -- .0025 cents; Class II property -- .005 cents; Class III property -- .01 cents; and Class IV property -- .02 cents.

While the Constitution authorizes local governments and school boards to seek "excess levies," TLA restricts them to a rate equal to or less than the maximum rate allowed under law.

In most recent tax reform efforts, the property tax has been viewed by policy makers as a sacred cow -- something that must not be discussed. The 1999 Commission on Fair Taxation proposed the elimination of the personal property tax. Similarly, Gov. Joe Manchin's tax reform panel called for a review of the potential harm the personal property tax is having on investment in our state.

But no one has yet suggested a review of the TLA.

On one hand, TLA has kept West Virginia property taxes some of the lowest in the nation. One of the reasons is the cap on levy rates. However, another reason is the linking of the rates between business and individuals. Under current law, the rates are proportional, and the Legislature cannot raise the rates on Class III and IV commercial property without raising the rates on Class II homeowners, i.e. voters.

A third reason is that taxpayers are acutely aware of the property tax because it is the one tax they have to go to the courthouse, open up their checkbooks and pay. Most other taxes are hidden through such mechanisms as withholding.

Opponents of TLA come from both ends of the spectrum. Many members of the expenditure class that rely upon government revenue claim the maximum levy rates are stringent and outdated and prevent government from properly funding government services. As years of litigation over school funding have proven, they have a point.

On the other end of the spectrum are those who believe we should eliminate taxes on wealth altogether since such exactions inhibit investment, economic growth and job production. This is true especially in regards to the personal property tax.

Counties and cities, as well as special entities, such as park districts, derive most of their revenue from the ad valorem tax on both real and personal property. In 2005, municipalities received nearly $80 million and counties received $276 million from the property tax.

By far, however, the largest portion of the property taxes is used to fund our schools. In 2005, our schools received more than $715 million.

In total, in 2005, state and local governments collected more than $1 billion in property taxes, including $344 million, or nearly one-third, from the tax on personal property. With such a fiscal and economic impact on our state, perhaps we no longer can ignore the property tax in undertaking "real tax reform."

Rob Capehart is an associate professor at Marshall University and of counsel to Steptoe & Johnson PLLC. He previously served as secretary for tax and revenue, chairing Gov. Cecil H. Underwood's Commission on Fair Taxation. He recently completed an assignment as a Fulbright Scholar in Moldova and has been named to become president of West Liberty State College.