West Virginia Should Tax Internet Retailers

Last week, the U.S. Supreme Court paved the way for states to collect sales taxes from online retailers that lack a “physical presence” in a state. This was a huge victory for state and local governments, local retailers, and tax fairness. This ruling overturned a famous prior Supreme Court decision that stopped states from collecting sales tax from remote retailers.

Over the last several decades, West Virginia and states across the country have lost billions in tax revenue because they were not able to collect sales taxes from online retailers. A recent report from the US Government Accountability Office estimates that our state loses between $54 to $74 million in state and local sales tax revenues from not collecting sales taxes on all internet purchases. Meanwhile, the WV Department of Revenue estimates anywhere between $50 and $100 million in additional sales tax revenues.

The shift to online sales – along with the shift from consumer purchases from tangible goods to services– has taken a toll on sales tax collections in West Virginia. During the late 1990s, sales tax collections in West Virginia made up about 2.6 percent of all consumer spending on goods and services in West Virginia. Today, it is less than two percent – a drop of nearly one fourth.

There is a similar pattern with personal income, with sales tax collections dropping from 2.2 percent to 1.8 percent as a share of state personal income. Meanwhile, state personal income tax collections have far outpaced sales tax collections. In fact, sales collections have grown by just 1 percent over the last year while personal income taxes have grown by 6 percent.

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While West Virginia passed an “Amazon law” in 2013 that allowed the state to collect sales taxes on Amazon purchases (but not their affiliates) in West Virginia, the Center for Economic and Policy Research estimates that Amazon has been able to avoid over $20 billion in sales taxes on their products. This, in effect, means government has subsidized online businesses like Amazon that operate out of state at the expense of local retailers.  

Unfortunately, Governor Justice and Senate Finance Chair Craig Blair have stated that they do not support passing the necessary legislation to ensure that online retailers and brick-and-mortar shops both collect sales taxes on purchases in West Virginia. Meanwhile, officials from the WV Department of Revenue and the Bureau of Business and Economic Research at WVU have lent their support for collecting remote sales taxes from retailers.

While it is not entirely clear if West Virginia would need to pass legislation to begin collecting sales taxes from all remote retailers, West Virginia would be well advised to adopt similar language as South Dakota that exempts some businesses that do less than $100,000 in total state sales in a state. West Virginia policymaker may also want to give businesses and tax administrators until January 1, 2019 before collecting any additional sales tax on remote retailers.

With big budget holes in PEIA, deep cuts in higher education, and cash strapped local governments, lawmakers in West Virginia cannot afford to dismiss new sources of revenue.


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