By Pamela Pritt
CHARLESTON, W.Va. — West Virginia could get more than $100 million in extra revenue if state residents who purchase goods via the Internet were subject to sales tax, according to a study done by the University of Tennessee.
The school did the study for the Streamlined Sales Tax Governing Board Inc. SSTG executive director Craig Johnson spoke to the Joint Committee on Tax Reform Monday as part of its research into revising the West Virginia Tax Code.
He said states suffer significant losses of tax revenue because of the growth in electronic commerce and the inability to administer use tax with consumers.
Direct in-store purchases are charged a sales tax, while state residents who buy items via the Internet are supposed to pay a use tax. According to Johnson, only about 1 to 2 percent of Internet shoppers do remit tax for their electronic purchases to the state where they live.
He said his organization pushes for uniform sales tax code between states, which benefits multi-state sellers and also “improves compliances and provides an infrastructure of support” for member states. Johnson said SSTG can charge states up to 8 percent of the sales tax revenue it collects, all uncollected taxes now. That 8 percent covers the cost of software and administration, he said.
“(SSTG) is not about telling you what you should or should not tax,” Johnson said. “We will ask to tax everything in the category or nothing in the category.”
Johnson said SSTG has a 200-page agreement that uses one general sales tax rate per state with a second rate —which could be zero — on food and drugs, as well as one single local rate per jurisdiction.
Companies register with SSTG for sales tax purposes, he said. Also, Johnson said, electronic return and remittance rules make it simpler for administering the tax for both the taxpayer and the state.
One key feature of the SSTG system is uniform definitions for what is taxable from state-tostate. Definitions are provided for:
• Food and food ingredients • Prepared food
• Soft drinks
• Dietary supplements • Clothing
• Computer software Wayne Harper, a Utah state senator, said SSTG requires states to enact a “minimum level of simplification over the taxes they wish to receive by remote collection authority.”
“(States) should treat every taxpayer in every transaction the same,” he said.
••• The 14-member committee also heard from Deputy Secretary of Revenue Mark Muchow, who explained the state’s Consumer Sales and Service Tax. The tax on purchases and services in the state yielded more than $1.305 billion in the last fiscal year, he said.
Surrounding states have nearly equal sales taxes, although some localities in those states can also impose sales taxes to pay for road construction, he said.
Muchow said West Virginia has 72 exemptions, exclusions and credits, including:
• Food for home consumption • Professional services • School textbooks
• Sales for resale
• Prescription drugs
• Day care services
• Lottery tickets
• Food sales by nonprofit and youth groups in fundraising
• Health fitness program memberships Committee co-chair Delegate Eric Nelson, R-Kanawha, said the four-page list of exemptions had piqued the interest of some committee members.
“I believe members were circling different items,” he said.
Sen. Mike Hall, R-Putnam, also a committee co-chair, said some taxes may be “looked at to be reduced if there are others that can be fairly increased.”
“But there is no attempt … just to reach out and tax somebody just to get some more money without trying to figure out some commensurate way to reduce a burden somewhere else,” he said.
Muchow also said that the tax on food has an odd relationship to coal severance taxes, in that when coal severance revenues are up, lawmakers have eliminated the sales tax on groceries, then reversed that decision when coal severance taxes are in decline, as they are now. Muchow said the state does have a Rainy Day Fund, which it did not have the last time coal severance took a dip.
Hall said he sees no push to reinstate the food tax.
“No tax study ever said ‘get rid of it,’ but obviously there were people who wanted to promote that,” Hall said.
Nelson noted that each penny of sales tax represents about $30 million in tax revenue.
The committee meets again during September interim sessions with the Joint Committee on Energy and with the Joint Committee on Finance about the Blue Ribbon Commission report that recommends the state spend $1 billion on its roads and bridges.
Interims begin Sunday, Sept. 13.
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