When you buy products and services in West Virginia, you automatically pay consumers sales taxes to the state and to cities that have a sales tax.
When you buy these same products and services from out-of-state vendors who don’t collect the sales taxes, many do not voluntarily pay these sales taxes, known as “use taxes.” Your West Virginia personal income tax return at Line 24 places the responsibility on you to pay this “use tax.” A pertient part of Line 24 reads:
“West Virginia Use Tax Due on out-of-state purchases (see Schedule UT) ... (or there’s a box to) CHECK IF NO USE TAX DUE ...”
The legal issue is that out-of-state vendors with no physical presence or connection to our state are not required to collect sales taxes from in-state purchasers, primarily based on the U.S Supreme Court 1992 Quill Corp. decision. Thus, as I said, we are required to self-report and pay.
In today’s electronic age, many states have redefined presence to include economic presence. A pending U.S. Supreme Court South Dakota case may settle this issue this summer. Thirty-five other states have joined in this case as “friends of the court” to support South Dakota. I am disappointed West Virginia was not one of these states. I wonder why we passed this opportunity?
In the meantime, what is to be done? One approach by five states and one territory: Vermont, Louisiana, Colorado, Washington, Pennsylvania and Puerto Rico are requiring their out-of-state vendors to report theirs, thus giving the states the needed information to pursue purchasers for use tax and putting the purchasers on notice of their requirement to self-report.
Charleston Attorney Bob Tweel suggested having West Virginia legislation on the books to take effect if the Quill decision is overturned so that the state would be prepared to collect these taxes. Just put it on the books; action would be delayed until the U.S. Supreme Court decides the issue.
Martinsburg Attorney Mike Caryl suggested an interesting approach used for itemized deductions on federal personal income tax returns. The Internal Revenue Service provides optional sales tax tables based on adjusted gross income and other factors, which is used instead of actual sales taxes or personal income tax deductions. His suggestion is to develop a table for West Virginia taxpayers to use for reporting out-of-state use taxes in lieu of actual purchases. This would simplify the process and has the potential to generate substantial use tax collections through the personal income tax reporting system.
The state has been reluctant to develop a strong plan to tackle the underreporting of sales and use taxes — estimated in the neighborhood of over $50 million. And it is my view that the state has not exercised its responsibility to its citizens and in-state retailers.
Because of West Virginia’s lack of bold initiative, we have many residents not paying their fair share of taxes, while some are, and we have in-state retailers bearing unfair competition from out-of-state vendors.
While exercising on my treadmill in the mornings, I have been watching DVDs on the Bill of Rights. Many of the U.S. Supreme Court cases regarding equal protection and treatment under the Bill of Rights look to the proposition of a “compelling state interest” to consider and decide cases. While the Bill of Rights provisions do not fit into this discussion, I believe the West Virginia Legislature and the administration have a “compelling state interest” to see that all state residents and retailers have equal treatment. I hope this lack of bold action will not be delayed any longer.
Finally, who in state government will gather all interested parties to seize this responsibility for equal treatment of state residents and retailers? Who will count the ways to invest this $50 million plus in our economy?