On October 1, the West Virginia Tax Department issued guidelines and outlined intentions to start collecting sales taxes from remote internet retailers on January 1, 2019. As Charleston Gazette-Mail reporter Phil Kabler recently noted, this was a sharp policy shift. Nearly four months ago, Governor Justice proclaimed he had no intentions to allow the state to collect online sales taxes and that, “legislation would have to be passed to authorize the state to enforce the collection of out-of-state sales taxes.” This is not only good news for our state’s budget, but also for the over two-dozen cities that have local sales taxes.
As we noted several months ago, on the heels of the U.S. Supreme Court decision allowing states to collect sales taxes from online retailers, this was a huge victory for state and local governments, local retailers and tax fairness. And we are pleased the Justice administration reversed course and West Virginia will now join the dozens of other states, that are, or plan to collect these taxes. It has been estimated that West Virginia could collect somewhere between $50 million and $100 million in additional sales taxes each year for tax online remote retailers. What has not been discussed, is how much additional revenue municipalities in West Virginia will collect with this policy change.
While precise estimates are difficult to find, a recent report from the US Government Accountability Office estimates West Virginia loses between $53 million to $74 million in state and local sales tax revenues from not collecting sales taxes on all internet purchases. Applying these estimates to West Virginia municipalities that collected sales taxes at the time (CY 2017), it is possible to estimate a range of what these local governments could expect to see in additional revenues.
Currently, 43 municipalities have a municipal sales and use tax. Forty-one municipalities have a sales tax rate of one percent while two municipalities have a sales tax rate of 0.5 percent.
The table below shows estimates for municipalities that collected sales tax for all of Fiscal Year 2018 (July 1, 2017-June 30, 2018). Excluded from the calculation are municipalities that began collecting local sales taxes on January 1, 2018 or later. However, estimates for these municipalities are provided below based on FY 2019 data for illustrative purposes.
As the table shows, the total amount of estimated revenue that West Virginia’s municipalities could collect ranges from about $3 million to $4.1 million. The state’s two largest cities – Charleston and Huntington – could expect to collect the most in additional revenue while the smaller municipalities would collect far less. The average among municipalities is between $162,000 and $226,000, while the median or typical municipality is between $119,000 and $166,000.
This additional revenue will help these cities and towns meet many of their budgetary needs, such as unfunded pension liabilities, infrastructure, public protection, recreation, and improving the quality of life in their communities.
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