West Virginia receives about $4.7 million a year in tax payments from out-of-state retailers who voluntarily participate in a sales tax agreement among states, but loses an estimated $103 million a year on online sales to state residents where no sales tax is collected, state lawmakers were told Monday.
Monday's meeting of the Joint Select Committee on Tax Reform focused on the consumer sales tax, which is one of the state's major revenue sources, bringing in more than $1.3 billion a year.
As Deputy Revenue Secretary Mark Muchow noted, sales tax is also one of the more complicated taxes to collect, not only because of the failure of many out-of-state businesses to remit taxes owed, but because there are 72 categories of sales tax exemptions in state law for various goods and services.
"There's been talk, ever since I went to work in the Tax Department, over the need to extend taxes to more services," Muchow said, referring to the four-page list of sales tax exemptions, ranging from soap used at car washes to services provided by lawyers, accountants, architects, engineers, and other professionals.
Utah State Sen. Wayne Harper, representing the Streamlined Sales Tax Governing Board, lauded the committee members for taking on changes to the state tax code, noting that the Utah Legislature recently spent four years revamping its tax law.
"It's a daunting task but when you're done, you can look back and say you made a difference," he said.
West Virginia is one of 24 states under the Streamlined Sales Tax Agreement, a program started in 1999 to come up with a simpler, uniform system for collecting sales taxes in order to encourage out-of-state retailers to voluntarily collect sales taxes on Internet sales. The program began after states became concerned that Congress might permanently ban them from collecting sales tax on online sales.
Harper estimates that states and localities lost $23 billion last year in uncollected sales taxes from e-commerce sites.
"We all know e-commerce continues to grow," he said. "It grows by double-digits every year."
He said that also hurts brick-and-mortar retailers who either lose sales to out-of-state Internet-based companies or are forced to "take that tax out of their pockets" by matching the prices of their e-commerce competitors.
"The fundamental principle is we should treat every taxpayer the same," he said of the Streamlined Sales Tax.
Delegate Marty Gearhart, R-Mercer, questioned whether the Streamlined Sales Tax punishes retailers that use innovative ways to deliver their products by forcing them to collect taxes for state and local services they don't use, such as police and emergency services.
"How did they deliver it?" responded Craig Johnson, executive director of the Streamlined Sales Tax Governing Board. "Don't they drive on your roads? They are using your resources."
Meanwhile, House Finance Chairman Eric Nelson, R-Kanawha, said the list of exempted goods and services caught the attention of many committee members.
"I think members were circling different items," he said.
Sales tax exemptions for professional services amount to at least $145 million a year, while exemptions for personal services and other services top $93 million a year, according to Muchow's presentation.
The committee's next sessions will be Sept. 14 and 15 to review severance taxes, as well as gaming revenues and "sin" taxes.
Senate Finance Chairman Mike Hall, R-Putnam, said Monday he anticipates that changes to the tax system will take place over multiple legislative sessions.
"You couldn't come in and change a major part of the tax code in that tax year, but you could begin the process," he said.
Reach Phil Kabler at philk@wvgazette.com, 304-348-1220, or follow @PhilKabler on Twitter.