FISCAL NOTE

Date Requested: March 16, 2021
Time Requested: 11:42 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
3093 Introduced HB3213
CBD Subject: Taxation


FUND(S):

Storefront Business Preservation Fund

Sources of Revenue:

Special Fund

Legislation creates:

Creates New Revenue, Decreases Existing Expenses



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to assess a sales tax of 2% for all internet sales originating or delivered within this state to help preserve store-front businesses in the communities of the state. According to our interpretation, the bill adds a new section of code which creates the Storefront Business Preservation Fund to be administered by the West Virginia Development Office. The West Virginia Development Office shall use moneys in the fund to preserve, protect and enhance retail storefronts throughout the state, preserve and promote downtown retail businesses that have been adversely impacted by internet sales, and to assist small businesses and job creation in physical retail spaces throughout the state. In addition, the bill creates a new ‘impact fee’ under the consumer sales and service tax which is to be imposed on any “internet transaction” originating or ending in this state. An “internet transaction” is defined as any retail purchase initiated using internet or telephone that is delivered to the purchaser’s residence, place of business or a location other than the premises of the sales location by delivery of the U.S Post Office or by a mail or package delivery service. The bill imposes an “impact fee” of two percent on each internet transaction, to be collected for any retail sale where the purchaser is in the state or received the delivery of the purchase at his or her home or at a location other than the point of origin of the sale that is within the state. Proceeds from the fee are to be deposited in the Storefront Business Preservation Fund. The bill does not appear to impose the 2 percent tax on “in person point of sales,” but that is not made clear in the text of the bill. The provision that states that an “in person point of sale” includes a person purchasing goods using the internet or telephone and having them delivered from the retail location to that person’s residence is vague. It is difficult to distinguish that scenario from the taxable situation where a purchase is made using the internet or telephone and the item is delivered to the purchaser’s residence or another location. In addition, the bill does not define “retail location”. It is not possible to formulate a reliable estimate based on the provisions of the bill as written. E-commerce is growing rapidly and is expected to account for more than 15 percent of all retail sales in the United States in 2021. According to IHS Markit, retail sales in West Virginia are forecast to total nearly $26.9 billion in 2021. Many brick-and-mortar retailers, both large and small, have enhanced their on-line presence to capture more internet business. This bill, as written, would impact not only “remote sellers”, those without a physical presence in the state, but also local businesses which have internet-based sales. There would be no additional costs to the by the State Tax Department because the tax will be administered by the West Virginia Development Office.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2021
Increase/Decrease
(use"-")
2022
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


According to our interpretation, the bill adds a new section of code which creates the Storefront Business Preservation Fund to be administered by the West Virginia Development Office. The West Virginia Development Office shall use moneys in the fund to preserve, protect and enhance retail storefronts throughout the state, preserve and promote downtown retail businesses that have been adversely impacted by internet sales, and to assist small businesses and job creation in physical retail spaces throughout the state. In addition, the bill creates a new ‘impact fee’ under the consumer sales and service tax which is to be imposed on any “internet transaction” originating or ending in this state. An “internet transaction” is defined as any retail purchase initiated using internet or telephone that is delivered to the purchaser’s residence, place of business or a location other than the premises of the sales location by delivery of the U.S Post Office or by a mail or package delivery service. The bill imposes an “impact fee” of two percent on each internet transaction, to be collected for any retail sale where the purchaser is in the state or received the delivery of the purchase at his or her home or at a location other than the point of origin of the sale that is within the state. Proceeds from the fee are to be deposited in the Storefront Business Preservation Fund. The bill does not appear to impose the 2 percent tax on “in person point of sales,” but that is not made clear in the text of the bill. The provision that states that an “in person point of sale” includes a person purchasing goods using the internet or telephone and having them delivered from the retail location to that person’s residence is vague. It is difficult to distinguish that scenario from the taxable situation where a purchase is made using the internet or telephone and the item is delivered to the purchaser’s residence or another location. In addition, the bill does not define “retail location”. It is not possible to formulate a reliable estimate based on the provisions of the bill as written. However, e-commerce is growing rapidly and is expected to account for more than 15 percent of all retail sales in the United States in 2021. According to IHS Markit, retail sales in West Virginia are forecast to total nearly $26.9 billion in 2021. Many brick-and-mortar retailers, both large and small, have enhanced their on-line presence to capture more internet business. This bill, as written, would impact not only “remote sellers” or those without a physical presence in the state, but also local businesses which have internet-based sales. There would be no additional costs to the by the State Tax Department because the tax will be administered by the West Virginia Development Office.



Memorandum


The stated purpose of this bill is to assess a sales tax of 2% for all internet sales originating or delivered within this state to help preserve store-front businesses in the communities of the state. The Consumer Sales and Service Tax has several exemptions and exceptions. It is unclear if any of these exemptions and exceptions would apply to the 2 percent sales tax or if this tax is placed on items that would otherwise be exempt from the sales tax. It is not clear that the purchase for resale exemption would apply and, therefore, sales might be subject to double taxation. The Consumer Sales and Service Tax uses destination-based sourcing rules to determine in what taxing jurisdiction the sale is subject to tax. This bill states that the impact fee is on all internet sales “originating or ending” in this state. This appears to diverge from the current sourcing rules and is using both origin and destination sourcing, which may result in sales being subject to tax twice. The bill does not have corresponding, compensating use tax provisions or provide any credit for similar taxes paid to other states. The bill, if passed, might face legal challenges as violating the Commerce Clause of the U.S. Constitution because of the differing treatment of out-of-state businesses from in-state businesses. The bill may also violate the state’s equal protection clause. There does not appear to be any threshold amount to determine economic nexus for remote sellers or marketplace facilitators for the impact fee. This may run afoul of the dormant commerce clause and the Supreme Court’s decision in South Dakota v. Wayfair. The duty for marketplace facilitators and remote sellers to collect the sales tax is found in the Code for the Use Tax. This bill does not appear to amend the use tax and will cause confusion. As a tax on digital sales, but not traditional sales, the bill likely violates the Permanent Internet Freedom Act, a federal law which prohibits discriminatory taxes on electronic commerce. The bill also violates the Streamlined Sales and Use Tax Agreement. According to the agreement, no member state shall have multiple states sales and use tax rates on items of personal property or services, except that a member state may have an additional rate of zero on food and food ingredients and drugs.



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov