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West Virginia Stretches Sales Tax Obligations

  • Sep 5, 2013 | Gail Cole

 West Virginia takes baby step toward its new affiliate nexus law.

On January 1, 2014, the new West Virginia affiliate nexus law will take effect, imposing a sales tax collection requirement on many remote retailers currently not required to collect sales tax in West Virginia.

Almost as a beacon of that change, the State Tax Department has determined that certain retailers and merchants are now required to collect and remit use tax on sales to West Virginia customers "where a wholly owned subsidiary engages in business in this state in connection with the business of the retailer." This change takes effect on October 1, 2013.

Back in 2005, the Tax Department determined that, under certain conditions, retail subsidiaries owned by a parent corporation and third party merchants were not required to collect consumers sales and service tax or use tax on sales to West Virginia customers. The current determination reverses that decision.

Pursuant to West Virginia Code Section §11-10-5r(b),(c), this modification is prospective. While it may not apply to all situations, it does apply to situations in which "material facts and laws are essentially the same" as those found in Technical Advisory 2013-002.

We need the money

According to the National Conference of State Legislatures, states lost approximately $23 billion in 2012 in combined sales tax revenue because sales tax is not paid on most online sales. To recoup some of that lost revenue, more and more states are imposing a sales tax collection obligation on out-of-state retailers with no connection to the state other than a wholly owned subsidiary or an in-state affiliates. For example, certain remote retailers are now required to collect sales tax in New York, Minnesota and Missouri because of their in-state affiliates. Online retail behemoth Amazon severed its ties with Minnesota affiliates because of its law, and it took New York to court over its law. The New York case may eventually find its way to the Supreme Court.

Marketplace Fairness Act

In 1992, the Supreme Court ruled in Quill Corp. v. North Dakota that businesses without substantial nexus (usually defined as a physical connection or presence) in a state could not be required to collect that state's sales tax because it would create an undue burden on the business. That was before the explosion of internet commerce. States with affiliate nexus or Amazon tax laws argue that the internet has rendered a physical presence requirement obsolete. If the Marketplace Fairness Act of 2013, which is currently languishing in Congress, should become law, it would grant states the right to impose a sales tax obligation on states without a physical presence, provided the states simplify their sales tax laws.

How would the Marketplace Fairness Act impact your business? Are you ready for the proposed sales tax changes?

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.