If you are selling goods or products online and some of your customers are located in West Virginia, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in West Virginia. A new federal law would affect all state Internet sales tax laws so be sure to check for updates in this area.
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales; the decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state.
While the physical-presence rule may seem clear, in the case of West Virginia, as well as quite a few other states, it is necessarily the case. In Quill, the Supreme Court discusses not only physical presence, but also several types of potential “nexus” (connection) between a business and a state. The type of “nexus” the Supreme Court ultimately found relevant for mail-order businesses was based on the Commerce Clause of the Constitution, which—as described by the Supreme Court—means physical presence. However, many states, including West Virginia, have used the term “nexus” rather than “physical presence” in their sales tax laws, and, in the process, have sometimes defined nexus in ways that some people may think goes beyond physical presence.
For basic guidance on how physical presence is defined under West Virginia law, check Section 11-15A-1(b)(8) of the West Virginia Code (WVC), which defines the phrase “retailer engaging in business in this state.” Among other things, the definition refers to having or maintaining a place of business in the state directly or by a subsidiary. In terms of not just physical presence but nexus, review WVC 11-15A-6a, “Collection by certain other retailers,” which provides additional definitions for ostensibly out-of-state retailers; each of the additional definitions concludes with the broad statement that the definition applies “Provided, That such retailer has physical presence in this state in the form of employees, offices, agents or sales outlets in this state, or any other presence that provides the necessary minimum contacts for a constitutionally sufficient nexus for a state to require such a retailer collect and remit use taxes.”
For additional guidance on physical presence—or nexus—in West Virginia, consult Section 110-15-2.78 of the West Virginia Code of State Rules (CSR), which defines the same phrase, “retailer engaging in business in this state,” in more detail than the statute—and includes, as a final statement, that “A retailer without the necessary minimum contacts for a constitutionally sufficient nexus for West Virginia to require such retailer to collect and remit use tax shall not be considered a ‘retailer engaging in business in this State.’” (Virtually all of the administrative rules regarding sales tax, collected as CSR 110-15, are available for download as a single document from the West Virginia Secretary of State.)
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state.
Example 1: You are operating solely out of a warehouse in Laramie, Wyoming and make a sale to a customer in Weirton, West Virginia—a state where your business has no physical presence: You are not required to collect sales tax from the Weirton customer.
Example 2: You are operating solely out of an office in Morgantown, West Virginia and make a sale to a customer in Parkersburg, West Virginia: You are required to collect sales tax from the Parkersburg customer.
Example 3: After several years of operating solely out of a warehouse in Laramie, Wyoming, you open a one-room satellite office just outside of Charleston, West Virginia—a state where previously you had no physical presence. A day later, you make a sale to a customer in Wheeling, West Virginia: You are required to collect sales tax from the Wheeling customer.
Under West Virginia law, a limited number of items may be exempt from sales tax, and certain purchasers may not be required to pay sales tax. For example, sale of textbooks required to be used in most schools in the state, public or private, when sold directly to schools or students, are exempt from sales tax. The West Virginia State Tax Department publishes a concise listing of exempt items and organizations. For more complete and authoritative information, review CSR 110-15-9, or WVC 11-15-9 through WVC 11-15-9m.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax but, rather, a “use tax.” The DOR publishes some very basic guidance on the use tax in a short publication apparently dating from 1997. Also, the package of West Virginia personal income tax forms and instructions, 2011 edition, includes a form for paying use tax; the brief instructions at the top of the form state that “Purchaser’s Use Tax is a tax on the use of tangible personal property or services in West Virginia where Sales Tax has not been paid. Use Tax applies to the following: internet purchases, magazine subscriptions, mail-order purchases, out-of-state purchases, telephone purchases originating out-of-state, TV shopping networks, and other purchases of taxable items.”
Similarly, a West Virginia State Tax Department publication from 2009, “Tax Tips for Senior Citizens,” mentions that “Use tax is due on all purchases made through the internet, via mail order, or from an out-of-state company when West Virginia sales tax is not collected.”
While you might not know it from looking solely at West Virginia’s sales tax laws, the issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states and at the federal level. However, at this time West Virginia has not enacted any law that would require out-of-state retailers to collect sales tax from West Virginia customers.
In West Virginia, the physical-presence rule applies for Internet retailers. However, because the issue has been contentious in many places around the country, you should consider checking in periodically with the West Virginia State Tax Department to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.