There's a new line on state income tax forms this year, for reporting taxes due on Internet purchases. But there isn't a new fervor on the state's part to crack down on such collections.
There's a new line on state income tax forms this year, for reporting taxes due on Internet purchases. But there isn't a new fervor on the state's part to crack down on such collections.
Line 11 on Form IT-140, for filing personal income taxes, asks for "West Virginia use tax due on out-of-state purchases."
From beneath his foam costume, Liberty Income Tax employee Ferdinand Leonard reminds passers-by in Spring Hill that the tax season is upon us. New to this year’s state income-tax forms is a line asking for taxes on Internet purchases to be reported.
The use tax applies to purchases that should have been taxed at the point of sale but weren't - as happens when shoppers buy from online retailers like Amazon.com.
So, on Line 11 taxpayers are to enter an amount equal to 6 percent of all their untaxed Internet and mail-order purchases.
By all accounts, few will.
"Obviously, it's tough [to enforce], especially if you're looking at individuals," said state Tax Commissioner Christopher Morris. "Quite a lot of people don't know what the use tax is or that it even exists."
In years past, an entry space for use-tax amounts has appeared on inserts with tax forms, not on the main form, said Mark Muchow, deputy secretary of the state Department of Revenue.
"This year, we added it as a line item just to make it more convenient," he said. Its appearance as a line item is no indication of a Tax Department policy shift in favor of stricter enforcement, he said.
In any given year, the use tax on consumer purchases will generate no more than $100,000 in revenue, Muchow said. The bulk of use-tax revenue - which totaled $127 million last year - comes from retailers, he said.
Why does the state leave it to consumers to levy the tax themselves?
By law, states can't force retailers to collect sales taxes unless retailers have a physical presence in the state. That's why companies such as J.C. Penney and Wal-Mart charge taxes on online purchases while online-only retailers like Amazon don't.
Because few people pay, states are losing a lot in tax revenue.
West Virginia could miss out on more than $104 million this year alone, according to a study carried out
by University of Tennessee researchers.
The study relies on Census Bureau data and sales projections and by extrapolating from an estimate of 27 percent noncompliance by businesses; a figure arrived at by audits undertaken in Washington state. The research is somewhat dated, having been conducted in 2005, but no comparable study has been undertaken since, said Bill Fox, a UT economics professor and study co-author.
There's a new line on state income tax forms this year, for reporting taxes due on Internet purchases. But there isn't a new fervor on the state's part to crack down on such collections.
Line 11 on Form IT-140, for filing personal income taxes, asks for "West Virginia use tax due on out-of-state purchases."
The use tax applies to purchases that should have been taxed at the point of sale but weren't - as happens when shoppers buy from online retailers like Amazon.com.
So, on Line 11 taxpayers are to enter an amount equal to 6 percent of all their untaxed Internet and mail-order purchases.
By all accounts, few will.
"Obviously, it's tough [to enforce], especially if you're looking at individuals," said state Tax Commissioner Christopher Morris. "Quite a lot of people don't know what the use tax is or that it even exists."
In years past, an entry space for use-tax amounts has appeared on inserts with tax forms, not on the main form, said Mark Muchow, deputy secretary of the state Department of Revenue.
"This year, we added it as a line item just to make it more convenient," he said. Its appearance as a line item is no indication of a Tax Department policy shift in favor of stricter enforcement, he said.
In any given year, the use tax on consumer purchases will generate no more than $100,000 in revenue, Muchow said. The bulk of use-tax revenue - which totaled $127 million last year - comes from retailers, he said.
Why does the state leave it to consumers to levy the tax themselves?
By law, states can't force retailers to collect sales taxes unless retailers have a physical presence in the state. That's why companies such as J.C. Penney and Wal-Mart charge taxes on online purchases while online-only retailers like Amazon don't.
Because few people pay, states are losing a lot in tax revenue.
West Virginia could miss out on more than $104 million this year alone, according to a study carried out
by University of Tennessee researchers.
The study relies on Census Bureau data and sales projections and by extrapolating from an estimate of 27 percent noncompliance by businesses; a figure arrived at by audits undertaken in Washington state. The research is somewhat dated, having been conducted in 2005, but no comparable study has been undertaken since, said Bill Fox, a UT economics professor and study co-author.
Muchow estimated West Virginia loses much less, about $25 million a year, because the UT study failed to account for the state's use-tax revenue. But that estimate is also a few years old.
Though the state doesn't seem to be hunting down scofflaws, it is going after Internet tax revenue.
It's a member of the Streamlined Sales Tax Project, a nearly 8-year-old effort by states to simplify electronic-commerce taxation by standardizing state retail tax laws. The project has developed software to automate tax calculation and hired tax specialist firms to bill customers, file with states and distribute tax revenue to states for retailers.
So far it also has persuaded about 1,100 online-only businesses to collect taxes voluntarily.
But members recognize that the only way to recoup Internet tax revenue on a major scale would be to pass federal legislation, said state Delegate John Doyle, D-Jefferson, who is also the Streamlined Sales Tax Project's first vice president.
"Till Congress acts, all this is voluntary," Doyle said. "We need to get more states on board in order to persuade Congress that it makes sense to pass federal legislation."
There are only 15 full-member states (those that have passed legislation "streamlining" their tax laws) and six associates (which support the organization but haven't yet enacted legislation).
"As most are small states, that's not too impressive to Congress," Doyle said.
Some states that seem likely to join before long - Massachusetts, Illinois, Texas, Florida and Virginia - could tip the balance, Doyle said.
Muchow agrees that federal legislation is the answer.
"The key is eventually to get Congress to mandate collection on the part of remote vendors," he said.
Meanwhile, with Internet commerce intensifying, tax losses are probably adding up too.
Muchow cites statistics showing that e-commerce sales now account for nearly 3.6 percent of total retail sales nationwide; in 2000, they made up only around 1 percent.
To contact staff writer Joe Morris, use e-mail or call 348-5179.
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