State seeking to recoup costs in collecting taxes on home rule cities
CHARLESTON, W.Va. - The state Tax Department says it is not looking to make money off municipal sales taxes but simply wants to cover costs through a recently expanded processing fee, a department spokesman said Friday.
"We desire to work with the cities to create a system that's as fair to both parties as possible," Tax Department spokesman Danny Forinash said. "We want to see these municipalities benefit from this and we want to help them do that as much as possible."
Last week, the Legislature passed a bill allowing the Tax Department to collect up to 5 percent of local sales, use and excise taxes collected through the recently expanded municipal home rule pilot project.
Currently, the Tax Department keeps a little more than 1 percent of local taxes collected through the home rule program to cover its processing costs.
For example, in the first quarter of 2013, the department retained $17,776 of the $1,759,790 in sales tax revenue collected by the city of Huntington.
Forinash said that amount didn't fully cover the total processing costs the department incurred in handling that revenue.
"We've seen that a 1 percent ceiling is not going to be enough to cover the administrative costs for the Tax Department," he said.
Though he noted officials aren't planning on retaining the full 5 percent at this time. They will just retain what's needed.
He said with several cities around the state, including South Charleston, looking to sign up in the home rule program, department officials are still unsure exactly how much new cost they will need to take on.
"The Tax Department isn't looking to make money," Forinash said.
"If it's a lower percentage that's needed to implement that cost, it's just going to be what's needed."
Whenever a city implements a new tax under the program, officials at the Tax Department have to go through several steps to implement the tax.
"When municipality comes on board, there is the initial start up cost," Forinash said. "You develop and test the paper return and electronic return process, and you modify the financial and reporting components in our processing software."
The tax department's sales tax system lumps businesses together on a statewide basis. When a city implements a new sales tax, officials have to create new jurisdictional boundaries within the system and identify businesses located within those boundaries and flag them as having to pay the municipal tax.
Forinash said this could get complicated when you have franchise or chain stores that pay taxes as a full company but only have certain locations that have to collect municipal sales tax.
"So this grocery store may have to charge this municipal tax while this other location in the grocery store chain does not," he said.
After the initial setup costs, the department has costs associated with data preparation, entry and verification.
"We have desk audit which involves error correction, refund information and technical assistance," Forinash said. "We also have some field audits as well, which also includes the cost of employees, equipment to select audit candidates, conduct reviews, put together records."
He said the department also has to field customer service calls from individuals and organizations that pay the tax.
While it does cost some money to provide these services, Forinash said it would be cheaper for the Tax Department to handle the processing instead of cities running it at the municipal level.
"We're set up to do that, that's the way it's set up to be, but at the same time there's the cost on our end to set up these taxes," he said.
While Charleston Mayor Danny Jones has said he is altering the city's pending municipal sales tax implementation and business and occupation tax reduction to offset the increased fee, Forinash said the department is willing to work with city leaders to implement their programs in the best way possible.
"Any fee the Tax Department is going to propose in this process its not going to be an obstacle to the success of these municipalities," Forinash said. "We feel that when an efficiently run system is able to work directly with the cities, the cities are going to see a great benefit to that relationship."
Contact writer Jared Hunt at firstname.lastname@example.org or 304-348-4836.