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Officials hope Internet tax law keeps more revenues in-state

CHARLESTON, W.Va. - State tax officials believe they are already collecting most of the sales taxes due from online sales, but they hope a new law will help them capture even more revenue.

In the recent regular session, state lawmakers passed a bill expanding the state's ability to collect taxes on e-commerce.

The law, which goes into effect July 12, is expected to generate $7 million to $10 million in revenue a year.

For years, only retailers that had a store located in the state - such as Walmart, Target, J.C. Penney and Macy's - were required to collect sales taxes from purchases.

The new law expands the requirement to cover businesses with any sort of physical presence in the state. That includes not only retail stores, but also warehouses and distribution centers.

Mark Muchow, deputy revenue secretary, said officials are trying to collect some of the $30 million to $50 million in sales taxes that go uncollected from e-commerce each year.

"We think we're capturing at least 70 percent of online sales taxes," Muchow said. "We're trying to close that remaining 30 percent gap."

Muchow used the word "think" because studies vary widely on how much e-commerce is going untaxed.  

Further, state tax officials can't say for certain how much they're already receiving from online sales taxes. The companies that collect them lump together their online and in-store sales tax collections when they make their payments to the state.

The state Tax Department does ask individual filers to self-report sales taxes from online purchases when they fill out their income tax returns each year.

Muchow said only 0.5 percent of taxpayers have opted to self-report in recent years.

"We have generally less than 4,000 taxpayers take advantage of that," he said. "They collectively pay a little less than $300,000 (in sales taxes)."

A University of Tennessee study on online tax collections estimated West Virginia was due $198.1 million in sales taxes from e-commerce in 2012.

Of that, it was estimated the state brought in $147.5 million, while the remaining $50.6 million went uncollected.

However, a study by Empiris LLC chairman Jeffrey Eisenach and George Mason University law professor Robert Litan said the results of the University of Tennessee study were inflated.

It estimated West Virginia missed out on about $29.9 million in online sales taxes in 2012.

Whether the true figure is $29.9 million, $50.6 million, or somewhere in between, the new state law will capture only a fraction.

Tax Department spokesman Danny Forinash said the state couldn't name specific retailers that would be affected by the new law because of confidentiality requirements.

The law is expected to affect the Internet's largest retailer, Amazon.com, because it has a customer service center in Huntington.

An Amazon spokesperson did not respond to a request for comment.

Muchow said the change isn't expected to apply to very many companies.

"There's at least a handful or two that could be affected," he said.

Congress is still debating whether to give states the ability to directly collect sales taxes from online sales. The U.S. Senate has passed a bill to allow for collections, though it is unclear whether it will pass the House of Representatives.

Until Congress acts, Muchow said the new state law would slightly increase the limit of the state's reach into Internet sales.  

"This is just the little bit extra we think we can get," he said.

Contact writer Jared Hunt at business@dailymail.com or 304-348-4836.

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