Municipal Sales and Use Tax Guidelines

Background

Municipalities that do not impose a business and occupation tax are authorized in W. Va. Code § 8-13C-4 and 8-13C-5 to impose municipal sales and use taxes at a rate not to exceed one percent.

Municipalities that impose a business and occupation tax must either repeal their business and occupation tax or receive permission from the Municipal Home Rule Board established in W. Va. Code § 8-13-5a to impose a municipal sales and use tax at a rate not to exceed one percent.

Requirements of Municipal Sales and Use Tax

In general, transactions subject to municipal sales and use taxes must also be subject to State sales and use taxes. If a transaction is exempt from State sales and use taxes, the transaction is also exempt from municipal sales and use taxes.

Municipal sales and use taxes may not apply to:

• Sales and uses of motor fuels that are subject to the motor fuel excise taxes imposed by W. Va. Code § 11-14C-1 et seq.
• Sales and leases of motor vehicles, aircraft, watercraft, modular homes, manufactured homes and mobile homes.
• Transactions such as satellite television which municipalities are prohibited from taxing under federal law.
• Municipal sales and use taxes must be administered, collected and enforced by the State Tax Commissioner.

Municipal sales and use taxes are due when State sales and use taxes are due. In general, most businesses remit tax collected during one calendar month on or before the 20th day of the next calendar month. Taxes collected during the month of December must be remitted by January 30 of the next calendar year.

Depending upon the amount of sales taxes remitted, a business may be a quarterly or annual remitter of sales and use taxes. Taxes paid quarterly are due on the 20th day of the calendar month following the calendar quarter during which sales taxes were collected.

Large taxpayers may be required to remit taxes collected during the first 15 days of June by the 20th day of June. This shifts some taxes otherwise due July 20th to June 20th.

Municipalities are required to allow as a credit against their municipal use tax the amount of sales taxes lawfully paid to another municipality at the time goods or services were purchased.

Effective date. - The charter of a municipality or its ordinances may provide rules for when an adopted ordinance take effect. When those rules do not allow an ordinance adopted in calendar year one to take effect on July 1 of calendar year two, an effective date section should be included in the ordinance which provides a delayed internal effective date. For example, a sales and use tax ordinance that is adopted by the governing body on December 15th that takes affect five days after its adoption should include an effective date section that provides vendors have no duty to collect and purchasers and users have no duty to pay the municipality's sales and use taxes until that applicable July 1st date and then as to sales made, purchases made and to uses on and after that July 1st date.

Special fund doctrine. General revenue dollars cannot be used to pay debt obligations of the municipality without a vote of the people. However, municipal sales and use tax collections are a new source of revenue and those dollars can be deposited in a special revenue fund established by the municipality rather than in its general revenue fund. Moneys in the special revenue fund can then be used to pay debt service on revenue bonds issued by the municipality. This option is available to a municipality only before municipal sales and use tax collections are deposited in the municipality's general revenue fund. We suggest that if a municipality desires to pursue this election, it have a discussion with a lawyer knowledgeable about West Virginia public finance law.

Process

Once a municipality receives approval from the Municipal Home Rule Board to impose a municipal sales and use tax, the municipality must draft its sales and use tax ordinance.

To assist municipalities in drafting their ordinances, the State Tax Department has prepared a model ordinance.

It is highly recommended that the draft ordinance imposing the tax be submitted to the State Tax Commissioner for review and comment before the draft ordinance is read a first time by the governing body of the municipality.

State Tax Commissioner
1001 Lee Street, East
Charleston, WV 25301

A proposed municipal sales and use tax ordinance must be read two times as required by W. Va. Code § 8-11-4.

At least 5 days before the meeting of the governing body at which the ordinance imposing a sales and use tax will be adopted, the governing body shall cause notice of the proposed adoption of the proposed ordinance to be published as a Class 1-0 legal advertisement in compliance with the provisions of article three, chapter fifty-nine of the Code, and the publication area for such publication shall be the municipality. The notice must state the subject matter and general title or titles of the proposed ordinance, the date, time and place of the proposed final vote on adoption, and the place or places within the municipality where the proposed ordinance may be inspected by the public. A reasonable number of copies of the proposed ordinance must be kept at the place or places and be made available for public inspection. The notice must also advise that interested parties may appear at the meeting and be heard with respect to the proposed ordinance. The proposed ordinance may not be materially amended at the same meeting at which finally adopted.

After the proposed ordinance imposing a sales and use tax is adopted a certified copy must be sent to the State Tax Commissioner.

State Tax Commissioner
1001 Lee Street, East
Charleston, WV 25301

Note: The certified copy of the adopted sales and use tax ordinance must be sent to the State Tax Commissioner at least 180 days before the first day of the calendar quarter on which the State Tax Commissioner will begin to collect the tax. Under WVCSR 110-28-8, new sales and use taxes will be collected beginning July 1.

When a copy of the certified ordinance is sent to the State Tax Commissioner, the municipality must also provide, in an Excel spreadsheet, the municipality's rates and boundaries database (see discussion infra), and such other information as the State Tax Commissioner may require.

Rate and Boundary Data Base

Each municipality that imposes a sales and use tax must provide the State Tax Commissioner, in an Excel spreadsheet, a database that contains all of the nine-digit zip codes located, in whole or in part, within the geographic boundaries of the municipality.

Nine-digit zip codes were developed by the United States Postal Service to assist in the delivery of mail. Consequently, zip codes, whether a five-digit zip code or a nine-digit zip code area may transcend the geographic boundary of the municipality.

Nine-digit zip codes will be used by Internet sellers, catalogue sellers and telemarketers to determine what rates of sales and use taxes to apply to the purchase price. There may be only one municipal sales and use tax rate per nine-digit zip code. Consequently, when the nine-digit zip crosses the municipal boundary line, the municipal sales and use tax rate Internet sellers, for example, will charge customers residing in that nine-digit zip code will be zero. When this happens, the single municipal sales tax rate for that nine-digit zip code will be zero, in the case of Internet sellers, catalogue sellers and telemarketers.

Note: When a retailer maintains a place of business within the portion of the nine-digit zip code area that is within the municipality, the retailer must collect that municipality's sales and use tax when the sales transaction is completed at the retailer's place of business. When services are rendered within the municipality, the service provider must collect that municipality's sales and use tax. When a retailer located outside the municipality delivers a purchased product to a customer at a location within the municipality, the retailer must collect that municipality's sales and use tax.

Caveat: To facilitate compliance by vendors with the municipal sales and use tax law, we suggest that on roads leading into and out of the municipality, the municipality clearly mark the point at which one enters or leaves the municipality.

Sometimes, municipalities will annex territory, business located within the annexed territory must begin to collect the municipality's sales and use tax on the effective date of the annexation. To minimize confusion, we suggest that ordinances annexing territory be made effective on the first day of a calendar quarter that begins 60 days after the annexation order is adopted. Similarly, sometimes a municipality will de-annex territory. When territory is de-annexed, we suggest that the de-annexation ordinance be made effective on the first day of a calendar quarter that begins 60 days after the de-annexation ordinance is adopted. In either event, the municipality must promptly notify the State Tax Commissioner or the boundary adjustment and furnish the State Tax Commissioner with an updated boundary database.

Distribution of Collected Sales and Use Taxes

The State Treasury will deliver sales and use taxes collected for a municipality to that municipality on a quarterly basis. The amount delivered will be a net amount:

• Gross tax collected for the municipality
• Less refunds allowed
• Less Tax Commissioner's administrative fee
• Amount to be distributed