FISCAL NOTE

Date Requested: January 10, 2018
Time Requested: 02:50 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1135 Introduced SB100
CBD Subject:


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Creates New Revenue



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The stated purpose of this bill is to level the playing field between local brick and mortar retailers in West Virginia and online retailers of digital goods, digital code, and digital services. The bill imposes the consumers sales and service tax and the use tax on digital goods, digital products and digital services as of a specified date. The bill defines terms. The bill establishes what is subject to the tax and what is exempted. The bill requires the sales of taxable digital code and digital products to be subject to be subject to certain transaction.
    
    The bill proposes to apply the Consumer Sales and Service and Use Tax to digital goods, digital products, and digital services as of July 1, 2018. The tax is imposed regardless of whether the digital code, digital product, or digital service is provided for permanent or temporary use. Digital products include digital audio works, digital audio-visual works, digital books, video game digital products and digital automated services that are electronically transferred to a purchaser. Based on our interpretation, the proposed bill would generate roughly $3.2 million in FY2019, $3.7 million in FY2020, and $3.9 million in FY2021. The digital products market is expected to grow by roughly 6 percent per year.
    
    Additional administrative costs incurred by the State Tax Department are expected to be $2,000 in FY2019.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 2,000 0
Personal Services 0 2,000 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 3,200,000 0


Explanation of above estimates (including long-range effect):


    The bill proposes to apply the Consumer Sales and Service and Use Tax to digital goods, digital products, and digital services as of July 1, 2018. The tax is imposed regardless of whether the digital code, digital product, or digital service is provided for permanent or temporary use. Digital products include digital audio works, digital audio-visual works, digital books, video game digital products and digital automated services that are electronically transferred to a purchaser. Based on our interpretation, the proposed bill would generate roughly $3.2 million in FY2019, $3.7 million in FY2020, and $3.9 million in FY2021. The digital products market is expected to grow by roughly 6 percent per year.
    
    Additional administrative costs incurred by the State Tax Department are expected to be $2,000 in FY2019.
     
    



Memorandum


    The stated purpose of this bill is to level the playing field between local brick and mortar retailers in West Virginia and online retailers of digital goods, digital code, and digital services. The bill imposes the consumers sales and service tax and the use tax on digital goods, digital products and digital services as of a specified date. The bill defines terms. The bill establishes what is subject to the tax and what is exempted. The bill requires the sales of taxable digital code and digital products to be subject to be subject to certain transaction.
    
    The proposed new section of code provides that sales of digital code and digital products are subject to the transaction sourcing rules found under W. Va. Code 11-15-2 but does not specifically state that digital services are also subject to those sourcing rules. The bill states that it applies to “digital services”, but it does not define that term. Under the Streamlined Sales and Use Tax Agreement, a member state is not permitted to include specified digital products under its definition of tangible personal property. The Consumer Sales and Service Tax is imposed on all sales of tangible personal property and most services in this state. All sales are presumed to be taxable until the contrary is clearly established. Therefore, while a bill may be necessary to tax digital products, services, including digital services, are already taxable under current law.
    
    The bill does not consistently add the term “digital services” to the amended and new code sections and this may cause some confusion. The bill amended W. Va. Code 11-15A-2 but did not W. Va. Code 11-15-3 to reflect changes that the bill proposes, and this could be considered a defect.
    
    There may be an issue with the bill title. The bill title states that the bill “establishes what is subject to the tax and what is exempted.” There are not any exemptions listed in the bill. The bill only provides that certain products or items are not included as part of the listed definitions.
    
    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov