Beginning January 1, 2014, West Virginia has enacted sales and use tax nexus provisions that expand the definition of "retailer engaging in business in this state" to include out-of-state retailers that have certain in-state affiliates.1 Specifically, the definition is amended to include out-of-state retailers that are related to or part of a unitary business with an entity that engages in specified activities in West Virginia for the retailer.

Affiliate Nexus

Under existing law, the term "retailer engaging in business in this state" is defined as any retailer having or maintaining, occupying or using, within West Virginia, directly or by a subsidiary, an office, distribution house, sales house or warehouse or other place of business.2 Also, this term includes retailers that have an agent operating within the state under the authority of the retailer or its subsidiary. This definition applies irrespective of whether the place of business or agent is permanently or temporarily located in West Virginia or whether the retailer or subsidiary is admitted to do business within the state.

On or after January 1, 2014, the definition of "retailer engaging in business in this state" is expanded to include any retailer that is related to, or part of a unitary business with, a person, entity or business that, without regard to whether the retailer is admitted to do business in the state, is a subsidiary of the retailer, or is related to, or unitary with, the retailer as a related entity, a related member or part of a unitary business that engages in certain specified activities.3 This includes a related or unitary entity that:

  • Under an agreement with or in cooperation with the related retailer, maintains an office, distribution house, sales house, warehouse or other place of business in West Virginia;
  • Performs services in West Virginia in connection with tangible personal property or services sold by the retailer, or any related entity, related member or part of the unitary business;
  • By any agent, representative or employee performs services in West Virginia in connection with tangible personal property or services sold by the retailer, or any related entity, related member or part of the unitary business; or
  • Directly, or through or by an agent, representative or employee located in, or present in, West Virginia, solicits business in the state for or on behalf of the retailer, or any related entity, related member or part of the unitary business.4

The statute is amended to add a definition of "service" that specifically lists a wide variety of services, including the operation of a mail order business or telephone, Internet or other remote business from facilities located within West Virginia.5 Also, the definition includes the operation of a Web site or Internet-based business from a location within the state.6

Commentary

West Virginia is the latest state to follow the trend of enacting affiliate nexus provisions that are designed to improve sales and use tax collections.7 Although the sales tax nexus legislation being enacted by many states is similar, the legislation in each state differs slightly from the legislation in other states. The differences in the legislation result in a significant burden on companies that have no physical presence in these states, but have some contacts with these states through affiliates or associates. Interestingly, West Virginia's affiliate nexus legislation is narrower than the legislation in some other states because it only includes situations where the in state entity is related to or part of a unitary business with the out-of-state retailer. Also, West Virginia's legislation does not include out-of-state retailers that merely use the same trademarks, service marks or trade names as in-state affiliates. Furthermore, unlike some other states that have enacted affiliate nexus legislation, West Virginia has not also enacted click-through nexus legislation.8 It should be noted, however, that the use of the unitary concept for purposes of determining which affiliates' activities might result in a business being subject to the sales tax collection and remittance obligations puts even more emphasis on the unitary determination, which typically was made solely for purposes of determining the correct corporate income tax filing group.

A major development in the trend toward empowering states to require remote (out-of-state) sellers to collect sales tax recently occurred at the federal level. On May 6, the U.S. Senate passed the Marketplace Fairness Act of 2013, which would allow states to require remote sellers to collect and remit sales and use tax on sales to in state residents even if the retailer has no physical presence in the state.9 Under the legislation, a member state of the Streamlined Sales and Use Tax Agreement (SSUTA)10 would be able to require the collection of tax beginning 180 days after it publishes notice of its intent to exercise its authority (but no earlier than the first day of the calendar quarter that is at least 180 days after the legislation is enacted). In order for states that currently are not members of the SSUTA to secure collection and remittance authorization, such states would need to adopt and implement several minimum sales tax simplification requirements. The legislation would exempt remote sellers with $1 million or less in annual sales, and would require that an adopting state provide free software to remote sellers to calculate and file sales and use tax returns. If this federal legislation is enacted and states make the simplifying changes to their sales tax statutes, states presumably will have less interest in enacting click through nexus or affiliate nexus legislation to require remote sellers to collect sales tax.

Footnotes

1 Ch. 193 (H.B. 2754), Laws 2013, effective July 12, 2013 and applicable on and after January 1, 2014.

2 W. VA. CODE § 11-15A-1(b)(8).

3 W. VA. CODE § 11-15A-1(b)(8)(B). Note that the amended statute adopts the definitions of terms such as "related entity," "related member" and "unitary business" from a corporation net income tax statute. See W. VA. CODE § 11-24-3a. The definition of "related entity" includes a 50 percent ownership requirement. W. VA. CODE § 11-24-3a(a)(31). A "related member" is a person that it is: (i) a related entity; (ii) a component member as defined in IRC Section 1563(b); (iii) a person to or from whom there is attribution of stock ownership under IRC Section 1563(e); or (iv) a person that, notwithstanding its form of organization, bears the same relationship to the taxpayers as a person described above. W. VA. CODE § 11-24-3a(a)(32). A "unitary business" is defined as "a single economic enterprise that is made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts." W. VA. CODE § 11-24-3a(a)(43).

4 W. VA. CODE § 11-15A-1(b)(8)(B).

5 W. VA. CODE § 11-15A-1(b)(8)(C).

6 Id.

7 The following states have enacted some form of affiliate nexus legislation: Arkansas, California, Colorado, Georgia, Illinois, Kansas, New York, Oklahoma, South Dakota, Texas, Utah and Virginia.

8 Click-through nexus subjects certain out-of-state retailers to the collection requirement if they pay commissions to in-state entities for making referrals that typically result in a certain amount of instate sales. The following states have enacted click through nexus laws: Arkansas, California, Connecticut, Georgia, Illinois, Kansas, New York, North Carolina, Rhode Island and Vermont (contingent on 15 or more states enacting click-through nexus legislation).

9 S. 743, as approved by the U.S. Senate on May 6, 2013. For further information, see GT SALT Alert: U.S. Senate Approves Marketplace Fairness Act that Would Allow States to Impose Sales Tax Collection Requirements on Remote Sellers.

10 Note that West Virginia is a member of the SSUTA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.