CHARLESTON, WV – Governor Jim Justice announced last week that he was telling West Virginia lawmakers a bill that will reform West Virginia corporate tax laws to make West Virginia a haven for remote workers from across the country.
The idea was first announced during 2021 State of the State address of Gov. Justice (Time code: 50: 52-52: 39).
“This legislation is a long overdue major change and modernization of our corporate tax structure that is absolutely necessary if we are to move West Virginia forward,” said Governor Justice. “I am so proud to bring this legislation up for review because it is a bold move to make West Virginia the most attractive state in the country for remote workers and all businesses, and that is exactly what we want to be.
“I am confident that the leadership of both Senate and House of Representatives understand its importance, and I sincerely hope that all members of the legislature will approve and pass this bill.”
The bill has been submitted for introduction to the West Virginia Legislature and will be introduced in the coming days.
If passed, the bill will modernize West Virginia’s corporate tax structure, encouraging not only remote workers but also companies looking to do business in West Virginia by making changes to:
- Adopts Model Tax Rules for Treatment of Remote or Mobile Workers to Remove Barriers for Remote Workers in West Virginia;
- End West Virginia “throw away” rule that artificially increased state income tax burdens for certain businesses;
- Moves this state from Origin Sourcing to Market Sourcing – brings us in line with and competitive with most jurisdictions in the US. and
- Adopts the Single Sales Factor division, which means that companies will no longer be penalized for West Virginia income taxes if they have property or payrolls within the state.
The West Virginia Department of the Treasury believes that this legislation will be revenue neutral even after taking into account all of the benefits it offers.
Detailed explanation of the provisions of the draft law:
Model Mobile Employees Provision: Working from West Virginia
The first change made by this bill introduces model tax rules for workers who only come into the state for a short period of time so that people who work remotely can escape the hustle and bustle of the cities to work in the midst of the mountains. This change makes a company not incur corporate tax liability just because an employee works in West Virginia for a short period of time.
Terminate the “eject” rule
A throw-away rule generally requires that a taxpayer discards or excludes revenue from the sales factor attributable to a state in which the taxpayer is not taxable, which leads to a higher tax burden in the state than would be the case on the basis of taxes alone Sales within the state.
The ejection rule harms West Virginia-based companies by overrating West Virginia business in income tax calculations. By removing this rule, all companies with sales in West Virginia, including companies with remote employees, will be encouraged to invest in West Virginia.
For income tax purposes, applicable law apportionates all sales of services performed by remote workers to West Virginia, regardless of where the services are performed. With this proposal, revenue for service industries will only be split based on sales to customers in West Virginia.
32 states and the District of Columbia have market-based procurement rules in place, including most of the neighboring jurisdictions in West Virginia. As a result, West Virginia companies pay taxes on services provided in the state and then also in surrounding states that have adopted market-based sourcing. The move to market-based sourcing creates fairness for companies in West Virginia.
Single sales factor
Currently, West Virginia corporate income tax is based on a three-factor test that compares the size of West Virginia real estate versus total property, West Virginia payroll versus national payroll, and West Virginia sales versus national Sales includes.
This apportionment scheme has a negative impact on businesses that own property or payrolls in West Virginia because their income taxes are based in part on their property and state payroll. Moving to a sharing scheme based only on the size of sales made in the state versus total national sales would allow businesses to set up their own property and / or workforce in West Virginia without incurring income tax liability in West Virginia .
Because states differ in how they divide income for companies that do business in multiple states, there is an opportunity for companies with multiple states to reduce their total tax liability by being in a state that is not Income tax liability only due to property ownership or payroll within that state.
For businesses with few sales in West Virginia compared to national sales, a West Virginia real estate and payroll would result in little to no state income tax when the state uses a single allocation scheme for sales factors.
29 states and the District of Columbia have rules for sourcing individual sales items, including most of the neighboring jurisdictions in West Virginia. The introduction of this system encourages employment and investment in West Virginia by focusing income tax on a company’s market in the state rather than focusing on government investment.
These changes mean that West Virginia would no longer have a disproportionate impact on companies located in the state or making significant investments in the state when those companies export their products.
The West Virginia Treasury Department predicts that this step of splitting each sales factor will be neutral. West Virginia real estate and payroll companies will see their state income taxes decline. However, companies with no physical presence in West Virginia but selling to West Virginia, such as many online retailers, will see a slight increase in their state income taxes as the only factor will be West Virginia sales compared to that company’s national sales .
These are expected to balance each other out and make billing revenue neutral, while the changes in the bill to the state’s corporate tax structure will make the state much more competitive for businesses when they have their properties and employees within a 500 mile radius of two in West Resettle Virginia – one third of the US population and one third of the Canadian population.
The progress of the calculation can be followed here: