Charleston half-penny sales tax kicks in Tuesday
CHARLESTON, W.Va. -- People who shop in Charleston will have to dig a little bit deeper starting Tuesday, when merchants begin collecting the city's half-cent per dollar sales tax.
That's pretty small change for most people, but those pennies -- or half pennies -- add up. City leaders hope to collect more than $6 million a year, enough to pay for up to $50 million of improvements at the aging Civic Center.
City and state tax officials have been working behind the scenes for months to make sure the transition goes as smoothly as possible.
"Generally speaking, retailers don't have a problem transitioning from one sales tax to another because they already have systems in place," said Tonja Oakes, director of the state Tax Account Administration Division.
The state Tax Department already has systems in place, too. They've been running the state sales tax program for years, and have worked with local sales taxes programs for several communities.
Huntington started charging a 1 percent sales tax in January 2012. Like Charleston, Huntington levied its tax under the state's pilot home rule program, which gives a handful of cities more control over their finances and operations. Wheeling is also slated to join the party on Tuesday with a half-cent tax.
Some smaller towns are also climbing on the local sales tax bandwagon, through another quirk in state tax law that allows non-home-rule cities or towns to charge a sales tax if they don't have (or eliminate) business and occupation taxes on retailing.
Williamstown pioneered its sales tax two years ago, Rupert joined in this April, and Quinwood and Harrisville are scheduled to start on Tuesday.
To help prepare for the tax, Charleston officials first needed to compile a list of the hundreds of nine-digit ZIP codes in the city, so mail-order retailers would know who lives in Charleston. The sent the list to state tax officials, along with a copy of the city's May 20 ordinance that enacted the sales tax, on May 31.
"Once a town or city provides us with an ordinance, the Tax Department upgrades our tax system to include their city or town, and their tax rate," Oakes said. "We will provide 120-day notice to the sellers to let them know [the tax] will be coming."
That notice went to every retailer that has an account with the state, around 130,000 businesses. The Tax Department also put information on its website and otherwise alerted merchants, she said.
When Mayor Danny Jones and city officials first started pitching the sales tax to City Council members, they said a few items would be exempt, like vehicles and groceries. But upon further review by lawyers, the exemptions grew.
"The truth is our code has to mirror state code," city Finance Director Joe Estep said. "It's a pretty big list: nonprofits; satellite TV sales; automobile, but they collect their own tax.
"I started getting nervous after I provided the [annual revenue] estimate when I saw the list," Estep said.
Though the rules for when and where local sales taxes are charged are a bit complicated, merchants should know the ropes.
"West Virginia is a destination-sourcing state, which means the tax is imposed at the destination rather than the purchase," Oakes said.
"An easy example, the one I like to use, is pizza delivery," she said. "If they're located outside the city but deliver inside the city, they have to collect the tax. If you pick up at the location, you don't have to pay the tax."
For catalog and other merchants who mail goods to city residents from outside Charleston, anyone who already collects the state sales tax would also collect the city tax, Oakes said.
Estep is sticking with his original projection for how much the tax will bring in -- $6.175 million in gross tax collections each year.
The state gets a small cut of that. "Current state code allows us to collect a 1 percent administrative fee and that is what we're going to do," Oakes said. That would trim the city's estimated net to $6,113,250.
Merchants will begin sending tax collections to the state a month after the tax takes effect, Oakes said. Depending on their sales volume, some send in monthly returns, some quarterly and a few just once a year.
Charleston won't get its first payment until early January, and then every three months after that.
"As we collect these revenues, they'll go into a special revenue fund," City Manager David Molgaard said.
The law passed by City Council says the primary purpose for the City Sales and Use Tax Fund is to pay down bonds or other financial obligations for Civic Center improvements.
But it also allows some wiggle room. Any money left over can be transferred to the city's general revenue fund.
The sales tax isn't the only funding source for the Civic Center, but it's by far the largest one. Last year the city also set up a TIF (tax-increment financing) district covering a wide swath of downtown that includes most of the major hotels plus the Charleston Town Center Mall.
The idea is that any additional property taxes generated by improvements within the district would go toward the Civic Center. The mall has been doing some upgrading, as are several hotels, while a Marriott Courtyard is rising near Elk River.
"We just saw the first money come in from that ... not much," Molgaard said. "There's a year time lag."
TIF district funds could be used to support bond issue, and the sales tax revenues could support another bond issue, Molgaard said. Alternatively, the city could draw down some tax revenues on a pay-as-you-go basis.
"Right now we're in the procurement process for design of the Civic Center project. Eventually we'll have development costs. Based on our preliminary analysis we're looking to pursue a project of up to $50 million.
"Our initial analysis, because TIF bonds can only go out 20 years, $6 or $7 million for an initial bond issue from the TIF district. The balance, $43 to $44 million, would come from the sales tax."
Molgaard was leery about predicting any leftover sales tax revenues.
"Fifty million dollars is a lot money but, when you look at what it cost to build the Clay Center, that money could go very quickly."
Like the recent improvements at Haddad Riverfront Park, Molgaard hopes to use a design/build process at the Civic Center, where the same team that designs the project oversees its construction.
"We will select a design/build team through a competition. The goal is to have a guaranteed maximum price and have at least three design firms tell us what they can provide for the budget."
The goal is to encourage creativity, he said. "When you think about updating the exterior, there are multiple routes you can go."
All this will take time, at least several years.
"I really hope to have the consultant piece moving forward next month," Molgaard said. "Maybe by this time next year we'll have picked a design/build team who will spend the next year, year and a half, designing the project." Reach Jim Balow at email@example.com or 304-348-5102.