West Virginia enacts market sourcing and single-sales factor

Apr 15, 2021
Apr 15, 2021
0 min. read

On April 9, 2021, West Virginia Gov. Jim Justice signed into law House Bill 2026, adopting significant changes to the state’s income tax code including market-based sourcing, single-sales factor apportionment and limitations on temporary or mobile worker withholding.  

Market-based sourcing

West Virginia joins about three dozen other states and the District of Columbia in adopting market-based sourcing. West Virginia had long used the cost-of-performance rule for sourcing receipts. Under the new law, sales, other than sales of tangible personal property, made on or after Jan. 1, 2022 will be sourced to West Virginia if and to the extent the service is delivered to a location in the state. Sales of intangible property that is rented, leased, or licensed, if and to the extent the property is used in West Virginia, are sourced to West Virginia provided that intangible property utilized in marketing a good or service to a consumer is “used in the state” if that good or service is purchased by a consumer who is in the state.

Single-sales factor apportionment

Effective for tax years beginning on or after Jan. 1, 2022, West Virginia adopts a single-sales factor apportionment formula for corporate income tax purposes. In doing so, West Virginia joins about two dozen other states and the District of Columbia in adopting single-sales factor. West Virginia will continue to employ the modified three-factor apportionment formula using a double-weighted sales factor for 2021. 

Additionally, House Bill 2026 eliminates the state’s ‘throwout rule’ for sales made on or after Jan. 1, 2022. 

Withholding exemption for mobile workers

House Bill 2026 makes significant changes to the state’s withholding requirements regarding the taxation of mobile workers. Beginning Jan. 1, 2022, compensation paid to a nonresident is exempt from personal income tax under the following conditions: 

  1. The compensation is paid for employment duties performed by the individual in in the state on 30 or fewer days in the calendar year
  2. The individual performed employment duties in more than one state during the calendar year 
  3. The compensation is not paid for employment duties performed by the individual in the individual's capacity as a professional athlete, professional entertainer or public figure, and
  4. The nonresident individual's state of residence either provides a substantially similar exclusion, or does not impose an individual income tax, or the individual's income is exempt from taxation under the U.S. Constitution or federal statute

If during the calendar year, the employee exceeds the 30-day threshold performing employment duties as described above more, the employer must withhold and remit tax to the state for every day (including the first 30 days) which the employee performed duties in the state. West Virginia joins a small number of states that provide at least a 30-day rule, including Arizona, Hawaii and Illinois.


With much of the focus on several unsuccessful proposals to repeal the personal income tax, House Bill 2026 may not be well known to companies doing business in West Virginia. But the new law will affect companies both inside and outside of West Virginia. The shift to market-based sourcing will have ramifications for all companies selling services and intangible property. Adoption of market-based sourcing invariably affects business tax liabilities depending what the business sells and where the sales take place. Similarly, singles-sales factor apportionment could significantly change a company’s tax burdens. For example, a business that has most of its property and payroll in West Virginia, but exports most of its products out of state could see a dramatic change in its tax liability. 

Businesses that send employees to West Virginia on a temporary basis should be aware of the new withholding/tax rules. Under certain conditions, a business will not have to withhold West Virginia personal income tax if its employees are in the state less than 30 days. That bright-line rule can make planning and tax compliance much easier. A federal mobile workforce solution has been introduced in every recent congressional session, but little legislative progress has been made other than renewed attention due to the pandemic. Businesses should consult with their state and local tax advisor for more information. 

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