Wednesday, February 17, 2010

Virginia General Assembly: The "Amazon Tax" on Online Sales Passes the Senate

When you purchase a book at, a DVD at, or a comfy new dog bed at, should you be required to pay sales tax on the transaction? Should the online retailer be required to charge for and collect the sales tax?

In Virginia (as in most states), online retailers have long-benefited from an exception to the requirement that bricks-and-mortar stores must register with the state and remit sales tax collected on all transactions.

Some states -- including New York and North Carolina -- have enacted laws that extend the reach of their sales tax to online transactions. New York's law was protested vigorously by certain online outlets but ultimately was upheld by the state's courts.

The legal rationale for excluding online retailers from the sales tax is that they have no physical presence in the state, and the policy rationale for excluding them is that customers are not used to conducting business online and that they need to be incentivized as they become accustomed to doing so.


Now, there is legislation pending in the General Assembly -- sponsored by a Republican, to the surprise of some -- that would require any online retailer which does more than $10,000 in Virginia business per year to collect and remit sales tax. If enacted, expanding the sales tax is esimated to generate $18 million per year, initially, for the state.

The legislation -- Senate Bill 660, the full text of which you can read here -- was introduced by Senator Emmet Hanger, Jr. and would amend Code of Virginia Section 58.1-612.

Senator Hanger represents the 24th Senate District, which is primarily in the Shenandoah Valley but also includes a portion of Albemarle.

Currently, the relevant portion of Section 58.1-612 reads as follows:

C. A dealer ["dealer" is the statutory term for those individuals and entities from whom sales tax is collectible] shall be deemed to have sufficient activity within the Commonwealth to require registration under § 58.1-613 if he:

1. Maintains or has within this Commonwealth, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature;

2. Solicits business in this Commonwealth by employees, independent contractors, agents, or other representatives.


Senator Hanger's bill would change the phrase "solicits business in this Commonwealth" to "solicits or transacts business in this Commonwealth," and it would add the following presumption:

A dealer is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the dealer enters into an agreement with a resident of the Commonwealth under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet site or otherwise, to the dealer if the cumulative gross receipts from sales by the dealer to purchasers in the Commonwealth who are referred to the dealer by all residents with this type of agreement with the dealer are in excess of $10,000 during the preceding four quarterly periods.


Yesterday, SB 660 passed the Senate by a vote of 28-12, with a mix of bipartisan support and bipartisan opposition.

Its supporters say that the change in law would (1) level the playing field (between traditional and online retailers) and (2) provide revenue that the state desperately needs, but its detractors argue that it would make Virginia less business-friendly than the majority of states which still do not tax online transactions.

Now the bill heads to the House of Delegates, where it is expected to face greater opposition. You can track its progress on the Legislative Information System's website, here.