A bill to force online retailers such as Amazon.com Inc. to collect the same sales taxes that mall discount stores and corner bookstores must assess from their customers in Virginia could soon become law. It passed the Senate in a 36-4 vote last Friday and today, after first reading the House, was referred to the Committee on Finance.
SB 597, sponsored by Sen. Frank Wagner, would close a loophole in Virginia law that allows Amazon to avoid collecting the sales tax because they operate in the state through subsidiary warehouses and distribution centers that are not legally defined as a physical presence.
Current Virginia law requires all retailers with a physical presence in the state to collect a 5 percent sales tax. Some online businesses can avoid collecting the tax because they are not selling goods at a physical location in the state. The sales tax funds both state and local governments.
"Everybody needs to collect and pay the government the same 5 percent," Ken Vaughan of Warrenton, a regional vice president for the Peebles department store chain said. The Peebles department store chain operates 35 Virginia franchises, mostly in small cities.
Supporters of the bill say it would boost Virginia's treasury by hundreds of millions of dollars annually merely by collecting taxes already on the books. They also said it would create a level playing field for traditional "brick-and-mortar stores." Nathan Russell, economics professor at Patrick Henry College, said that leveling the playing field by enforcing the 5 percent tax will not necessarily help small bookstores.
Russell said there are three reasons that small bookstores are unable to compete with companies like Amazon. "Online retailers have less overhead cost than small bookstores," he said. "This gives them a better price advantage. They also have a better selection and are more convenient."
Five other states have laws similar to Wagner's Bill, and nine others have agreements or laws about to take effect that will collect online retailing taxes.
Russel said that California passed a law defining the physical location of businesses, and because of this, products sold through associates have to collect sales tax. Businesses like Amazon had associate programs, where people with blogs or the other sites advertised their products. When customers clicked on the link on the associate's page and bought the product, a portion of the proceeds went to the associate. When California passed the law defining the physical location of businesses, Amazon threw away its associate's program in California.
"I'm not sure if it was a loss or gain for California," Russell said.
If Wagner's bill is signed into law, there is the potential for Amazon to move its physical location and go somewhere else. It might also cease its association program. Amazon ended its associate program last year in Connecticut after it imposed a sales tax measure. According to Russell, a business may choose to stay if the cost of moving a warehouse is greater than the implementation of the sales tax.
Gov. Bob McDonnell, according to his chief spokesman J. Tucker Martin, has not yet taken a position on Wagner's bill. His decision should be an interesting one, considering McDonnell announced last year that he had used $4.3 million in state incentives to persuade Amazon to build two new distribution centers in the Richmond area.
The Associated Press contributed to this report.