Virginia bill to force online retailers, such as Amazon, to collect the same sales taxes as traditional retailers wins unanimous support of state's Senate Finance Committee; five other states already have similar laws on the books

Cindy Allen

RICHMOND, Virginia , February 8, 2012 (Associated Press) – A bill to force online retailers such as Amazon to collect the same sales taxes that mall discount stores and corner bookstores must assess from their customers won unanimous support Tuesday from the Senate Finance Committee.

Sen. Frank Wagner’s bill would close a loophole that gigantic Internet merchants use to avoid collecting Virginia’s 5 percent tax.

Supporters say it would boost Virginia’s treasury by hundreds of millions of dollars annually merely by collecting taxes already on the books. They said it would also create a level playing field for traditional “brick-and-mortar” stores.

Five states — Kentucky, Kansas, New York, North Dakota and Washington — already have similar laws in effect and nine others have agreements or laws about to take effect to collect online retailing taxes.

Neither Amazon nor any other Internet retailer spoke against the bill.

The loophole is a remnant from the late 1990s and the last decade when governments were trying to nurture and incubate online commerce, then in its infancy. Now, Internet sales and commercial transactions have put many traditional retailing, entertainment and financial services companies in their graves.

“They have a cybernet advantage right now — people able to shop in their pajamas and they don’t have to pay tax. It’s hard to compete with that,” Danny Givens, owner of a bookstore in Lynchburg that diversified into toy sales and a café to remain competitive against Amazon and online booksellers, said after the committee’s enthusiastic vote.

Toss in free or cut-rate shipping enticements added to many online purchases and walk-in shops such as the Givenses’ face a troubled future.

“Everybody needs to collect and pay the government the same 5 percent. That’s all we’re asking,” said Ken Vaughan of Warrenton, a regional vice president for the Peebles department store chain, which operates 35 Virginia franchises, mostly in smaller cities. “We’re required to do that because we’re brick-and-mortar stores. The state ought not be subsidizing any stores, online or otherwise.”

Virginia law requires all retailers with a physical presence in the state to collect sales taxes which fund both state and local governments. Amazon, the largest of them, avoids the loophole by operating in Virginia through subsidiary warehouses and distribution centers that are not legally defined as a physical presence.

Under legislation by Wagner, R-Virginia Beach, a significant ownership stake in any facility that fills customer orders, handles or distributes merchandise for an out-of-state parent company counts as a physical presence to compel the corporate parent to collect and pay sales taxes.

An analysis of the legislation by the Virginia Department of Taxation said the annual revenue yield would be difficult to calculate. But based on a survey of the total revenue generated by the retailers the bill would affect, Virginia could receive as much as $24 million in additional state and local sales tax revenue, according to a fiscal impact statement accompanying the bill.

Sen. Emmett Hanger, R-Augusta and a member of the panel that writes both tax and appropriation law, called the estimate “just the tip of the iceberg. We’re losing several hundred million dollars in revenue a year.”

Gov. Bob McDonnell, who late last year announced that he had used $4.3 million in state incentives to persuade Amazon to build two new distribution centers in the Richmond area, has not yet taken a position on Wagner’s bill, said his chief spokesman, J. Tucker Martin.

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