Consumers across the country increasingly are making purchases online, in some cases doing so to avoid paying sales tax. When that happens, local governments like miss out on much-needed revenue to help pay for roads, schools and police. One group estimates Virginia is missing out on hundreds of millions of dollars each year — $422 million in FY2012 — according to the National Conference of State Legislatures. The group says in all, states will lose $23 billion in 2012.
That could change soon.
The legislation will allow state and local governments to require Internet retailers with sales over $1 million a year to pay the same sales taxes that bricks-and-mortar retailers are required to pay.
Online retail sales totaled $169 billion in 2010, the Wall Street Journal reported, about 4.4 percent of total retail sales, according to the U.S. Census Bureau. From 2002 to 2010, such sales rose at an average annual rate of 18 percent, compared with 2.6 percent for total retail sales.
The New York Times this week noted that online retailers are hurting "old-fashioned retailers," who are "going bust, leaving towns marred by vast, empty storefronts. Those that remain complain of 'showrooming,' when shoppers inspect their wares, then leave the store to buy the same products on the Internet, finding lower prices and avoiding sales taxes."
EBay is solidly against it. "...the problems with the current bill can be most easily addressed by exempting small businesses with less than $10 million in Internet sales or fewer than 50 employees," eBay wrote in an opinion piece in USA Today this week.
“Unfortunately under the current circumstances,” said Warner, in a news release, "we have an uneven playing field. Local, bricks and mortar small businesses follow the law and collect sales taxes from customers…On the other hand, many large online businesses do not collect the same sales taxes…That creates an un-level playing field between the online vendor and the bricks and mortar store.”
In Virginia last year, Gov. Bob McDonnell announced an agreement with Amazon.com to start collecting state sales tax from the company. The agreement was made as part of the company's move to build warehouses in Virginia's Chesterfield and Dinwiddie counties. Amazon will begin collecting and remitting Virginia sales tax on Sept. 1. States across the country have enacted similar legislation, mostly based on whether a company has a physical presence in the state.
The Institute for Local Self-Reliance says that by not collecting sales tax on Internet purchases it:
- Creates disadvantages for local businesses. Exempting online retailers from having to collect sales tax, as regular stores must, gives these companies a 4 to 9 percent price advantage over local stores — a sizable competitive advantage in retailing.
- Makes a regressive tax more regressive, because only those with Internet access, a credit card, and a home or workplace where they can accept daytime deliveries are able to take advantage of the tax exemption.