The ongoing national debate over affixing sales taxes to online purchases returned to the news yesterday, when Virginia lawmakers passed a bill that would force the state’s internet retailers to do just that.
Only one dissenting vote was recorded in the state Senate Finance committee’s debate on Sen. Emmett Hanger’s proposed legislation, which would collect the tax from businesses in-state that are affiliated with major online shopping companies such as Amazon, Overstock and the like.
Analysts expect the bill to move to the state Senate for a full vote next week.
Under the current system, which is almost identical to the set up in other states around the country, major national retailers play the role of a wholesaler for the Virginia-based internet retailers. The smaller companies receive a share of every sale that is processed through their relationship with the bigger partners, minus any sales tax.
Proponents of an online sales tax have argued for years that such a system puts traditional brick and mortar retailers at a distinct disadvantage with consumers. Senator Hanger himself made the case that there’s no level playing field between online retailers and their brick and mortar counterparts: the latter of which are forced to struggle with the ups and downs of a volatile economy while also trying to compete with the online retailers that are immune to Virginia’s 5 percent state and local sales taxes.
The Virginia Retail Merchants Association supports Hanger’s proposal and several brick and mortar retailers were on hand to add their take on how the current system is putting both their businesses and lives in peril.
Opponents of the bill meanwhile, in echoing the sentiments of their colleagues around the country, argued the measure looks good on paper but will really only end up hurting Virginia’s smaller retailers. They maintain that the large shopping companies, more secure and much more insulated from cost fluctuations than their smaller partners, will simply end their relationships with the state’s retailers once the tax is implemented, leaving them holding the bag.
“You’re going to put Virginia businesses out of business if you do that,” said Reggie Jones, a lobbyist for Dulles-based AOL, which opposes the legislation.
Coincidentally, state officials in Colorado this week also brought the online sales tax issue to the forefront with a piece of proposed legislation of their own, which would require out-of-state retailers to collect the tax or send notices yearly to their customers informing them that they need to pay the tax on their own.
Both cases clearly signal that online sales taxes are increasingly being looked at as a means to close budget deficits in states that are having a hard time staying afloat financially.
Unfortunately, while such a tax conceivably could become a reliable stream of revenue for these states, most of the proposed plans end up burdening the retailers with the responsibility of tracking and collecting those taxes. In essence, state governments are telling the retail industry that they want their cut of the money, but don’t want to contribute to the collection process.
We outlined our stance on this situation and the online sales tax issue overall about a year ago in another post so feel free to read through it and leave us your thoughts on the subject!