Some GOP Lawmakers Are Willing to Close Tax Loopholes

Friday, February 24, 2012 at 12:31 AM by
Virginia Moves Closer to Closing “Amazon Loophole”
Although Governor Walker has yet to show any interest in closing tax loopholes, GOP lawmakers in some other states have – particularly with respect to the loophole for sales taxes on goods purchased online.  Technically, sales taxes (or “use taxes”) are owed on those purchases, but many retailers don’t collect them.  Few purchasers know that they owe the tax, and even fewer voluntarily tell the Department of Revenue and pay the use tax they owe. 
The issue has been getting increased attention – partially because most states are struggling to balance their budgets and partially because Main Street “bricks and mortar” retailers are getting increasingly concerned about the unfair advantage gained by out-of-state retailers who sell online and are capturing a rapidly growing share of the market. 
About two weeks ago the Virginia Senate gave strong bipartisan support to a bill to close the so-called Amazon loophole, which has allowed the retailing giant to avoid collecting sales taxes.  The bill, which was authored by GOP Senator Frank Wagner, passed by a vote of 34 – 6.  As the Washington Post reported, Virginia’s Republican Governor, Robert McDonnell, announced yesterday that an agreement had been reached that should clear the way for the bill’s passage in the Assembly.

In a prepared statement, Gov. McDonnell said the deal will “ensure that online retailers with a physical presence in Virginia are treated the same as traditional brick and mortar retailers who are already required to collect and remit existing sales taxes on goods sold in the Commonwealth.” The deal was negotiated between his office, Amazon, small businesses and several members of the General Assembly. 
A number of states have begun passing bills establishing or clarifying the authority of the state to collect sales taxes for online purchases if the retailer has a physical presence in the state.  However, as we have noted in some past blog posts, Amazon resisted those efforts by pulling its distribution centers out of the first states to pass such legislation.  But after a protracted fight with California, Amazon began to change its tune, and last fall it endorsed federal legislation to allow sales taxes to be collected on online sales.  
The issue has also been getting increased attention in Wisconsin, and the State Journal ran an editorial a few weeks ago in favor of ending the loophole and creating a level playing field for retailers.  There has been a wide range of estimates of how much revenue Wisconsin is losing from Internet commerce.  A University of Tennessee study published in 2009 estimated that Wisconsin would miss out on roughly $142 million of sales tax revenue from electronic commerce in 2012, and roughly that much more from catalog sales.   However, a January 2011 Legislative Fiscal Bureau document cited a lower Department of Revenue estimate of $62 million lost from online sales.

In the next week or two we will take a closer look at what the recent developments could mean for our state, in light of the difficulty of legal impediments to establishing jurisdiction to collect the sales tax on online or catalog sales.

Jon Peacock

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