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Virginia: A House Divided

  • Jan 23, 2012 | Susan McLain

UPDATE: 2/8/2012 SB 597 passed the Virginia Senate by unanimous vote.

In December, 2011, Amazon announced plans to open two distribution centers in Richmond, Virginia. According to a report by the Washington Post, “the state spent more than $4 million to lure the company to Virginia.” However, it is in question whether Amazon will be required to perform sales tax collection duties due to the existence of these two new warehouses. Currently, “Amazon already has distribution operations in Northern Virginia,” but does not collect and remit sales taxes on online purchases made by Virginia residents.

At issue for many Virginia retailers is that “the company will receive more than $4.3 million in financial aid and other incentives from the state, even though it isn’t expected to collect sales taxes and send them to the state.” The Virginia Retail Merchants Association (VRMA) is among those who feel that “Closing the Amazon loophole is the single most important legislative priority for the 2012 Virginia General Assembly,” citing that small companies such as local retail stores “…give back to their communities by volunteering with local organizations and making charitable contributions,” as well as employing “…significantly more people than internet retailers on a per revenue basis.” The VRMA has declared, "It is not appropriate for state and local tax dollars to be used to as economic development incentives unless Amazon agrees to collect and remit state sales taxes."

However, according to the Richmond Times Dispatch, this issue is “…a legally complex one…. Amazon.com.KYDC LLC has been registered with the State Corporation Commission in Virginia since February 2009. The company listed its jurisdiction of formation as Delaware and its principal office as Lexington, Ky.” This means that “…Amazon has used a legal tactic known as ‘entity isolation,’ in which its operations are run by a separate business entity named Amazon.com.KYDC LLC.”

The Governor’s office says Amazon does not have to collect due to a “…2007 state tax department ruling that such an entity was exempt.” But now, the Virginia Senate has proposed SB 597, the “Retail Sales and Use Tax; presumption for registration for collection of tax” bill, which declares that if “…any commonly controlled person maintains a distribution center, warehouse, fulfillment center, office, or similar location within the Commonwealth that facilitates the delivery of property sold by the dealer to its customers,” it is required to register to collect and remit retail sales and use taxes.

So, will they, or won’t they? In 2010, SB 660 was passed by the Senate, but tabled by the House. That bill would have required internet retailers to collect if they had affiliates within the state. SB 597 is getting a bit more interest and consideration by the House, but the bill has been indicated to be a milder version of Texas’s distribution center/warehouse bill that was enacted last year.

TaxAnalysts reports that Governor McDonnell has not yet taken a position on SB 597, so it remains to be seen how Virginia will approach collection of the estimated $207 million it will lose in revenues from online sales. Amazon reiterated “…the company’s goal of seeking a federal solution to the remote sales tax collection issue.” But perhaps the bigger question for this state is how will Virginia's state legislature and the governor's house come to terms with finding a  balance to attracting internet businesses, supporting their in-state retailers and managing the differing opinions about the internet sales tax issue.

Click here for a free download of taxrates.com's Virginia sales tax rate table....

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”