Amazon deal may reopen Virginia sales tax fight

Merchants who have pushed for online retailer Amazon.com Inc. to pay Virginia sales tax have gained some legislative allies in their fight.

Democratic leaders in the state House of Delegates said Tuesday that the governor's economic development package for the Internet giant is a bad deal for the state and unfair to other merchants who pay the tax.

Amazon and Gov. Bob McDonnell announced last week that the company would spend $135 million, bringing 1,350 jobs and two new distribution centers to suburban Richmond. Amazon will receive more than $4.3 million in financial aid and other incentives from the state.

Uncollected sales taxes from online retailers such as Amazon will cost the state about $200 million to $420 million in revenue next year, studies estimate. That money would go to the general fund, where it is badly needed to pay for education, public safety, environmental protection, and health care for the elderly and disabled, the Democrats argued.

House Minority Leader David Toscano, D-Charlottesville, and other legislators pointed to Tennessee, where Amazon also is building two new distribution centers but struck a deal with Republican Gov. Bill Haslam to begin collecting sales tax from Tennessee customers in 2014.

"We think the governor could have - and should have - made a better deal," Toscano said in a prepared statement. Remember, this is not a new tax. Sales taxes are intended to be paid on Internet purchases just as they are paid on purchases made at the local store. We hope that Amazon will collect and remit the tax - just as our Main Street businesses are already doing."

For years, Virginia retail industry groups have argued that Amazon should be required to collect sales tax and forward it to the state like merchants with bricks-and-mortar stores. Virginia law specifies that dealers with any kind of physical presence in the state must collect and turn over the state's 5 percent tax on their sales.

Amazon has two facilities in Virginia, a warehouse in Sterling and a data center at an undisclosed location, but has been exempt from paying sales tax on purchases made in the state.

That seems unlikely to change even though the company is expanding its Virginia presence.

Based on a 2007 ruling from the state Tax Department, Amazon will not be required to collect and remit sales tax because its business units in Virginia won't handle sales, a McDonnell spokeswoman explained.

At the announcement last week, McDonnell said, "This was solely about jobs and economic development here," calling the sales tax issue a discussion for "another time."

Two years ago, Virginia retailers sought passage of a law to require Amazon to collect sales taxes on purchases it processed for affiliates in the state. The measure cleared the Senate but died in the House of Delegates.

At the time, the state Tax Department completed an impact statement for that proposal, projecting that it would generate $17 million in annual tax revenue for Virginia, said Margaret Ballard, vice president of advocacy for the Virginia Retail Federation, the lobbying arm for the state's merchants. "We think it's much higher," she added. "It could be double that amount."

Amazon's plan to expand its Virginia operations is likely to renew the debate among state legislators about the collection of sales taxes on Internet purchases, not only those made on Amazon's site but also at other online retailers. The General Assembly convenes Jan. 11.

It's harder for traditional merchants to compete without a uniform application of tax policy, Ballard said.

"That includes large brick-and-mortar down to your smallest retail shop in Ghent," she said, likening the Amazon exemption to a permanent sales-tax holiday for the company.

Pilot writer Carolyn Shapiro contributed to this report.

Julian Walker, (804) 697-1564, julian.walker@pilotonline.com