The days of enjoying tax-free online sales may be coming to a close.
Virginia has announced the passage of Senate Bill 547, which expands on an already existing state law that requires the collection of sales tax for online purchases from businesses with facilities located in the state, to include other Internet merchants – specifically online retail juggernaut Amazon.
Amazon has no interest in collecting sales tax in states and has played aggressively in the past to avoid it. Sales tax means higher prices for Amazon customers and a less competitive margin between the online retailer and local merchants, and the company has enjoyed legal protections against being required to collect it.
Now, cash-strapped states are fighting the law that allows Amazon to forgo tax collection in states where it does not have a physical presence. Even so, there are some states that see the tax requirement as a violation of Constitutional protections against targeting individuals or businesses for tax purposes, and others believe changes to state tax policies may chill states’ ability to attract future business.
While Arizona recently rejected the tax law that Virginians just approved, New Jersey is looking to extend a tax break to Amazon in an attempt to attract the company’s physical presence to the state, which would mean more jobs and more revenue. The difference in the three states’ approach to the online retail tax plan demonstrates the conflicted opinions regarding the legislation.
Often absent from the conversation is that consumers in many states are already required to report and pay sales tax for online purchases, although it is widely understood that few people do it. Regardless, states must be careful not to create conflicting or overlapping laws, because it could result in more harm than good in the future when businesses decide to come to a particular state.
Photo courtesy of James Duncan Davidson.