Since the dawn of internet commerce in the mid-1990s, cyber-retailers weren’t responsible for collecting states’ sales taxes, giving startups such as a little-known bookseller in Seattle called Amazon a leg up on their competition. You could order the latest bestseller or the hottest CD—books and CDs were about the only products Jeff Bezos’ company sold in its early days—and not have your state’s tax assessed at check out.
For a while, bricks-and-mortar retailers barely noticed the presence of online retailers, especially since Amazon’s viability was far from guaranteed with year-over-year losses running into the billions of dollars. But as high-speed internet replaced dial-up, as more homes went online and consumers became more cyber-savvy, traditional retailers began to take notice, and one target they zeroed in on quickly was that lack of sales tax collection on online purchases.
Technically, the law put the onus on the purchaser to self-report any online shopping sprees and pay the required sales tax when filing yearly income taxes. Honestly, though, who really did that? That camera or fancy flatscreen TV purchased online from Amazon or B&H proved to be much more enticing without, say, Virginia’s 5.3 percent sales tax tacked on.
Local businesses across the country cried foul for years that states’ tax policies and federal law gave unfair advantage to now-giant corporations such as Amazon and out-of-state retailers such as B&H and Adorama that had no physical presence locally, thereby allowing them to skirt sales-tax-collection requirements. And soon national, big-box retailers such as Walmart, Target, Best Buy and Kohl’s joined their mom-and-pop local competitors in crying foul.
Local, taxpaying businesses were losing out big-time to cyber-retailers against whom they simply could not compete because of outdated tax policies.
Numerous attempts to address this inequity stalled in Congress, primarily in the House of Representatives. Anti-tax activists such as Grover Norquist branded any attempt to force online retailers to collect states’ sales taxes as a “new tax,” even though it wasn’t and merely shifted the burden from the consumer to self-report to the retailer to collect. Powerful congressmen, such as former U.S. Rep. Bob Goodlatte, R-6th, gave lip service to local businesses about wanting level playing fields for all to compete on, but—as Goodlatte did in the Judiciary Committee he led for years—stifled any attempt to address the inequity.
All that changed in the summer of 2018, when the U.S. Supreme Court handed down its ruling in a landmark tax case, South Dakota v. Wayfair Inc. Though the margin was a razor-thin 5-4 with liberal and conservative justices on both sides of the vote, the upshot was to give states the right to require online retailers, even those with no physical presence in a particular state, to assess and collect the sales tax of any state due.
The Virginia General Assembly moved quickly in the 2019 session to approve all the laws needed for the commonwealth to begin collection of sales taxes on online sales, with the laws going into effect July 1.
Already, there’s been a noticeable impact on state revenues.
In August, Finance Secretary Aubrey Layne reported, sales and use tax collections jumped by 12.9 percent, after years of remaining flat despite a growing economy. Of that figure, use tax collections—the terminology used to describe taxes on sales outside Virginia—jumped by a whopping 44 percent. In the two previous fiscal years, sales and use tax collections rose only 3.8 percent and 2.9 percent respectively, as online shopping kept skyrocketing in popularity. Also according to Layne, more than 1,200 new vendors signed up with the state in August to assess and collect use taxes on online sales, adding to the more 31,700 already doing so.
So is this a permanent trend? Can state officials count on ever-rising sales tax revenues as a result of the Wayfair decision? Layne and others advise caution. It’s only been three months since Virginia’s laws went into effect, and there’s only two months’ worth of data. But it is an encouraging picture.
And finally, after years of competing against out-of-state retailers with one arm tied behind their backs, Virginia’s bricks-and-mortar retailers, both big and small, have a level playing field. It’s just a shame they had to wait as long as they did.