February 11, 2010, 12:00 AM

Virginia moves a step closer to imposing sales taxes on online purchases

A proposal to tax sales of goods purchased from out-of-state online retailers moved a step closer to approval in Virginia this week, with a positive vote in a state Senate committee, though prospects for passage of the bill remain uncertain.

A proposal to tax sales of goods purchased from out-of-state online retailers moved a step closer to approval in Virginia this week, though prospects for passage remain uncertain.

The proposal to slap a general 5% sales tax on goods purchased through web retailers passed the state Senate’s finance committee yesterday by a 14-1 vote. The bill is part of a nationwide effort to streamline state taxing rules so that various goods sold online are taxed in a similar fashion from one state to the next. The proposed rules, under what’s called the Streamlined Sales Tax Agreement, arose from complaints from retailers about the complexities of conforming to thousands of state and local sales tax regulations. Some taxing bodies, for instance, might not charge sales taxes for clothes, while others do.

“We believe the legislation is a step in a right direction,” says Laurie Aldrich, president of the Virginia Retail Merchants Association, a trade group the represents some 5,400 businesses across the state. The prospect of applying sales taxes to online purchases puts Virginia closer to adopting the streamlined principles, she says.

Internet retailers, bolstered by court rulings, argue they should not have to pay taxes in states where they don’t have offices or warehouses. Retail trade groups that represent bricks-and-mortar stores say charging taxes to online retailers puts in-state merchants that operate physical stores on a level playing field with e-retailers. Behind all this looms the ongoing recession, which has resulted in less revenue flowing into state and local coffers and caused legislators to search for new sources of funds.

Advocates of sales taxes for online purchases, not only in Virginia but also in North Carolina and other states, argue that online retailers such as Amazon maintain either facilities or affiliates in those states, constituting a physical presence. Affiliate web sites have links to retailer web sites, which consumers can click through for purchases. Affiliates then collect commissions on the sales. Web retailers, meanwhile, say that in most areas they lack the large physical footprints that burden infrastructure and other public services paid for via sales taxes.

Amazon, along with Overstock.com and Blue Nile, last year cut ties with affiliates in California, Hawaii, North Carolina and Rhode Island because of similar sales tax laws. After that, the governors of California and Hawaii vetoed the sales-tax legislation. Amazon, No. 1 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name), did not respond to requests for comments Thursday.

It was unclear when the Virginia bill would go to the full state Senate; the General Assembly’s regular session is scheduled to end March 13. The office of Republican state Sen. Emmett Hanger Jr., the bill’s sponsor, did not return calls for comment.

Aldrich predicted the bill would pass the full Senate but was unsure if it would pass the House. If the bill does pass, it next goes to Republican Gov. Robert McDonnell, who took office in January after saying he would not raise taxes.

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