March 5, 2012, 5:02 PM

Amazon’s new tax deal

The e-retailer plans to invest $135 million in two warehouses in Virginia.

Lead Photo Inc. will begin collecting sales tax from customers in Virginia as early as September 2013 under an agreement with the state that coincides with Amazon’s plans to invest $135 million in two fulfillment centers in the state, Gov. Bob McDonnell says.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, signed onto an agreement with the governor’s office and several members of the state’s General Assembly to support an amended version of Senate Bill 597, which sponsors call the Tax Fairness bill. The amended legislation—which has passed both houses of the state legislature and is expected to be signed soon by McDonnell, a Republican—allows online retailers with in-state physical facilities to hold off collecting sales tax on purchases by Virginia consumers until at least Sept. 1, 2013. That date could be pushed back a few months if a federal law related to sales tax is enacted, the governor says.

Specifically, e-retailers with facilities in the state would not have to collect sales tax from Virginia residents until Jan. 1, 2014, if the federal government enacts a law allowing states to mandate sales tax collection by online retailers  before Aug. 15, 2013, with an effective date of Jan. 1, 2014, or sooner. The state’s announcement did not clarify whether all online retailers are subject to the proposed Virginia law, or only those whose annual sales exceed a certain amount.

Pending federal legislation would authorize states to require online retailers to collect sales tax whether or not they have physical facilities—or “nexus” in legal jargon—in a state. In effect, this would supersede existing federal law based on U.S. Supreme Court rulings.

Amazon, which has signed onto similar agreements in states including Indiana and Tennessee, has agreed to lobby for federal legislation, and it says the agreement with Virginia was an important step toward resolving the issue of collecting sales tax by online retailers.

"Amazon is very grateful to Gov. McDonnell for his focus on Virginia jobs and for his efforts to work with other governors toward national resolution of the sales tax issue this year," says Paul Misener, Amazon's vice president of global policy.

Amazon already collects sales tax in Washington state, where its headquarters is based; in Kansas and Kentucky, where it maintains distribution centers; in North Dakota; and in New York, where the e-retailer collects sales tax while awaiting the result of a court case regarding that state’s law that requires online retailers to collect sales tax if they get sales leads from in-state affiliate web sites like blogs.

At the Internet Retailer Conference & Exhibition 2012 in Chicago in June, Stephen Kranz, partner, Sutherland Asbill & Brennan LLP, and Jonnell Quarrie, tax director,, will speak in a session entitled “The new urgency for developing a state sales tax strategy.



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