While it might be good for local businesses and shopkeepers on Main Street, many citizens of Virginia may not be as pleased with the possibility of their Amazon purchases (and some other online retailers) suddenly increasing a few percentage points.
The bill, SB597, would require all Internet retailers with a physical presence in Virginia that relates to the products they sell, would need to collect sales tax purchases made in the state. This bill is one of the many recent laws affecting Virginia businesses and consumers.
Because each of the 50 states is a sovereign entity, they cannot require an out-of-state retailer to collect a tax on a sale made out of state, absent a substantial nexus.
If a Virginia resident drives across the state line and buys an item in Maryland, Virginia cannot require the Maryland business to collect tax on the sale, as it has no nexus with the Maryland business.
Similarly, the Commonwealth of Virginia cannot require an out-of-state retailer to collect sales tax on products sold to Virginia residents, absent some nexus with the Commonwealth.
This new law defines what qualifies as sufficient activity in Virginia to create the "nexus" required to bring an online retailer within reach of Virginia tax law. Some of the factors used to determine "sufficient activity" include, having an office or place of business in Virginia, advertising on billboards, has franchisees or licensees in the Commonwealth.
Amazon is located in Washington and has its principle place of business there, placing it beyond the reach of Virginia law. It does have a warehouse in Virginia, which under the new law, will qualify as sufficient activity.
The Department of Taxation estimates the law could generate as much as $24 million dollars per year for the Commonwealth, though supporters believe it will be greater than that figure.
The law was signed by the Governor on April 4, 2012 and will become effective on September 1, 2013, unless unified federal legislation controlling online retail tax is passed.
Source: "New Virginia laws will alter business landscape," Carolyn Shapiro, PilotOnline.com, 3/26/12