There’s a lot of misinformation surrounding the so-called “Amazon tax.” Advocates call for an advertising nexus tax because they think a sales tax collection obligation for out-of-state online companies is an equalizer for brick-and-mortar “main street” retailers. Even if that were true, advertising as a nexus for sales tax obligations is not the way to achieve increased revenues (we think it harms the local economy). A recent example of the confusion surrounding this complex issue is today’s editorial supporting new tax legislation in the Lynchburg News & Advance.
The editorial supports SB 660, a legislative proposal to create the “Amazon tax” in Virginia. However, the editorial gets it wrong on a number of accounts, and fails to consider how this legislation would hurt Virginia’s economy.
Despite what the editorial says, Virginia does not “exempt” out-of-state online or catalogue retailers from collecting sales taxes. Any seller who has a physical presence in Virginia is already obliged to comply with our sales tax law. Sellers who don’t have a physical presence are not required to collect, because the US Supreme Court has held that thousands of tax jurisdictions with differing rates and rules are an unconstitutional burden on interstate commerce.
The proposed law declares that out-of-state retailers who pay Virginia websites to host advertising are akin to having an on-the-ground sales force in Virginia. This would not force cyber-retailers to begin collecting sales tax here. If the bill passes, out-of-state retailers will just stop paying Virginians for advertising referrals, as they did in North Carolina and Rhode Island when those states passed similar legislation.
While this law would have little impact on out-of-state retailers, it would harm everyone in the Commonwealth who relies on those advertising dollars.
Virginia nonprofit organizations and even public school PTAs like Boonsboro Elementary in Lynchburg use Internet advertising for revenue and fundraising efforts. And there are more than 5000 Virginia businesses who rely on this advertising revenue to support their businesses and hire employees. Those businesses have already received notice from that major advertising relationships will be severed if this bill becomes law.
That’s why the net effect of this legislation is all pain and no gain. As indicated in the bill’s fiscal impact statement, there is no actual
expectation of new sales tax revenue. Last year, North Carolina passed a similar law but reports no new revenue, and an online marketer in Greensboro announced plans to leave the state, taking 500 jobs with them.
Virginia is now ranked as America’s top state for business. But SB660 would be bad for businesses that rely on advertising revenue, costing the Commonwealth income and jobs.