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Virginia Amazon Tax Dies, Supporters Promise Another Try (Right Now, It Turns Out)

3 min readBy: Joseph Bishop-Henchman

The effort to impose an "Amazon taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. " in Virginia died this week in a House of Delegates subcommittee, after SB 660 had passed the Senate earlier this month. Said the sponsor:

[Sen. Emmett Hanger, R-Augusta] told the committee that online retailers who don’t collect the sales tax are getting "a 5 percent off-the-top advantage” over traditional retailers "and that’s something we should correct."

Hanger said he plans to bring back new legislation next year to tackle the problem.

The real question here is the extent of state powers. Should states be able to reach beyond their geographic borders and impose their tax system on everything everywhere? Do we really need to make sure that taxes are the same between Virginia and other states, and that people can't shop by tax rates as they shop by price, quality, or convenience? It's a very protectionist mindset that can do a lot of harm to the national economy.

The bill's death didn't prevent the Newport News Daily Press from editorializing its support:

[T]axes don't make fiscal sense when they treat two businesses that sell the same product to customers in the same state very differently.

And they certainly aren't optimal when the businesses they put at a disadvantage are the ones that have made an investment in that state.

But Amazon taxes don't level the playing field. Right now, brick-and-mortar business must collect sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. from customers based on where the business is located. A corner store need only track one sales tax rate and one sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. . By contrast, Amazon taxes seek to force out-of-state businesses to collect sales tax based on where the customer is located. That's 8,000+ sales tax rates and bases, that are always changing and (contrary to common assumptions) are not aligned with even 9-digit zip codes let alone 5-digit ones.

Brick-and-mortar stores have long blamed everyone else for their decline: big department stores in the city, suburban shopping malls, catalogs, the Internet, and now the tax system. There's a bit of truth in all that, but brick-and-mortars also have the advantages of better locations for immediate purchases and deeper customer interaction. Changing the tax laws to impose new burdens on their competitors is not a productive solution for a state's economic growth.

More on Amazon taxes:

UPDATE: Spoke too soon. Our friends Norm Leahy and Nathan Pick e-mailed me to say that while the bill is dead, its provisions were today inserted into the Senate budget bill. More here.