Virginia has joined the growing list of states that will consider adopting a law to require certain Internet retailers to collect Virginia sales tax from its Virginia customers, even if the retailer is not physically located in Virginia.
This law, commonly referred to as an “Amazon” law after Internet retailer Amazon.com, has been adopted by New York, North Carolina and Rhode Island. Senate Bill 660, introduced by Sen. Emmett W. Hanger Jr. (Augusta County), is substantively identical to the Amazon laws adopted by New York, North Carolina and Rhode Island.
Among other states, California, Connecticut, Hawaii, Illinois, Maryland, Minnesota and Tennessee have considered legislation to adopt an Amazon law in their respective legislatures. None have adopted an Amazon law, although the legislatures in California and Hawaii passed the legislation only to see their respective governors veto it. In addition to Virginia, Colorado, Mississippi and New Mexico are considering adopting an Amazon law.
Under current Virginia law, all “dealers” who solicit business in Virginia by employees, independent contractors, agents, or other representatives, are required to collect and remit Virginia sales tax on their sales. Senate Bill 660 adds a presumption that dealers will be soliciting in Virginia if the dealer enters into an agreement with a Virginia resident under which the resident receives consideration for referring potential customers to the dealer. Referrals may occur by a link on an Internet site. The dealer would be presumed to be soliciting business if its Virginia sales to purchasers referred to the dealer by a Virginia resident are in excess of $10,000 during the preceding four quarterly periods. This presumption may be rebutted by proof that the Virginia resident did not engage in any solicitation in Virginia on behalf of the dealer.
Amazon laws have been a large source of controversy in state and local taxation since first adopted by New York in 2008. Amazon.com and Overtsock.com are currently litigating whether the New York Amazon law violates the U.S. Constitution on Commerce Clause and Due Process grounds. Upon adoption of the Amazon laws in North Carolina and Rhode Island, Amazon.com terminated all affiliate agreements in these states prior to the law going into effect, to ensure that it would not have to collect the respective sales tax.
As this is the first time this law has been introduced in the Virginia General Assembly, it is difficult to predict the reaction Senate Bill 660 will receive from either house in the General Assembly or from Gov. Bob McDonnell. If Virginia moves toward adopting the Amazon law, Internet retailers should review their solicitation practices in Virginia to determine if they will be required to collect Virginia sales tax under this law.
McGuireWoods has attorneys experienced in Virginia taxation who actively follow all tax legislation introduced in the 2010 Virginia General Assembly. Amazon laws have been a hot topic in state and local taxation across the country over the past two years. McGuireWoods attorneys are very familiar with Amazon laws and follow their development in Virginia and elsewhere.
McGuireWoods offers a full range of state and local tax planning and litigation services to taxpayers of all types and sizes, public and privately held. Our state and local tax attorneys are highly versed in all aspects of state and local tax planning, as well as all aspects of tax compliance, including civil audit and general and procedural matters before local and state tax authorities.
We regularly represent clients in the preparation of private letter ruling requests, administrative tax protests, preparation of offers in compromise for outstanding tax assessments, and offer the complete range of trial and appellate state and local tax litigation services frequently demanded by cutting-edge taxpayers. We would be pleased to discuss any interest you may have in the Amazon law or any other Virginia tax issue. Please do not hesitate to contact us at your convenience.