Senate Bill May Close Virginia’s ‘Amazon Loophole’

It was just a few weeks ago that Governor Bob McDonnell announced with great fanfare that Amazon had agreed to open two fulfillment centers in Virginia, investing a total of $135 million, creating more than 350 jobs in Chesterfield and Dinwiddie Counties. The deal reportedly included more than $4 million in state aid to the online giant.

But that was before the Virginia Senate voted 34-6 Friday to close what’s known as the “Amazon loophole.” The measure sponsored by Sen. Frank Wagner (R-Virginia Beach) would require retailers with a physical presence in Virginia to collect and pay the state sales tax. When other states have tried to collect sales tax from Amazon, it has closed its operations in those states and cut all ties with affiliated Websites and other media outlets in those states.

Besides the two new distribution centers in the Richmond area, Amazon already operates a distribution center and a massive data center in Northern Virginia.  There are also several large Internet companies based in Virginia, most notably AOL, which could conceivably be affected if Amazon applies its usual slash-and-burn reaction to local tax collection initiatives.

The measure now goes to the House, where it is expected to pass, given the heavy lobbying by business interests throughout the state, who argue that Amazon and other online retailers should play by the same rules as brick-and-mortar outlets.

Some online-retail newsletters are speculating that, rather than pull out of Virginia, Amazon will bite the bullet and begin collecting sales taxes on purchases made by Virginians.  Writing in GoodE-Reader.com,  Michael Kozlowski speculated that Amazon might make Virginia a distribution hub for much of the East Coast. Virginia’s 5% tax is relatively low and the data center, located near Dulles International Airport, is part of a huge conglomeration of similar installations. Moving it elsewhere would be a major undertaking.

Retailers across the country are increasingly demanding that Amazon and other online retailers be required to collect sales tax, saying the online sites are unfairly depriving local businesses of sales and local municipalities of the tax revenue that’s needed to support schools, roads and other vita public services.

Brick-and-mortar retailers have also been complaining that the use of iPhone and Android price-comparison apps are turning them into “showrooms,” where consumers go to examine merchandise in person before they order it on the Internet.