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.