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Amazon et al.: Sales-tax shuffle

Amazon.com warehouse

Credit: 2010/AP

Online retailers are supposed to charge sales tax if they have a physical presence in a state. But some states, including the commonwealth, allow Amazon to dodge the requirement.


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The announcement that Amazon will be setting up two big distribution centers in Virginia — one in Chesterfield, the other in Dinwiddie — was welcome news indeed. The timing was also propitious: Not only did it make a nice Christmas present for the localities, it raised a timely reminder about unsettled business: What about sales taxes?

Online retailers are supposed to charge sales tax if they have a physical presence in a state. But some states, including the commonwealth, allow Amazon to dodge the requirement. Virginia officials say Amazon will be exempt because sales won't take place at the distribution centers. In a wired world, it's not easy to say where the transaction takes place. Does it occur in the computer of a Nebraska homemaker placing an order, at Amazon's corporate headquarters in Seattle, inside the bowels of a San Antonio server farm that processes the transfer of funds, or somewhere else?

It would not do for every locality to try to collect sales taxes on every Internet transaction. But e-tailers should not gain an unfair competitive advantage by refusing to collect sales taxes that their brick-and-mortar brethren must — simply by claiming that because their sales take place, as it were, everywhere, then they don't really take place anywhere.

Precisely how to address the question has bedeviled state and national leaders for more than a decade. In the late 1990s, the Clinton administration and former Virginia Gov. Jim Gilmore advanced competing ideas about what should be done. Gilmore wanted a ban on all e-commerce taxes, as did many conservatives. A policy analyst for the Heritage Foundation offered this rationale: "Why is it that a Main Street vendor pays taxes? They're getting services from local government. The remote vendor of Internet commerce is not taking advantage of those same services."

That argument would not seem to apply to Amazon's new facilities in Virginia, which benefited not only from generous government handouts but will receive the benefits of police and fire protection, utility services, transportation networks and so on.

Further complicating the issue are two more wrinkles: Many sales taxes, like Virginia's, are sales-and-use taxes that apply to the end user of a product; merchants collect them, but purchasers are supposed to remit sales taxes that merchants don't collect. And the interstate nature of Amazon's business implicates the Commerce Clause, which means sales taxes should not be used as a means of discouraging sales across state lines.

Regardless, tax laws written for an earlier age need updating. Amazon's expansion in Virginia — along with the arrival of another big e-tailer, Backcountry.com, in Montgomery — should prod lawmakers who will soon convene in Richmond to get started.

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