20th Century Tax Meets 21st Century Economy

Click for clearer view. The revenue table from the state fiscal impact statement on the internet transaction sales tax bills, about $1 billion over six years.

Both chambers of the General Assembly are on the verge of passing bills expanding the duty to collect state sales tax to internet retailers selling into Virginia, a once controversial idea that is generating far less heat than before but is still hitting resistance.

Senate Bill 1083 and House Bill 1722 still have a few differences that need to be ironed out as the session proceeds, and are proving to be a great example of that famous law of unintended consequences.  Uber Eats, of all companies, is worked up about the bill.  Orbitz keeps expressing concern.  

To ease compliance, among other things, the bill defines and imposes duties on “marketplace facilitators” which are third parties selling products for others but not owning those products.  Amazon and eBay are marketplace facilitators, and the idea is with their sophisticated software, it will be far easier for them to calculate, collect and remit the taxes for all the various sellers using their services into all the different states and cities.

As first drafted, the bill also seemed to make Uber Eats, delivering food from neighborhood restaurants, into a marketplace facilitator. Does that mean it collects and remits the tax, instead of the restaurant?  Is there a danger both would be imposing the tax?  Are there other companies being sucked into this issue unexpectedly, such as travel websites?  What about a marketplace facilitator selling Virginia goods to a Virginia buyer?  Some issues and lobbyist billable hours may be punted to a post-session regulatory process.

Another issue which has hung up quick passage is opposition from eBay, which is complaining it won’t be ready to comply by July 1, 2019.  It initially asked for several years to comply, which was quickly rejected, but it continues to push for delay.  The brick and mortar retailers, who finally see at least one advantage of their on-line competitors disappearing, are pushing back hard for quick implementation.  They don’t want another Christmas season without everybody being taxed.

This all flows from a 2018 Supreme Court decision in a case involving the retailer Wayfair, Inc. and South Dakota. The court allowed states to impose their tax rules on retailers with no physical presence (and thus no property for the Tax Man to seize) inside the state.

The court strongly indicated, however, small transactions should be left alone, and Virginia’s proposed law sets the threshold at $100,000 in annual sales or 200 transactions in one year.  Another request from eBay, a $250,000 threshold, is also not in the bills as they stand.

What is not proving a hindrance, surprisingly, is how a major promise made to sell the 2013 transportation tax package is falling by the wayfair, oops, wayside.  Remember how we were told the higher gas taxes would be rolled back, at least in part, if Congress ever authorized internet sales tax collection?  And all the proceeds of any internet transactions tax would then go to transportation?

That goes away.  This only a sample of the five opaque paragraphs it takes to do that:

  1. That the fourth enactment of Chapter 766 of the Acts of Assembly of 2013 is amended and reenacted as follows:
  2. That Article 22 (§§ 58.1-540 through 58.1-549) of Chapter 3 of Title 58.1 of the Code of Virginia, §§ 58.1-609.13, 58.1-2289, as it may become effective, 58.1-2290, and 58.1-2701, as it may become effective, of the Code of Virginia and the second enactment of Chapter 822 of the Acts of Assembly of 2009, as amended by Chapter 535 of the Acts of Assembly of 2012, are repealed.

Along with less heat, the bills will also generate less money than once expected, which is another reason few want to rely on it for transportation anymore.  So many out-of-state companies and internet retailers have already started compliance with Virginia’s tax law, including Amazon, that only about $155 million a year in new revenue is expected in fiscal year 2020 and $180 million by 2024.  It will be disbursed on the same complicated formula used for the all sales tax collections – with only about a third not designated to some purpose (mostly education or transportation).

As has been explained and ignored often, this is not a new tax.  The sales and use tax always applied to purchases from online sources or catalogs, but the state had no way to force the out-of-state retailer to collect and remit it.  Instead, you the purchaser were obligated to pay the tax, usually by fessing up and admitting to the transactions on your Form 760.  Few people met their obligation. Previous efforts to make them or to force out-of-state sellers to comply met fierce resistance, which has largely disappeared.

Your legal obligation to report and pay for untaxed transactions remains, however.  Continue to keep those receipts for your annual state return!  Be just as diligent as you were before.

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14 responses to “20th Century Tax Meets 21st Century Economy

  1. Well we did our first session of volunteer taxes this week and all clients served that had itemized last year – did not this year as none had “enough” to itemize. They generally did better on Federal refunds but most also managed to not owe the state – just got reduced refunds. Many were fully aware of the change in the standard deduction but this is the time of tax season when the folks who know they will get EITC show up to get their anticipated refunds.

    None of them claimed to have ordered anything online and not pay the sales (use) tax. I think last year I might have seen one person fess up to such online purchases. The vast majority say nope – surprise surprise.

    Your tome this morning, as usual, is excellent. thank you, again.

    I’m puzzled about he transportation number – some 20 billion when the current state budget shows this about 7 billion: goo.gl/2dZq3A

    The marketplace facilitator thing sounds interesting and I guess if a company sells both direct and also through a facilitator – they can figure out who will levy the tax hopefully so that the item is not double taxed.

    But hey… maybe that’s a “feature” and not a “bug”!!!! A few years back the localities in the Fredericksburg area figured out that the State was levying sales and fuel taxes by zip code and not by jurisdiction and there was much hew and cry from the losers.

    • It’s in millions. The added sales tax puts a few more million into the $7 bill spent on transportation….One recalls that a million here, a million there starts to add up to real money….Dirksen! The name came to me.

      I’d be interested in more insight from your little tax focus group. That’s something I should be doing as a volunteer.

    • Larry-
      Did you check to see if it was better to itemize even though they were under the Federal standard deduction? That the kicker. My Virginia Gothic example is not happening for me (this year), because I took less IRA withdrawal income in order to avoid it.

      Also please see below my final post below under Rack of Electric Increases. I find Virginia is much more energy efficient than RGGI states like NJ/MA, so I am not buying into the theory that high electricity cost is good because it promotes lower energy use.

      • When it is close – we compare each way…

        on electricity – I’m not advocating more expensive -just pointing out that,
        like gasoline, if the price goes up, it motivates people to find ways to conserve MORE than if the price stays low.

  2. re taxes, PM me – Jim B should have the email…

    on Transpo… when I look at this site:

    https://www.dmv.virginia.gov/webdoc/pdf/tracking_dec18.pdf

    page 5

    it shows about 5.2 billion and on the prior pages it shows the revenues
    from the various categories, fuel tax, vehicle tax and sales tax …

    so that seems to be not consistent with what you have on your chart …

  3. On the gaso taxes, we are already too low on the tax. Part of the reason is because GA put gasoline tax on a % basis, and then gasoline prices went way down. So gasoline taxes are already much lower than envisioned during the Transport Bill. Thankfully GA was smart enough to put a lower floor on the gaso tax, and we’ve been sitting on the floor since then.

    We have Gov Northam at 10AM today on WTOP Ask the Governor. I should be all spinned up by 11AM.

    • Not too much. Gov announced extending I95 Hot Lanes to American Legion Bridge and adding lane to I95 at Occoquan to relieve the bottleneck. Teacher pay issue came up, and Gov said part of the solution was “conforming” (increasing) Va. taxes in the manner he proposes. Budget is in slomo.

      Gov says fully 66% of Virginia commute to DC is already via car pools or public transit, and solo drivers need to look at those options.

      • It would be interesting to see a study of transportation funding in Northam’s home county of Accomack. How much tax is generated, how much does the state spend on transportation. For all his blather about more people in the suburbs needing to car pool my guess is that Hooterville remains a major sinkhole for transportation funding in Virginia.

        • As I recall, state law prohibits state government from publishing the amount of gas tax collected in a local jurisdiction. One would think our local delegates and senators would get this changed. Or maybe they are co-conspirators in sending tax dollars south and west.

          • you can calculate an approximate number… a number of different ways but it’s harder to figure out how much is actually spend in a jurisdiction.

        • There are very, very few “new” roads built in rural counties. Fully 1/2 of transportation revenues go to the HMOF – maintenance and operations.

          Most “new” roads and improvements come from the Federal gas tax revenues which folks in rural counties also pay.

          Roads in urbanized areas like NoVa are very expensive to build or maintain in part because they are built to much higher standards to be able to take the higher use intensity.

          It’s hard to figure how much per county because roads like interstates are maintained to higher standards than primary roads or the older US roads like Rt 50 or 29.. then local 600 series roads. On top of that – the number of lane miles also affects funding allocations. On top of that – how much maintenance that is done on a given road can vary year to year. Then you have culverts that fail or parts of roads washed away, etc.

          Year to year the money would not be the same. Over longer time periods, it’s supposed to even out.

          Making major upgrades to US 29 in Charlottesville would likely eat more money in that districts funding for a few years then another project somewhere else in the district would get dedicated funding.

          VDOT used to use what they call 6-yr funding plans but they would get pushed to put more roads on the list – until they had so many that many never got enough funding to reach the build stage. Now they are using SmartScale and if a project gets ranked high on the criteria – it gets dedicated funding from start to finish.

          Long story short – transportation is just as complicated as health care and it just overwhelms most folks understanding. Not one person is a hundred knows the total funding number that is shown on the DMV CTC tax revenues website:

          /https://www.dmv.virginia.gov/webdoc/pdf/tracking_dec18.pdf

          Still – I support more granular transparency but VDOT rightly fears the politics once folks would see funding levels.

  4. Since we’ve already started doing taxes – any Virginia changes are going to be pretty disruptive.

    We simply won’t be able to do the Virginia returns until the software is changed and that is not a quick process.

    What would happen is that Taxpayers will be advised to either file now both Fed and State then amend the State later or do the Fed now but don’t do the State and gamble that the changes in law AND software get done BEFORE May 1!

    OR – any changes the GA does – won’t take effect until next tax season.

    Since it takes 80% of votes in the GA to enact legislation that would take effect immediately … I just don’t see that happening anyhow.

    • I am not expecting changes for 2018. There could be retroactive changes next year or not depending on the budget impasse outcome.

      • The easiest thing form-wise would be just to increase the standard deductions to coincide with the greater standard deductions on the Feds
        but I hear that’s tricky in terms of forecasting how much total revenue might be generated and if they guess wrong and come up short – bad budget stuff will happen and the credit agencies won’t like it… and they probably would have to raise taxes and/or back down on the standard deduction.

        I don’t think the GOP idea of “giving it all back” is not without risk.

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