While Congress has yet to act on legislation allowing states to tax online purchases, West Virginia is ready to implement a new law that will require Mountain State residents making purchases from Amazon.com to begin paying the state’s 6 percent sales tax.
The law allows the state to tax online purchases if the seller has a physical presence in the state. Amazon recently opened a 70,000 square-foot service center in Huntington, W.Va., and employs about 200 people.
Amazon said it will begin collecting the sales tax on Oct. 1.
The online tax legislation was supported by Gov. Earl Ray Tomblin as a way to increase revenue for the state. The Charleston Gazette reports that the move will generate anywhere from $7 million to $10 million in new revenue for the state.
A 1992 ruling by the U.S. Supreme Court prohibited states from collecting sales taxes from businesses that do not have a physical presence within that state. Congress is currently considering a bill that would allow states to tax online purchases regardless of where the seller is located, but the legislation is stalled and its prospects are uncertain.
The Gazette said a 2009 study by economists at the University of Tennessee estimated that, in 2012, federal, state and local governments would miss out on about $12 billion in revenue by not taxing online sales. The same study estimated that West Virginia was missing out on about $50 million in revenue by not taxing Internet retailers.
Maryland Comptroller Peter Franchot estimates there is $175 million a year in uncollected sales taxes that the state is missing out on. He said it is only fair for the sales tax to be paid to states. “The sales tax is owed. It’s not as if this is a new tax. That tax is owed. It’s just that it’s not collected,” he said.
Traditional brick-and-mortar retailers who face stiff competition from online retailers believe collecting the sales tax from everyone will even the playing field. Their argument is difficult to dismiss.
With every state in the union scrambling for tax dollars it is just a matter of time before Congress approves across-the-board legislation allowing all states to collect the tax — whether or not there is a online retailer’s physical presence in the state.