While a new state law will force some large online retailers to collect Virginia sales taxes, it won’t provide a lot of relief along Main Street in Lynchburg — or main streets anywhere else in Virginia, for that matter.
Ask Thomas Wood, a retired New Jersey pharmacist who moved to the Hill City and opened a rare coins business downtown 16 years ago.
He sold a half-ounce gold coin for $1,044.75, including 5 percent state and local sales taxes, on Thursday to a collector who just happened to visit while campaigning for president of the United States.
Virgil Goode, a former Virginia congressman from Rocky Mount, was electioneering door-to-door in downtown Lynchburg for his candidacy as the nominee of the obscure, right-of-Republican Constitution Party when he dropped in on Wood at Apoth Coins on Main Street.
Goode, a collector with an encyclopedic grasp of all things numismatic and a sharp eye for a bargain, zeroed in on an uncirculated gold coin honoring Anna Harrison, the shortest-tenured first lady in U.S. history. Her husband, William Henry Harrison, died of pneumonia just 32 days after he was sworn in as the ninth president.
Wood said the coin in his shop had been locked in a vault for more than a year while identical copies, minted in 2009, sold briskly online, offered by sellers who collect no sales tax.
“It’s killing me,” Wood said, venting his frustrations, finally, on someone who had held high national office and was seeking the highest office on the globe, even if it is the longest of long shots. “You can’t compete with people who don’t have to pay that 5 percent.”
When Wood set up his business in 1996, the Internet and online commerce were in their infancy. Catalogues and primitive websites made it possible to gather information about merchandise, particularly hard-to-find specialty items such as collectibles. But in the end, the purchases were overwhelmingly made through businesses with actual buildings at real addresses with telephone numbers that paid fees for services and taxes to cities and towns across the country. Failing to collect or remit sales taxes were — and still are — an invitation for fines, jail time or maybe both.
Now, sales transacted with faceless vendors in the relative anonymity of cyberspace scoff at the formality of sales taxes. Because retail sales and use taxes are levied only by state and local governments, how do undermanned and outgunned tax agencies collect from a murky operator whose only known address may be a website link?
A 2009 study by professors of business, accounting and economics at the University of Tennessee showed that e-commerce sales in the United States grew from $995 billion in 1999 to nearly $2.4 trillion just seven years later. It estimated that sales tax losses by this year would range nationally from $11.4 billion to $12.6 billion.
In Virginia, losses to state and local treasuries from untaxed online sales come to about $422 million, said Laurie Aldrich of the Virginia Retail Merchants Association, citing an analysis by StandWithMainStreet.com. The initiative is a project of the Alliance for Main Street Fairness, a group funded by retailers including big-box stores such as Sears, Wal-Mart, Best Buy and Home Depot.
It’s not just sales taxes that burden traditional brick-and-mortar retailers struggling to survive against online rivals whose overhead costs are sometimes little more than the price of a computer and a high-speed connection. Aside from the costs of maintaining, heating and cooling a musty five-story masonry building, Wood pays $3,000 to $4,000 a year in real estate taxes, up to $2,000 for his business license, a tax on the security system safeguarding his inventory, and even a $20 monthly runoff fee that’s part of his water and sewer bill.
Virginia’s General Assembly did its small part to level the playing field last winter when it passed what became known informally as the Amazon Law. The bill, sponsored by Sen. Frank Wagner, R-Virginia Beach, requires out-of-state online retailers such as Amazon with distribution centers in Virginia to collect Virginia sales taxes on purchases made in Virginia.
But it’s a moot point for Wood and other small business owners, whose competitors are more likely to be offshore or an individual on Craigslist than a household name like Amazon. A 4 percent share for the Virginia Department of Taxation and 1 percent for the city treasury makes it impossible to compete, he said.
The answer, Aldrich and other advocates for retailers say, has to come from Congress. A 20-year-old U.S. Supreme Court ruling in the Quill v. North Dakota case prevents states from collecting sales taxes on purchases made from wholly out-of-state sellers. In 1992, when the ruling was made, the court held that the administrative nightmare of trying to calculate and collect taxes whose rates vary among thousands of jurisdictions would be an unreasonable impediment to interstate commerce.
“Things are different now because there is software that can do that instantly, so that’s not an issue,” Aldrich said. “What we need is a federal fix, for Congress to overturn the Quill ruling.”