Virginia Gas Tax Rises After Online Sales Tax Bill Stalls

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Peter Fricke Contributor
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Virginia’s gas tax jumped five cents per gallon on Thursday, triggered by Congress’ failure to pass the Marketplace Fairness Act before the end of 2014.

Virginia lawmakers passed the tax hike last year to help fund a $6 billion infrastructure-spending program, but included a provision preventing it in the event that Congress passed the MFA, which would have allowed the state to collect sales taxes on internet purchases made from out-of-state retailers. (RELATED: Supply Side Founding Father Boosts E-Commerce Sales Taxes)

Currently, states are only empowered to collect sales taxes from online purchases if the seller has a physical presence, such as a store or warehouse, in the state. On other purchases, the tax is still technically owed by the consumer, but there is no practical way to collect such small amounts from so many individuals.

However, while the Supreme Court has opined that Congress would be fully within its rights to pass a law authorizing the collection of sales taxes from remote sellers, the effort has attracted more opposition than many supporters expected. (RELATED: Will Congress Kill Cyber Monday Deals?)

According to the Staunton News-Leader, the MFA passed the Senate last year, but “stalled in the House due in large part to opposition from U.S. Rep. Bob Goodlatte,” a Virginia Republican and chairman of the House Judiciary Committee, which has jurisdiction over the bill.

“I warned state officials last year that this was a very complicated issue,” Goodlatte said in a statement, adding that, “The General Assembly was shortsighted in passing a transportation package with funding dependent upon the assumption that fundamentally flawed federal legislation would be enacted.”

Opponents have argued that the MFA would represent a roughly $24 billion tax increase on consumers, and House Speaker John Boehner refused to bring the legislation to a vote in 2014, saying through a spokesman that he wants the Judiciary Committee to examine the issue further. (RELATED: Time for the Government to Stop Picking Winners and Losers in the Marketplace)

However, supporters portray the $24 billion as a boon to state and local budgets, easing pressures brought on by the recession and allowing expanded public services. At a pro-MFA press event in December, Republican Sen. Mike Enzi even claimed, “It’s not a new tax,” pointing out that, “None of the money goes to the federal government.”

MFA advocates also contend that online sellers currently enjoy an unfair advantage over brick-and-mortar retailers, because the current law allows remote sellers—even foreign companies like Chinese e-retailer Alibaba—to offer a de facto discount equal to the local sales tax rate.

According to Jennifer Platt, Vice President of Federal Operations for the International Council of Shopping Centers, “Brick-and-mortar businesses across the country are furious that the House has sat idly by and allowed online-only sellers, including Alibaba, to exploit the online sales tax loophole.”

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