Virginia’s fork in road: Internet tax or gas hike

By Kenric Ward | Watchdog.org Virginia Bureau

RICHMOND, Va. – Unknown to most, Virginians are about to be slapped with an $800 million-plus tax hike that one state lawmaker calls a game of “Three-Card Monte.”

A little-noticed provision in the state’s 2012 transportation package triggers a 45 percent increase in Virginia’s gas tax if Congress fails to enact a national Internet sales tax.

While Democrats in the U.S. Senate approved the Marketplace Fairness Act, the measure has languished in the Republican-controlled House.

Dave Brat, who beat House Majority Leader Eric Cantor to win the GOP nomination in Virginia’s 7^th Congressional District, says he’s leery.

“It’s certainly unfortunate and unfair that brick-and-mortar stores are disadvantaged by the different tax treatment for Internet stores, and we absolutely need to work on a solution,” Brat told Watchdog.org.

“However, as an economist, I’m very wary of giving the federal government any more authority over the Internet and taxation. The Internet has flourished, revolutionized whole industries and benefited us all precisely because the federal government has interfered very little.”

State Sen. Chap Petersen, D-Fairfax, said the state General Assembly passed the transportation bill “on the false premise that we were going to get an Internet tax.”

“This thing was a complete train wreck on how it was put together,” said Petersen, who favored a straight gasoline tax. He likened the complex “medley of taxes” for transportation to a trick game of “Three-Card Monte.”

E-sales tax proponents estimate it will generate more revenue than the alternative — a nickel hike in the state’s gas tax.

Virginia would raise a projected $843 million in fiscal 2018 via an Internet tax versus $803 million from a higher gas tax. The 5.3 percent e-sales tax would match the state’s general sales tax rate.

Advocates say it’s only fair that all states and e-sellers, not just some, tax Internet purchases. The Senate measure does, however, exempt vendors with less than $1 million in gross annual remote sales.

The Virginia Tax Department collects about $2 million annually from individual Internet transactions. “E-Fairness” would generate some $1.5 billion over five years.

Veronique deRugy, a policy analyst at George Mason University’s market-oriented Mercatus Center, brands this a “tax cartel.”

“The thinking goes that no matter where you live, you have to be taxed. In effect, they’re helping each other to have Amazon for Virginia, an Amazon for Maryland, Amazon for Ohio, etc.,” deRugy said.

Though the U.S. Chamber of Commerce supports the idea, Virginia Republicans are split.

U.S. Reps. Morgan Griffith, R-Abington, and Scott Rigell, R-Virginia Beach, back the collection of the tax in Virginia.

Virginia House Speaker Bill Howell told Watchdog:

“The historic transportation compromise was not perfect, and relying on the federal government to craft a solution to a complicated issue like out-of-state sales tax collections was one of its least perfect parts. I would like to see, and am hopeful Congress will find, a solution that works for Virginia businesses, large and small alike, as well as Virginia families.”

Brat, who holds a sizable lead in the race to succeed Cantor in Central Virginia, is wary.

“An Internet sales tax on sellers isn’t the solution. It’s also likely unconstitutional,” he declared.

“It makes businesses subject to the laws of other states with which they have no connection, just because a resident of another state buys a product from them.

“I am concerned that Virginia businesses would not only be turned into tax collectors for 49 other states, but they would also be subject to their tax enforcement laws without ever setting foot in those states,” said Brat, an economist at Randolph-Macon College in Ashland, Va.

MORE DELIBERATE: Rep. Bob Goodlatte, R-Va., promises more House scrutiny of the Internet sales tax passed by the Senate.

Rep. Bob Goodlatte, R-Harrisonburg, will play a crucial role in determining the legality and fate of e-tax legislation as it awaits action in the House Judiciary Committee he chairs.

Goodlatte called it “disappointing” the Marketplace Fairness bill “did not follow regular order in the Senate, but instead bypassed the Senate committee having the subject matter expertise.”

“The House will be more thoughtful,” he vowed.

Goodlatte said his committee will “look at alternatives that could enable states to collect sales tax revenues without opening the door to aggressive state action against out-of-state companies.”

Whichever way Congress goes, Virginians can count on paying more – through their computers or at the pump.

“Thanks to (then-Gov.) Bob McDonnell, either way we are screwed,” said Tom White, editor of the conservative political blog Virginia Right.

Kenric Ward is a national correspondent for Watchdog.org and chief of its Virginia Bureau. Contact him at (571) 319-9824. @Kenricward