Virginia introduces bill to tax out-of-state sales

Last updated 3.27.2019: Lawmakers in Virginia made short work of legislation that would require remote sellers and marketplace providers to collect and remit Virginia sales tax. Economic nexus and a sales tax collection obligation for marketplace providers take effect in Virginia on July 1, 2019. Learn more.

A bill requiring certain out-of-state retailers to collect and remit Virginia sales tax has been prefiled with the Virginia Legislature. It seeks to impose a sales tax collection obligation on remote sellers and marketplace facilitators doing a certain amount of business in the state.

Remote sellers

Virginia Senate Bill 1083 would require a remote seller to collect and remit Virginia sales tax if, in the current or previous calendar year, it:

• Receives more than $100,000 in gross revenue from Virginia sales (or other minimum as may be required by federal law), or
• Has at least 200 sales transactions in the Commonwealth (or other minimum as may be required by federal law)

Marketplace facilitators

SB 1083 would also require a marketplace facilitator to collect and remit sales tax on behalf of its marketplace sellers in the state, if in the current or previous calendar year the marketplace facilitator:

• Receives more than $100,000 in gross revenue from facilitated sales in Virginia (or other minimum as may be required by federal law), or
• Facilitates at least 200 sales transactions in Virginia (or other minimum as may be required by federal law)

Neither remote sellers nor marketplace facilitators would be required to collect and remit Virginia sales tax prior to July 1, 2019.

Anticipating a congressional challenge

Note the bill’s baked-in response to potential federal action: “or other minimum as may be required by federal law.”

States have only recently won the right to tax remote sales. On June 21, 2018, the Supreme Court of the United States overruled a decades-old physical presence rule that prevented states from imposing a sales tax collection obligation on remote businesses. In South Dakota v. Wayfair, Inc., the court determined a business’s “economic and virtual contacts” with a state could be a sufficient basis for sales tax nexus. Since the June decision, 30 states have adopted an economic nexus policy similar to South Dakota’s. Virginia could be number 31.

Although it wasn’t the Supreme Court’s job to establish a bright-line test like the physical presence rule, the fact that it didn’t puts states in a peculiar position: They’re no longer prohibited from taxing remote sales, but they lack clear guidelines on what they can and can’t do.

Congress could provide those guidelines. Indeed, at least three bills seeking to limit state remote sales tax authority have already been introduced. SB 3275 would prevent retroactive collection, prohibit states from taxing businesses with less than $10 million in annual sales (until Congress approves “clearly defined nexus thresholds),” and prohibit the taxation of remote sales until January 1, 2020. H.R. 6824 (the Online Sales Simplicity and Small Business Relief Act of 2018) and H.R. 7184 (the No Retroactive Online Taxation Act of 2018) would impose similar measures.

The authors of Virginia’s proposed remote seller sales tax law are trying to prevent possible roadblocks by baking in an adjustable small seller exception. They’ve also included provisions to facilitate remote seller sales tax compliance, since the Supreme Court praised South Dakota’s sales tax simplification measures in its Wayfair decision. SB 1083 requires the Virginia Department of Taxation to:

• Provide adequate information to remote sellers to enable them to identify state and local tax rates and exemptions (i.e., at least 30 days’ notice of a rate change);
• Provide adequate information to software providers to enable them to make software and services available to remote sellers;
• Ensure that if the Department requires a periodic audit the remote seller may complete a single audit that covers the state and local sales and use taxes in all localities; and
• Require no more than one sales and use tax return per month be filed with the Department by any remote seller or any software provider on behalf of such remote seller.

SB 1083 will be considered once the 2019 session of the Virginia General Assembly opens on January 9, 2019.

Learn more about different state remote seller sales tax laws at this Avalara resource page, which includes a map and state-by-state chart.