Industries Government

Seeking equity

Closure of ‘Amazon loophole’ among new business-related laws

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Print this page by Jessica Sabbath

The owners of contemporary, international furnishings store La Différence constantly battle “show-roomers.” These consumers check out furnishings on display in showrooms at brick-and-mortar stores but then make their purchases from an online retailer.

One distinct advantage of these online retailers? They don’t have to collect a state sales tax — leaving individuals responsible for paying the tax to state governments, a practice rarely followed.

“If you’re talking about a $10 item, that 50 cents sales tax isn’t a big deal,” says Sarah Paxton, who owns La Différence in the historic Shockoe Slip district in Richmond with her husband, Andy Thornton, “but when you start talking about a $1,000 product, $50 can make a big difference.”

So Paxton and other retailers were furious when state officials celebrated the decision of online retail giant Amazon to open two job-rich distribution centers in Central Virginia. However, the commonwealth was not going to require Amazon to pay state sales taxes.

“For a state that has suffered from an income shortfall like Virginia has for the last three years and not insist they start collecting sales tax, this just totally shocked us,” says Paxton.

Eventually, Gov. Bob McDonnell and Amazon reached an agreement to close the so-called “Amazon loophole,” requiring online retailers with a distribution, warehouse, fulfillment center or office in the commonwealth to collect and pay state sales taxes on products sold to Virginia consumers. That deal takes effect   in September 2013 — or sooner if a federal law is passed requiring online retailers to collect and remit sales tax. Brick-and-mortar retailers across the commonwealth celebrated passage of the legislation.

“That was really huge for the retailer,” says George Peyton, vice president of government relations for the Virginia Retail Federation. “Closing the Amazon loophole was a move in the right direction. We were pleased with the 2013 start date. It’s much earlier than some states have received [in negotiations with Amazon].”

Closing the Amazon loophole was one of many business-related laws passed by the 2012 General Assembly. These laws include the extension of tax credits and incentives to encourage investments in technology, commercial space, small and energy-related businesses.

“Broadly speaking, the 2012 General Assembly was extremely productive for Virginia businesses,” says Barry DuVal, president and CEO of the Virginia Chamber of Commerce.  This year marked the first time the chamber has evaluated legislators on its 2012 Legislative Report Card, which graded lawmakers on their votes on 50 different bills. “We outlined the bills that we were watching and requested [that legislators] support these bills,” says DuVal. Overall, 90 percent of legislation supported by the chamber passed the General Assembly.

Economic development
The General Assembly passed a number of measures to encourage investment in Virginia.

One of them, which created a small-business investment grant program, allows Virginians who invest in companies with less than $3 million in annual revenue and fewer than 50 employees to receive a grant equal to 10 percent of their investment. “That’s going to be very helpful for small businesses in Virginia with this new incentive,” says DuVal.

DuVal says another major victory for business was passage of a law that prohibits state agencies from requiring or prohibiting contractors or subcontractors to enter into negotiations with labor organizations or to discriminate against bidders who will not enter agreements with labor unions. “This assures a competitive business environment,” says DuVal. “We’re a right-to-work state, and we want to protect those businesses that operate in our state.”

An additional incentive included the expansion of the major business facility job tax credit, which allows large employers locating or expanding in Virginia to take a tax credit of $1,000 for each full-time job created, allowing the credit to be taken over a two-year period ending in 2014.

The Virginia technology community received a key victory when the governor signed legislation clarifying that the sales and use tax exemption on equipment purchases is applied to data center tenants as well as data center owners. The exemption is allowed if a data center invests $150 million and creates at least 50 jobs. “I think Virginia is increasingly in competition with other states to site data centers,” says Josh Levi, vice president of the Northern Virginia Technology Council. “We’ve done pretty well in the past, but I think competition is heating up.”

Levi says Virginia must compete for data center investment with states that have a lower sales tax. In addition, he says, data centers benefit economic development throughout the state, as investments are made around the commonwealth. “Essentially, we’re trying to root the cloud here in the commonwealth,” says Levi.

Other major coups for Virginia’s technology community included the extension until 2015 of the capital gains exemption for investors in small technology businesses and the extension of tax credits offered on teleworking expenses from 2014 to 2017. “We learned during the session that they had 180 applications for the [telework tax] credit from companies,” says Levi. “This is very important to technology companies across the state.”

McDonnell also worked with the General Assembly this year to promote the development of commercial space operations in Virginia, home to both the headquarters of a major space company, Orbital Sciences Corp., and the NASA Wallops Flight Facility on the Eastern Shore. Legislation this year increased funding for the site from $7 million to $9.5 million. The funding will be added to the Commonwealth Space Flight Fund to support capital needs, maintenance and operating costs of the Wallops facility.

Port of Virginia
A budget amendment approved this year aims to boost economic competitiveness of the Port of Virginia, particularly as it contends with the Port of Savannah for container traffic. The General Assembly approved a budget amendment to create the Port of Virginia Economic and Infrastructure Development Zone to provide grants to maritime-related companies locating or expanding in the zone, which includes a wide swath of localities in the Hampton Roads region, along U.S. Route 460 and near the Virginia Inland Port in Front Royal.

The incentive is designed to attract distribution and manufacturing facilities, ultimately boosting traffic at the Port of Virginia.

Grants would be awarded to maritime companies, or those involved in exporting and importing of goods through the Port of Virginia, that create at least 25 jobs in the first year of expansion or operation within the zone.
The one-time grants would be $1,000 per full-time job created if companies add 25 to 49 employees, the reward increasing to $3,000 per job created if companies added at least 100 jobs.

While much of the General Assembly action is business friendly, Virginia’s transportation system remains congested and underfunded. The legislature passed small transportation measures, including dedication of a higher percentage of budget surpluses (67 percent) to transportation and the selling of naming rights of the state’s highways, interchanges, bridges and transportation facilities. A McDonnell initiative to use a portion of the state’s sales tax for transportation did not pass.

The 2011 General Assembly passed $4 billion in transportation measures, but residents and business officials say a more permanent fix to fund the state’s transportation system is needed.

The Virginia Chamber of Commerce is forming a transportation committee to focus on ways to enhance Virginia’s highways, rail, port expansion and aviation to improve the commonwealth’s competitiveness. “We obviously want to work in the future with this governor and legislators on both sides of the aisle to find a formula to improve transportation funding,” says DuVal.

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