RICHMOND — Many businesses will open early and close late for the traditional start of the holiday shopping season this weekend, but Justin Wilson’s shop won’t be one of them.
The owner of a tennis specialty store in Herndon says he cannot compete with online sellers who keep their prices low by not charging customers sales tax.
“Six percent on a $200 racket is 12 dollars they don’t have to pay me,” he said. “I put up the white flag. It’s just simply not worth it.”
Wilson and other Virginia business owners are frustrated with Congress’s failure to act on a bill that would force online retailers without a brick and mortar presence in states such as Virginia to levy sales tax at the point of purchase.
Now the federal bill, called the Marketplace Fairness Act, has languished in committee long enough to trigger another unwelcome tax — this time on Virginia motorists.
State lawmakers grappling with how to fund former governor Robert F. McDonnell’s landmark 2013 transportation bill included a fail-safe measure that would increase the state’s gas tax if Congress failed to deliver on online sales revenue by the start of 2015.
The tax amounts to about 5 cents on every gallon of wholesale gas, all or part of which retailers may decide to pass on to consumers at the pump. With a few weeks to go, the lame-duck Congress is unlikely to act, making Virginia’s gas tax hike all but guaranteed.
Maryland included a similar trigger in a major transportation funding bill passed last year, but it does not kick in until December 2015. If Congress has not passed the Marketplace Fairness Act by that point, the sales tax on gas in Maryland will go up by another 2 cents over the following two years.
U.S. Rep. Robert W. Goodlatte (R-Va.), chairman of the House committee where the bill languishes, said many lawmakers, including House Speaker John Boehner (R-Ohio), “have serious concerns” about the online sales tax bill and “do not believe this legislation is the answer.”
As for state lawmakers poised to oversee a gas tax increase in a year when all members of the General Assembly will be on the November ballot, Goodlatte was unsympathetic.
In a statement, he said: “I warned state officials last year that this was a very complicated issue that has been a topic of debate for nearly 15 years and that they should not assume legislation would be enacted within their time frame. The General Assembly was shortsighted in passing a transportation package with funding dependent upon the assumption that fundamentally flawed federal legislation would be enacted.”
State Sen. Frank Wagner (R-Virginia Beach) said the gas tax provision was part of an eleventh-hour compromise he brokered to satisfy Democrats uneasy about using general fund dollars to prop up the transportation bill.
“The goal was to raise a billion dollars for transportation,” he said. “The House was firmly entrenched that [the federal bill] was going to make up a majority of that money. The Senate was skeptical, so we didn’t want to leave a major hole in the billion dollar budget.”
Although McDonnell initially pitched the transportation bill as “revenue neutral,” a slew of taxes and fees were included to fund improvements to the state’s aging roads and bridges.
The transportation bill changed the way the gas tax is assessed from a flat tax of 17.5 cents per wholesale gallon to a percentage based on the average price over a six-month period. The hike would raise the tax from 3.5 percent to 5.1 percent, or from 11.1 cents to 16.1 cents.
The increase would bring in $783 million over five years, but would not fully replace the $978 million in projected revenue from the online sales legislation, according to an analysis from the Commonwealth Institute.
On top of that, the Institute found that if the federal bill stalls, the amount of sales tax revenue dumped into the transportation fund would be capped at 2015 levels instead of rising, reducing transportation funds by an additional $220 million by 2018.
All told, a report from the institute published in April 2013 called the scheme “a failed bet” that is likely to reduce the state’s overall investment in transportation .
The hole in projected revenue over five years won’t leave any specific projects unfunded, according to the Senate Finance Committee. The money would have bolstered the transportation trust fund to pay for future but unidentified projects.
The U.S. Senate passed Marketplace Fairness in May 2013, with ‘yes’ votes from Sens. Mark R. Warner and Timothy M. Kaine. Shortly after that, Wilson of TennisServ said, he met with Goodlatte on the issue.
“It’s been 18 months and there’s no proposal. Give us language. You’ve had 18 months to do it. Please do it and pass whatever version you think would be acceptable to House Republicans and conference it,” Wilson said.
Wilson said he can “do cartwheels” helping customers identify their ideal racket or tennis shoe only to have them make the purchase online.
“’I’m going to think about it,’” he said, citing a typical interaction with customers. “That’s code word for, ‘I’m going to go home and buy it on the internet.’”
U.S. Rep. H. Morgan Griffith, who with fellow Republican Rep. Scott Rigell co-sponsored the House version of Marketplace Fairness, said the bill wouldn’t levy a new tax, but simply would require people to pay what they already owe.
“I bet you 98 percent of Americans have no idea they’re supposed to be reporting this on their income tax,” he said, adding that every year he calculates what he owes from his hobby collecting antique postcards. An online retailer would have to sell $1 million in goods before the tax would kick in, he said.
“I don’t see some of the problems that others see with it being burdensome,” he said. “One million protects the small guy. Most people want to pay what’s fair, they just don’t want to be cheated.”
John Wagner contributed to this report.