Sales Tax Slice: Will Federal Remote Collection Authority Impact Tax on Gas on Virginia’s Highways?

State transportation funding and federal legislation aimed at providing authority for states to impose sales and use collection requirements on remote sellers seem unrelated, unless you’re in Virginia. As explained in a recent story in BBNA's Daily Tax Report, Virginia’s latest transportation bill sets tax rates on gas based on anticipated revenue from online retailers.

If enacted the bill would raise the state sales tax rate by 0.3 percent statewide and by an additional 0.7 percent in northern Virginia, and replace the $0.175 per gallon gas tax with a 3.5 percent tax on the wholesale price of gas, which would be increased to 5.1 percent if Congress does not pass the Marketplace Fairness Act by January 2015.

Virginia’s transportation package provides that an increased portion of the existing sales tax, as well as additional funds generated by the 0.3 percent sales tax increase are to be dedicated to transportation. The legislation would also replace the $0.175 per gallon tax on diesel fuel with a 6 percent tax on the wholesale price of diesel, and subject owners of alternative fuel vehicles (including hybrid and electric cars) to a $100 registration fee.

Other states have tied sales tax remote seller provisions to the Marketplace Fairness Act, and even as part of agreements with Amazon for sales tax collection responsibilities, but Virginia’s proposed legislation is unique in its connection with transportation-related tax rates. With Virginia’s legislative session ending this past Saturday, the complicated proposal is the final plan for meeting transportation costs.

The Virginia State Tax Department estimates that the plan will generate about $3.5 billion for state transportation over five years. However, if the transportation bill is enacted, the planned revenue may not reach state coffers as concerns have been raised as to whether the provisions violate the Virginia Constitution. Virginia’s Constitution specifies that the General Assembly can impose only uniform taxes across the state for similar activities, and the pending transportation bill is thought by some to effectively set up a two-tier system for certain residents.

By Christine Boeckel

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