Some retailers to pay June sales tax early

Many of the state's retail merchants will be sending sales-tax collections to the state twice next week -- for May and for June -- under a sales-tax acceleration program that the General Assembly adopted to help close a budget deficit.

At a time when many merchants are struggling, they are being asked to fork over an additional $227 million, said Laurie Aldrich, president of the Virginia Retail Merchants Association, which represents about 5,400 retailers.

"You're asking people to pay a tax they haven't necessarily collected yet," Aldrich said. "It comes at a difficult time when many merchants already have a cash-flow problem."

The accelerated payment of sales tax applies to merchants with annual sales of $1 million or more. Aldrich said there are about 1,000 such merchants.

On Monday, merchants will pay the sales tax based on May sales. They will pay the sales tax based on estimated June sales on June 25, a month ahead of time.

"It's distasteful," said Jack Burke, owner of Leo Burke Furniture in Carytown. "We are being asked to make the state an interest-free advance on the sales tax."

Then-Gov. Timothy M. Kaine made the proposal to accelerate the sales tax in December in his outgoing budget.

The General Assembly wanted to begin in 2014 to phase out the program -- gradually slowing down the accelerated June collections. Gov. Bob McDonnell amended the budget to begin the phaseout of accelerated June collections in 2013.

McDonnell and the General Assembly this year agreed on a plan to erase a $4 billion shortfall in the state budget without raising taxes.

Merchants paying the accelerated sales tax won't have to pay the June sales tax in July, the first month of the new fiscal year. That means the state will begin its new budget year in a hole.

But Richard "Ric" Brown, the secretary of finance, said the acceleration program will continue next year, meaning the state will make up for those diminished revenues next June.

At a meeting of the Senate Finance Committee yesterday, Brown rejected a suggestion that the $227 million has helped the state realize a surplus in the fiscal year that ends June 30. State officials expect a surplus of about $140 million.

Since the state has to balance its budget, it wouldn't have spent as much money, he said. The same circumstances that are leading to a surplus this year -- increased tax collections -- would have existed without the program, he said.

McDonnell said this week that he's optimistic the state will end this fiscal year with a surplus that's significant enough to trigger a 3 percent bonus for state employees. The one-time cost would be $83 million.

This is not the first time the state has asked merchants to help it out of a financial bind. Then-Gov. Jim Gilmore made the proposal in 2001 before he left office, and the new governor, Mark R. Warner, adopted it for 2002, with some modifications.

Merchants can seek a hardship exemption, if they can't pay the additional money. If they are able to pay and don't make an accelerated payment, they must pay 6 percent interest to the state.

Contact Tyler Whitley at (804) 649-6780 or twhitley@timesdispatch.com .