Gov. Tim Kaine: “Most citizens are stunned to find out that a portion of the sales tax they pay for services doesn’t go to services, but that $70 million a year stays with the merchants.”

Virginia Fact-Check says: Barely True.

Why: Anticipating a $3.6 billion shortfall, Kaine is preparing a 2010-2012 budget to present to the General Assembly on Dec. 18. He said last week he’ll propose ending some tax breaks, including the dealer discount — a portion of the sales tax that retailers are allowed to keep in return for calculating and transmitting taxes to the state.

Kaine said computerized systems eliminate the need for the state to reimburse retailers by $70 million each year.

“Most citizens are stunned to find out that a portion of the sales tax they pay for services doesn’t go to services, but that $70 million a year stays with the merchants, and that was an archaic thing we used to do when it was cash registers and paper trying to collect money and remit it to the state at the end of the month,” he said, in a Dec. 3 article by Bob Lewis of the Associated Press.

Laurie Aldrich, president of the Virginia Retail Merchants Association, disagrees. She said calculating and remitting sales taxes remains “burdensome” for retailers, who can’t just depend on machines to do the job.

So who is right?

Kaine was a little off in his claim that the state paid $70 million in dealer discounts this year. The number currently stands at $60.9 million, according to the Virginia Department of Taxation, although that amount doesn’t include December reporting. Discounts for retailers are based upon their taxable sales.

The governor was partially correct in saying that the process is automated, at least compared to when the dealer discount was created in 1966. Retailers can calculate and pay their sales taxes online each month by filling out a form consisting of eight fields. They simply enter their sales for each category, and the site automatically calculates the sales tax due and the dealer discount.

But that’s not to say it’s easy for retailers to keep track of all the taxing jurisdictions and exemptions. Back in 1966, the only sales tax was the one levied by the state, although localities were granted permission that year to levy their own taxes for the first time, according to Joe Mayer, lead policy analyst for the Department of Taxation. Now in 2009, Virginia has 134 taxing jurisdictions and 81 different types of exemptions. Some items are tax-free, while other goods, like alcohol, carry a special tax.

It takes Robert Tillman, owner of Gourmet Center and Delicatessen in Alexandria, Virginia, about six hours each month to meet the state’s requirements for reporting sales taxes. He says he spends 10 minutes each day organizing his sales into the different tax categories. Then, it takes him 20 to 30 minutes once a month to fill out the online form. While he says the process is much easier than paying taxes to the city (which is done by paper), he doesn’t think the dealer discount he receives is fair compensation.

Most retailers in Virginia (124,025 out of 133,576) make less than $1 million in sales each year. On average, each of those retailers received a dealer discount of $102 for the whole year.

If a retailer doesn’t use a computer, the process takes longer because the taxes have to be manually calculated and mailed. In addition to calculating his sales tax online, Tillman also uses software that organizes his financial records electronically.

So while it’s easier now than ever before for retailers to pay their sales taxes, they still face many complications due to the web of exemptions, special taxes, and various local taxes they must navigate. Therefore, Fact-Check Virginia rates Gov. Kaine’s statement “Barely True.”