Texas to force Amazon into sales tax collection?

Reportedly inspired by an ongoing legal skirmish in New York, tax officials in Texas are investigating whether Amazon.com should be collecting sales taxes from the Lone Star State's residents.

According to recent reports in the Dallas Morning News, the Texas Comptroller's office is currently looking into whether the Seattle-based e-tailer can be held responsible for paying as many as four years' worth--potentially millions of dollars--of back taxes. Some Texas officials said they weren't aware that Amazon had been operating a distribution center in Irving, Texas, since 2006, until receiving a call from a Morning News reporter last week.

Amazon, for its part, told the newspaper that the state is "fully aware" of its Texas operations and that the company is already in compliance with the state's tax laws. Amazon said state law doesn't require it to collect taxes on its Texas facility, which is operated by a subsidiary called Amazon.com.kydc, the Morning News reported.

But a spokesman for the Texas Comptroller's Office said it was nevertheless continuing a "thorough" investigation of the matter and wasn't sure how long it would take to complete.

It's just the latest chapter in the broader debate over sales taxes on Internet-based purchases. In 1992, the U.S. Supreme Court ruled in its landmark Quill v. North Dakota case that retailers aren't required to collect sales taxes from customers who live in states where the businesses don't have a physical presence, or "nexus."

So far, nothing has happened to change that decision, though Congress has considered taking steps in that direction, and some states are banding together in a strictly voluntary effort known as the Streamlined Sales Tax Project, which is designed to make tax collection easier for retailers.

Technically, Americans residing in states with sales taxes--Texas included--are already supposed to keep track of out-of-state purchases and cough up the necessary sales tax on April 15 through a concept known as a "use tax."

State officials, however, argue that most Americans don't actually do so, potentially depriving them of millions of dollars in revenue, particularly as e-commerce sales continue to grow. The Dallas Morning News article said Texas officials estimated losing $541 million in uncollected sales taxes in 2006 to online commerce.

Earlier this month, Amazon sued New York state over a new law requiring sales tax collection by companies that pay New York-based entities for "directly or indirectly referring customers" to their businesses. That provision directly implicates Amazon "affiliates" through its "Associates Program," to whom it pays a commission for linking to products for sale on its Web site, and the Internet merchant argued that the law is "invalid, illegal, and unconstitutional."

According to its Web site, Amazon currently collects sales tax on items sold and shipped to the states of Kansas, Kentucky, North Dakota, and Washington. Some of its merchants, such as Target, collect taxes in other states as well.

[Renegade Knight]

I would have thought normal rules apply. Most companies charge sales tax for residents in the states they do direct business in. Dell for example as a call center in my state. They collect tax in my state.

[Penguinisto]

The cure on Amazon's part is simple enough... if Texas decides to go on a witch hunt, Amazon can simply pay whatever fine gets levied, then pull up stakes and move out, taking the jobs along with 'em to a more favorable state. I'm pretty sure a lot of other national-sized corps would end up doing the same vis-a-vis Texas. IMHO, I (thankfully) live in a state with no sales taxes - Oregon (and yet we somehow still keep a balanced budget - go figure).

[universeman]

Agree Penguinisto. Oregon has a pretty high (9%) income tax. We don't have that here in Texas. Having said that I think Texas is going to get a punch in the nose from Amazon if they try to do this. I almost hope that they do, so other states take a lesson and don't do the tax grab.

[custompcmax]

Basically, Texas is realizing that they have possible millions of dollars they can maybe squeeze out of Amazon, using tax law. Like another poster said, Amazon would be better off paying fines, and then leaving Texas all together. I am sure faced with that, Texas may back off collecting past taxes. The hit to their economy, I would imagine, could be huge with a ton of people out of work, etc... http://www.custompcmax.com

[James7777777]

If they lost $541 million from online sales shipped from another state, how much in taxes did they collect? Considering most people spend most of their money close to home (food/restaurants/shopping), they must be pulling in billions, plus they get income tax as well. What is happening to all of this money and why do they need more?

[dclaryjr]

>>IMHO, I (thankfully) live in a state with no sales taxes - Oregon (and yet we somehow still keep a balanced budget - go figure).

Maybe you manage by having a state income tax--Texas doesn't.

[datrop]

Since Texas doesn't have an individual income tax, its residents will, in the long-term, make up the difference through property taxes. Renters and homeowners alike would be affected, and it would hardly be fair for those who don't shop online/Amazon.

It's also been noted that the registered owner for the distribution center is Amazon.com, not Amazon.com.kydc. (Search for "Dallas Central Appraisal District".) If Amazon is craftily taking advantage of a loophole by operating its building through a subsidiary, then many other internet businesses should follow its example. It would make a lot of Texans happier. (Netflix?)

[Dead Soulman]

I don't understand these bureaucrats' sense of entitlement. What makes them think that they have the right to tax on everything we do? Why are we allowing such abuse. When we shop online, we're already paying a tax on the shipping cost. Isn't that enough? How many times is a purchase supposed to be taxed?

Instead of looking for ways how to take more and more money out of our pockets, why won't they look for ways how to become more efficient in administering the billions they already get from us.

[datrop]

Are you implying that the shipping cost looks like a tax or that there's a separate tax embedded in the shipping cost? The former is a consequence of doing business on the web; internet retailers don't have to separate out shipping costs, but they wouldn't be competitive otherwise. It's the same reason for retail prices being universally worse than online prices. In the latter case, the state is not getting its share of revenue, since shipping weight rarely corresponds to value. Anyway, state budgets should at least trend with inflation in order to avoid running a perpetual deficit...

[LouieJunior]

It's crazy for Texas to exempt Amazon from collecting sales taxes while requiring resident firms to do so -- effectively putting locally-opperated firms at a disadvantage.

I say go after Amazon, the back taxes, interest and penalties too. Locally minded state residents shouldn't be paying a disproportionate share of taxes while on-line shoppers avoid taxes alltogether.