Amazon Attempts Sales Tax Workaround in Texas

The debate regarding the way Amazon.com does its online business has been going on for some time now. The major point of contention has been the fact that for years, Amazon has been able to sell and ship goods across most of the country without charging any state sales tax.

It’s not hard to see why this practice upsets some groups within the states, especially those who protect the interests of brick and mortar stores both large and small. Why would a customer buy a $700 home theater system from a local electronics retailer and pay 6% sales tax (or more) when they can get it shipped to their door free of that state-imposed sales tax via Amazon?

Some states have stepped up and voted to approve new tax laws that require online retailers to collect state sales taxes. Most recently the state of California voted on this issue as part of their new budget.

Here’s how it usually goes – a state decides to enact laws requiring companies like Amazon to collect sales tax. Amazon threatens to sever ties with the affiliates in that state. TheStreet.com has a nice map that shows the current state of the union when it comes to the Amazon tax wars.

The law of the land for a while has said that states cannot force businesses to collect sales tax if it doesn’t have a physical presence within the state. In states like Kentucky, Kansas and New York, Amazon already collects sales tax because those states contain Amazon offices. But no actual Amazon offices equals no sales tax. Amazon’s CEO Jeff Bezos has said that it is protected in the U.S. constitution’s prohibition of state’s interference in interstate commerce -

And in the U.S., the Constitution prohibits states from interfering in interstate commerce. And there was a Supreme Court case decades ago that clarified that businesses — it was mail-order at that time because the Internet did not exist — that mail-order companies could not be required to collect sales tax in states where they didn’t have what’s called “nexus.”

But now, more and more states are saying that Amazon affiliates count as physical presences and are enacting sales tax regulations on the company. Texas is one of those states that is currently in battle with Amazon.

Apparently, Amazon has extended a compromise to the Lone Star State. Amazon proposes that they would spend $300 million in the establishment of distribution centers across the state that would provide over 5,000 jobs to Texans. All they ask in return is to remain exempt from collecting sales tax for the next 4 1/2 years.

They also suggest that Texas’ comptroller sets up a separate website for the collection of voluntary sales tax owed on Amazon purchases. That money would then go directly to the state. It’s highly suspect that many people would choose to pay a sales tax, however.

The current push for online-tax regulation in Texas is part of a pending school finance bill. Governor Rick Perry is unable to line-item veto that online-tax provisions, so he would have to veto the entire school funding bill if he wanted to keep his state online sales tax free.

Texas will certainly not be the last state to debate this issue. What do you think? Should Amazon be forced to collect sales tax? Or does that interfere with interstate commerce laws? Should the federal government step in and mandate a standard online sales tax? Let us know what you think.

There are 4 Comments. Add Yours.

F
June 22, 2011 at 2:29 pm

Just say NO, like New York. This is not a Mom and Pop store strugging to stay afloat. If Amazon has a superior business model, then it should collect sale tax just like Wal Mart, Home Depot, or Best Buy.

The 5000 jobs promised will probably end up being 500. The only losers are Texans who must subsidize Amazon for 4.5 years.
- David C
  June 22, 2011 at 4:22 pm
  
  I agree, this sounds like a desparate last plee from Amazon. Dont forget the Texas issue is different. They had a wearhouse located in Texas. According to Texas Sales and Use Tax law, if Amazon was wearhouseing inventory in the Irving, Texas distribution center in question then they had substantial nexus and a duty to collect sales tax on all sales made to Texas residents.
  
  @ F…this is acctually a common practice with many state taxing acencies. Most of these agencies include a list of remedies in the agreement to prevent them self from holding the bag if the other side does not hold up their end of the bargain.
  
  But knowing Govenor Perry, he would love to accept this trade even though it primarily benifits Amazon. The fact is that Amazon needs to have strategicaly placed regional distribution centers. A majority of states sales and use tax law say’s theses distribution center represent substantial Nexus and require Amazon to collect sales tax.
  
  Texas shouldn’t cave becuase Amazon is backed into a corner. Taking away the sales tax issue Texas is a great location for a distribution center. It has a huge mail hub at DFW Airport, its a right to work state, and it has a retailer friendly corporate tax through the Texas Margin Tax. Stay strong Texas. Once this Amazon sales tax issue is settled Amazon will be creating jobs in Texas for the right reasons and not as a result of a bribe.
OPAS
June 22, 2011 at 4:00 pm

The new legislature in California looks like the future, I think. Eventually Amazon will have to give in and start collecting sales tax in Texas and other states.

Of course, consumers won’t be happy about paying sales tax, and many are already discovering ways to avoid doing so. For example, many consumers in California and New York already use package forwarding services from Oregon (where there is no state sales tax) to shop tax-free online, even though their states collect sales tax on online purchases. (You just order with an Oregon address, then have your packages forwarded to your own state, tax-free). See There seems to be more action in favor of the tax than against it. I think that eventually Amazon will have to give in and start collecting sales tax in Texas and other states.

Of course, consumers won’t be happy about paying sales tax, and many are already discovering ways to avoid doing so. For example, many consumers in California and New York use a package forwarding service from Oregon (where there is no state sales tax) to shop tax-free online, even though their states collect sales tax on online purchases. (You just order with an Oregon address, then have your packages forwarded to your own state, tax-free).
Jim
June 22, 2011 at 7:45 pm

Your article is confusing two different issues. The states attempting the affiliate nexus tax are doing so simply over the presence of affiliates. In Texas, however, Amazon has had a distribution center for year and hasn’t been collecting sales tax.

The states that have enacted the affiliate nexus law have actually reduced their tax base as affiliates are terminated by the on-line retailers and therefore no longer earn income and in turn don’t pay income taxes. It didn’t take the state of Colorado long to figure that out as they are now reversing their short sighted law. In the end, it is going to take federal legislation because what these states are doing is unconstitutional. The state of Illinois is being sued over their attempt, which will prove that out.

By the way, if you buy something on-line, you are required to pay sales taxes to your state if the retailer doesn’t collect it. It is in no way “voluntary”. It’s right there on your state income tax form. Just because people don’t follow the law and the states are lazy in their enforcement shouldn’t mean the sales tax should be paid twice on transactions when the law is properly followed.