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Texas Comptroller charged Amazon $269 million in sales taxes that were not collected on online sales in the state, provoking Amazon to close its distribution center and cancel plans to expand its operations in Texas

Amazon has announced that it is closing one of its distribution centers and canceling operation expansions in Texas due to a dispute with the state's comptroller over millions of dollars in sales taxes. However, Governor Rick Perry (R-Texas) isn't letting the internet retail giant go that easily. 

Amazon made the decision to close a suburban Dallas distribution center after Texas State Comptroller Susan Combs told the company that they were responsible for $269 million in sales taxes that were not collected on online sales in the state. 

"We regret losing any business in Texas, but our position hasn't changed: If you have a presence in the state of Texas, you are required to pay sales tax just like any other business that has a presence in Texas," said Allen Spelce, a spokesman for Texas Comptroller Susan Combs.  

But Perry disagrees with Combs' decision to charge Amazon millions of dollars in sales taxes, and to let the company leave the state of Texas. Amazon's decision to close its Irving distribution center and cancel plans to expand operations in Texas will result in job losses as well as the loss of tens of millions of investment dollars to the state.

"That is a problem and I would suggest to you that we need to look at that decision that our comptroller made," said Perry. "The comptroller made that decision independently. I would tell you from my perspective that's not the decision I would have made."

Perry added that Combs shouldn't have pinned the sales taxes on Amazon's Dallas distribution center, since it doesn't have a storefront and is not responsible for such matters. 

"You couldn't go in and buy anything out of that store, and that, historically, has been the way we defined whether you pay taxes or not - if you had a storefront," said Perry. "This obviously didn't have a storefront. It was specifically there to manage products that need to be shipped out." 

Perry is looking to get the legislature involved to keep Amazon in Texas, but it may already be too late. Amazon's Dave Clark, vice president of operations, has announced that the company will close its Irving distribution center on April 12, and will cease all plans to expand operations in the state of Texas, which will eliminate 1,000 potential jobs and cut tens of millions of potential investment dollars to the state as well. 

"We don't want to be onerous on tax policy where businesses and I would say I'm having a hard time getting my hands around this one," said Perry. "Texas should be a bastion for businesses, not one where they're sitting there going 'we'd rather go over to Oklahoma where we could get a better deal.' Texas doesn't want to make itself less competitive with its tax decisions."  

According to Spelce, Texas loses about $600 million in online sales taxes annually. Currently, a case is pending before the State Office of Administrative Hearings regarding the $269 million in sales taxes from Amazon. 

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RE: Good on Amazon
By bah12 on 2/14/2011 11:12:14 AM , Rating: 2
I'd have to look at a case where they are though. I know he said that historically this was not the case, but I certainly cannot think of any company that is exempt because it has no store front. Ultimately he is a politician so I don't think I'd put too much stock in what he says.

The appeals court will make the ultimate call, but unfortunately the damage is already done. Closing a facility is not cheap, or easy, and without extensive incentives to do otherwise, I doubt we will see Amazon back here soon.

RE: Good on Amazon
By paydirt on 2/14/11, Rating: -1
RE: Good on Amazon
By wookie1 on 2/14/2011 11:44:20 AM , Rating: 5
What do you propose to do if people buy something from an international seller? How would you collect taxes from them? And if you can't, why wouldn't Amazon simply move all of their operations out of the country?

Are you suggesting that the State/local governments be able to monitor all of their residents somehow to ensure the taxes are collected from them?

RE: Good on Amazon
By paydirt on 2/14/11, Rating: -1
RE: Good on Amazon
By theapparition on 2/14/2011 1:39:11 PM , Rating: 4
If international businesses (we are not discussing small mom & pop sellers) choose not to collect state tax, local tax, VAT, or flat tax from their consumer (as Amazon did), then states (or the taxing entity) can send the tax bill directly to the international business (as Texas did). If Amazon was in British Columbia instead of the U.S., the situation would be the same.

That is completely incorrect information.
Only if the international business maintained a local presence are they obligated to collect sales tax for the state. If not, then burden lies on the taxpayer to correctly report and pay that tax directly to the state.

In the Amazon case, they maintained a business presence in the state, and hence were obligated to collect tax and redistribute to the state. If they were international, that situation, as you correctly pointed out, would not change.

However, if they had no local presence, then that company is under no obligation to collect local taxes. Plain and simple.

RE: Good on Amazon
By kattanna on 2/14/2011 12:23:02 PM , Rating: 1
why wouldn't Amazon simply move all of their operations out of the country?

because international shipping costs and delays would make it unattractive

RE: Good on Amazon
By FITCamaro on 2/14/2011 2:35:08 PM , Rating: 2
You are required to pay the taxes on anything bought. You might choose not to. But you run the risk of being caught. And shouldn't complain if you are.

RE: Good on Amazon
By Solandri on 2/14/2011 12:18:52 PM , Rating: 3
***Local businesses should be on the same footing as non-local businesses. If you favor non-local businesses by not imposing the same tax on them as you do everyone else, then you are directly causing dollars to leave the state.

I think everyone realizes this. However, the problem has to do with a conflict with Federal and State law. The Feds and State governments need to get together and fix it. Asking businesses to voluntarily act as if it's fixed simply won't work. The ones who heed your call will lose market share to those who don't. Consequently, the problem will remain the same as ever, all you'll accomplish is driving out of business the people sympathetic to your cause.
Non-collection of State Sales Tax AFFECTS EVERYONE. It lowers real estate values, it lowers employment, it lowers local tax collection, it lowers state tax collection.

On the contrary, this is actually one of the good things about having no sales tax between states. It only causes the problems you describe locally. For every real estate value lowered, real estate values are raised elsewhere. For every job lost, a new job is created elsewhere. Sales tax revenue is lost, but income tax revenue is gained. Other states benefit (in the form of their businesses doing extra sales) at the expense of a state with onerously high sales taxes. It acts as an incentive for states not to simply raise sales taxes as high as they think they can get away with without inciting riots, and to keep their corporate income taxes low as an incentive to attract businesses.

RE: Good on Amazon
By Fracture on 2/15/2011 1:57:10 PM , Rating: 2
Dead on. Waving taxes on interstate commerce would be a huge boon to creating a "buy American" mentality without implementing protective tariffs (that incidentally piss off other countries).

RE: Good on Amazon
By YashBudini on 2/14/2011 10:10:23 PM , Rating: 1
Non-collection of State Sales Tax AFFECTS EVERYONE. It lowers real estate values, it lowers employment, it lowers local tax collection, it lowers state tax collection.

And yet the pro-corporatists have voted you down.

You do realize how many people buy on-line for the sole purpose of not paying taxes, even when shipping costs about the same. It's like being anti-local, and yeah that's a great way to keep your neighbors and yourself employed.

But you can't reason who the corporatist/elite on this board. So why try?

RE: Good on Amazon
By bah12 on 2/15/2011 9:12:48 AM , Rating: 4
I agree the tax should be paid. But please get your facts straight. The business does not PAY the sales tax, they merely collect it on behalf of the buyer. It is ALWAYS the buyers responsibility to pay the use tax IF not collected at time of sale.

So while I agree with you that sales tax should be paid, the laws already exist to do so. A simple audit of my credit card bill will show all purchases to NewEgg/Amazon. Pretty easy to enforce if they states wanted too. Simple fact is it is easier to target the company rather than then individual.

RE: Good on Amazon
By Solandri on 2/14/2011 12:28:37 PM , Rating: 5
I'd have to look at a case where they are though. I know he said that historically this was not the case, but I certainly cannot think of any company that is exempt because it has no store front. Ultimately he is a politician so I don't think I'd put too much stock in what he says.

The issue that the court decided in this case was whether a subsidiary company constitutes nexus for the parent. Amazon set up a wholly separate (but controlled by Amazon) company to own and run the distribution facility in Texas. It argued that since the parent (Amazon) wasn't present in the state, there was no nexus and so Amazon didn't have to pay sales tax. The subsidiary did no sales, it merely fulfilled orders Amazon sent it. The court decided the subsidiary was sufficient to establish nexus.

Which does leave me scratching my head a little. I can see the court's point of view. On the other hand, what if Amazon hadn't owned the subsidiary? What if they'd contracted with an independent company in Texas to warehouse a bunch of Amazon's products, and when an order was placed Amazon would instruct the independent company to box and ship the order? That would seem to be functionally equivalent to what Amazon was doing with its subsidiary, but avoid the court's logic.

Of course, New York took it to this step and ruled that even having affiliates in New York constituted Nexus. Consequently, Amazon closed their affiliate program for New York residents and businesses. If you are based in New York, you cannot participate in Amazon's affiliate program, even though the relationship is only contractual.

RE: Good on Amazon
By tmouse on 2/15/2011 8:46:47 AM , Rating: 4
The "affiliate" program is in reality just a way to attempt an end-run around a state's taxes. In New York's case Amazon's stance was “we do not have to collect sales tax since they are not part of us” and the Affiliate’s argument was “we do have to collect tax since Amazon is the sales agent”. It's beginning to look like states with use taxes will be requiring sales information for sales within their states. I highly doubt Amazon will cease doing business within those states since close to 50% of states have use taxes. I suspect nexus points will soon be moot as sooner than later all states will probably have use taxes or some sort of federal tax will be initiated.

RE: Good on Amazon
By Kiffberet on 2/15/2011 8:40:42 AM , Rating: 2
By not paying taxes, they put local businesses at a disadvantage, and they'll eventually shutdown.

You've got to take a hard stance on this or you end up with a similar situation as you do in the UK with Amazon.

Amazon base themselves out of Jersey which is a small island with tax haven status. CDs, DVDs, books etc are all cheaper than the local stores, who have to pay tax, so they've all shut.

Meanwhile the public are happy because they get their goods cheaper, but the taxman doesn't get his tax, so he puts tax up on something else, like fuel or income tax.

Texas should persue the tax and if Amazon leave good riddance. They'd only be taking local jobs anyway...

RE: Good on Amazon
By Lerianis on 2/15/2011 8:53:55 AM , Rating: 3
Kiffberet, the fact is that other than food stores, most 'local businesses' should have shut down a long time ago.

The internet has ABROGATED the usefulness of stores like Barnes & Noble, Sears, etc. for the most part.

"When an individual makes a copy of a song for himself, I suppose we can say he stole a song." -- Sony BMG attorney Jennifer Pariser

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