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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 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.

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