Amazon to Collect Online Sales Taxes in Texas Starting July 1, 2012
April 30, 2012 10:34 AM
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The e-tailer will also have to create 2,500 jobs in the state and make at least $200 million in capital investment in Texas over a four-year period
Amazon spent much of 2011 fighting tax-related battles in select U.S. states, claiming that it
could not be forced to collect taxes on online sales
without some sort of set standards. But Amazon is changing its tune in Texas, as it has agreed to start collecting taxes on online sales in the state starting this summer.
After more than a year of
fighting with the state of Texas
, Amazon has reached a settlement with Texas State Comptroller Susan Combs regarding $269 million in uncollected sales taxes on online items. The deal states that Amazon will begin collecting taxes on online sale items starting July 1, 2012 and that the e-tailer will create a minimum of 2,500 jobs. Amazon will also have to make at least $200 million in capital investment in Texas over a four-year period.
“While we continue to believe the assessment was without merit, in April 2012, we entered into a settlement with the State of Texas that included an agreement to collect sales taxes on applicable sales transactions for our US-focused internet retailers beginning July 1, 2012, resolution of Texas sales taxes up to that date, certain commitments related to capital investment and job creation in the state, and an immaterial payment to the state," said Amazon.
Amazon has been going to head-to-head with Texas over tax issues since February 2011. At that time, Combs told the online retailer that it was responsible for $269 million in sales taxes that were not collected on online sales in the state.
Amazon said that it does not have to collect sales taxes on items sold online because of a 1992 Supreme Court decision that excuses Amazon and other remote sellers from having to collect taxes in U.S. states that do not have the company's employees or warehouses operating within those states. While Amazon had a suburban Dallas distribution center in the state of Texas, it said that this was not enough of a physical presence to justify the collection of taxes.
After Combs pinned the $269 million in unpaid taxes on Amazon, the e-tailer announced that it was
closing its suburban Dallas distribution center and canceling operation expansions in Texas
"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 Combs.
But now, Amazon and Combs have struck a deal and are working toward federal legislation for set standards on the collection of online sales taxes.
“Amazon looks forward to creating thousands of new jobs in Texas and we appreciate Comptroller Combs working with us to advance federal legislation,” said Paul Misener, Amazon Vice President of Global Public Policy. “We strongly support the creation of a simplified and equitable federal framework, because Congressional action will protect states’ rights, level the playing field for all sellers, and give states like Texas the ability to obtain all the sales tax revenue that is already due.”
Texas isn't the only state that went after Amazon for online tax collection. Last year, Senator Dick Durbin (D-Ill.) introduced a bill called
the Main Street Fairness Act
, which would require all businesses, including those online, to collect sales taxes in the state where the consumer resides.
Amazon also ran into trouble with New York, where Amazon filed a lawsuit and lost in 2009 over a dispute concerning the collection of taxes
from out-of-state transactions through the online retailer.
California was another U.S. state that pushed Amazon away last year when it introduced an online sales tax bill that would require the e-tailer to collect. Amazon threatened to
terminate contracts with all California residents
in the Amazon Associates Program because it believed the new bill was unconstitutional. Later, Amazon asked California voters to
repeal the new sales tax law
offered the state 7,000 jobs
to put the tax law on hold.
Currently, Amazon only collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington. Starting July 1, Texas will be added to that list. Amazon also agreed to start collecting sales tax on online items in California starting next year, and in Arizona in 2014.
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4/30/2012 12:36:33 PM
Its actually a much more complex problem than just that. First off, one state has no constitutional right to tax any goods from other states. It actually violates laws on the federal level set in place to regulate interstate commerce.
Now, this neatly applies to physically going to a different state, buying something, and returning. In that case, the goods have either been taxed, or not, based on the laws of that state. The state you return to has no ground to stand on demanding tax on those goods, so you have nothing to worry about.
Now for the monkey wrench. Nexus laws set up to encourage mail order sales. Because there are simply too many different sales tax laws and zones, it was deemed by the US Supreme court that if the seller has no physical presence in a tax zone, it does not need to collect and report sales tax from people in that zone. The problem is that this extended to internet sales, and the internet sellers became quite large. So, what was the solution?
Use Tax: "use tax n. a state tax on goods purchased in another state for use in the taxing state, to make up for (in lieu) local sales tax. Example: Bill Buyer who lives in California (which has a sales tax) orders a freezer from a company in a state with no sales tax. California will attempt to charge a "use" tax equivalent to its sales tax."
Now, the problem is that a use tax is all encompassing. If you physically drive somewhere, buy an item, and come back you still need to report it due to the way that many states word their laws. So, you could be paying the same taxes twice. This in turn makes the law unconstitutional.
Amazon caving in will cause a snowball effect. Now, it sets the precedent that online retailers are exempt from the Nexus laws, so even individual sellers and small buisnesses will have to start collecting as well. This may have a seriously negative impact on the internet economy as a whole.
((And they will never sue millions of people because they know that if challenged, the laws will not stand. Better to hope some gullible fools follow the system than do something which would cause it to crumble))
4/30/2012 4:38:17 PM
Agreed, 100%. But my point still stands current use law has not been ruled unconstitutional (for mail order/internet that is), thus we still owe it until then. Unfortunate but true.
It is not a popular view for sure, thus my quick down rate, but from a legal perspective I certainly owe my state tax for goods I've purchased over the internet. Don't get me wrong, I don't pay it either, and I hope the refine it, but the law is pretty clear with regard to items not physically bought in another state. Ill-advised and utterly unenforceable, but still there nonetheless.
4/30/2012 6:50:14 PM
Maybe I'm refusing to pay it, hoping to be slapped with a fine so I will have standing to bring a case challenging the law's Constitutionality. But I'm not, since I live in WA, and have paid sales tax on Amazon for a long time.
4/30/2012 8:59:48 PM
Broadly speaking, a tax which costs more money to enforce than the revenue it brings in is a bad idea. That's the problem with a use tax. Unless you require everyone to report every sale, every trade, every transaction over (say) $20 to the government, enforcement is going to be non-uniform and prohibitively expensive. It has the effect of turning everyone into tax cheats, opening up the doors to government having the power to arrest and charge you whenever they feel like it, whenever you tick them off.
You can accomplish the same thing as a sales tax by simply raising the income tax, and giving tax credits for uses of money which currently don't have sales tax (food, clothing in some states, putting into a savings account, paying utility bills, etc).
“We do believe we have a moral responsibility to keep porn off the iPhone.” -- Steve Jobs
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