Texas blinked – Amazon won’t be collecting sales tax after all
Texas Gov. Rick Perry told The Washington Examiner on Friday that Amazon won’t have to collect sales tax for the state of Texas; he will ask the state legislature to clarify the legal issue.
This is only the latest part of an ongoing saga. Various states have been trying to get Amazon to collect sales tax for years now; I don’t think any have succeeded. But first, a little background. A retail store has to collect sales tax because they operate in a specific state. But an online operation only has collect sales tax for the state or states it has a presence in (with a coupe exceptions).
You might recall that back in 2008, New York tried to get Amazon to pay the sales tax based on the fact Amazon had affiliates in NY (technically that qualifies as a presence in the state). Amazon responded by canceling all the NY affiliates. Colorado tried much the same trick last year, and Amazon dropped those affiliates, too.
The tussle in Texas was slightly different. Amazon has a distribution center in Texas, so the state comptroller’s office concluded that since Amazon operated in Texas, Amazon should collect Texas sales tax. The comptroller’s office sent Amazon a bill for $269 million in unpaid taxes (and penalties).
Amazon responded with the claim that the distribution center was not part of Amazon; it was owned and run by a subsidiary. They also disputed the tax bill with the appropriate state office, which is not unreasonable (from their viewpoint, at least). And they responded with a threat. If Texas didn’t back down, Amazon would close the distribution center and move it elsewhere.
And the G0vernor blinked.
On the one hand, Amazon really should have been collecting taxes. The obvious interpretation of the tax laws showed that Amazon did indeed operate in Texas. On the other hand, how long did the state let Amazon operate without trying to enforce the tax laws?
P.S. Do you want to know one of the other curious aspects of our tax laws? Amazon decided that Agency priced ebooks were subject to state sales tax (because Amazon was just an agent for the publishers). This let Amazon raise the effective prices slightly on Agency Ebooks, and thus discourage customers from buying them. This was a subtle way to hit back at the publishers. Clever, that.
image By Calsidyrose