October 26, 2010

Texas hits Amazon with whopping bill for unpaid sales taxes

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A filing with the Securities and Exchange Commission by Amazon.com has revealed that in August, the state of Texas hit the company with a bill for a whopping $269 million for uncollected sales taxes on purchases made by state residents over the last four years.

A report in the Dallas Morning News by Marian Halkias says a 2009 survey reveals that “state and local governments lose more than $7 billion a year in uncollected sales taxes.” In the case of Texas, the report explains,

The Texas comptroller’s office began an investigation of Amazon’s taxing status in May 2008 after The Dallas Morning News questioned why Amazon didn’t charge sales taxes while maintaining a distribution center in Irving near Dallas/Fort Worth International Airport.

At the time, Amazon.com had sued New York over whether it needed to collect sales taxes there, arguing it had no “physical presence” in that state. That defense dates to a 1992 U.S. Supreme Court decision covering catalogs and direct mail-order companies but later applied to Internet retailers.

The News report said Amazon had been operating the Irving distribution center since at least 2006. Amazon contended the distribution center was owned by one of its subsidiaries called Amazon.com KYDC LLC, which is located at the same address as its corporate headquarters in Seattle.

In July, Amazon.com purchased the rest of Carrollton-based Woot.com that it didn’t already own. Amazon.com had held a minority stake in the quirky deal-of-the-day website since 2006.

Amazon is already embroiled in lawsuits with several other states who argue that the online retailer should be collecting sales taxes just like brick and mortar stores in those states — not doing so constitutes and unfair advantage, say critics.

Thus, says the DMN, “Now that Texas has gotten tough with the No. 1 online retailer, other states could be tempted to pile on with their own assessments as local governments face huge shortfalls, analysts said. Recent estimates put Texas’ two-year budget shortfall at as much as $21 billion.”

A Wall Street Journal report by Geoffrey A. Fowler agrees it could be trouble for Amazon, noting

This is far from the first time that Amazon has battled cash-strapped states over this issue. The company is currently in legal battles in North Carolina, New York and Colorado over efforts by those states to collect sales tax from the company.

In a study last year, Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities in Washington D.C., found that Amazon has warehouses in at least six states in which it doesn’t charge sales tax on its own sales. “What Texas has done is evidence that the states are losing patience – particularly when there is very aggressive tax avoidance behavior like Amazon has exhibited with its warehouses,” he said.

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives

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