Amazon Settled The Texas Tax Dispute

By Joe Waynick
April 30, 2012

The Reuters news service reports that online retailer Amazon settled the Texas tax dispute by reaching an agreement with the state of Texas that will require the company to start collecting sales taxes on sales destined for residents of the state beginning July 1st.

The Texas deal is the latest in a long series of battles with cash strapped states hoping to add more revenue to its coffers by applying nexus sales tax laws to out-of-state Internet sellers. Amazon has vigorously resisted attempts by states to force it to collect sales taxes on Internet sales.

A Deal Is Reached

In an obvious quid pro quo agreement the state of Texas is abandoning its demand that Amazon pay $269 million in back sales taxes the state claims the giant online retailer owes from sales that occurred between 2005 and 2009. Texas State Comptroller Susan Combs has long maintained that Amazon owed the money because she claimed Amazon has a nexus with the state because of the presence of a distribution center owned by the eTail giant.

Some online sellers accuse Amazon of caving to political pressure when Amazon settled the Texas tax dispute by ignoring the landmark supreme court decision Quill vs. North Dakota in which the high court declared state laws requiring out-of-state retailers to collect sales taxes unconstitutional. For 30 years multi-state retailers with no nexus thought the issue of an eCommerce sales tax was put to rest.

Conversely, traditional brick-and mortar retailers accuse Amazon and other eTailers of enjoying an unfair competitive advantage by not being required to pay state sales taxes. That complaint carries weight when one considers that brick-and-mortar establishments must pay up to 10% in sales taxes that eTailers don't.

Many online sellers use that financial advantage to offer free shipping, placing physical retail stores at an even further disadvantage. It seems the advent of the Internet has revived the sales tax issue.

The Bigger Picture

Even though Amazon settled the Texas tax dispute the agreement continues the piecemeal approach to the issue that has eTailers coast-to-coast worried about individual state efforts. Without a comprehensive solution the online markets remain in tax haven disarray.

It doesn't appear the issue will disappear anytime soon as the U.S. Congress considers legislation to require every online eTailer to collect sales taxes in all 50 states. An action that is sure to be met with legal challenges. However, it seems Amazon supports the effort to apply a uniform sales tax law to Internet retailers and has joined the likes of Wal-Mart to work with congress to draft legislation to do just that.

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