Texas has been attempting to bill itself as a friendly place for businesses to operate. This business-friendly facade is being thrown into question by a fight with online retailer Amazon. The Texas Comptroller has ordered the seller to pay $600 million in back sales taxes.
The state of state sales tax collections
Online retailers present a problem for many states. Sales taxes are usually charged for sales from one physical location to a resident of that state. Online sales are often from a retailer incorporated in one state to a customer in a different state, sometimes with a distribution center in a third state. This multi-state system puts state tax collectors in a tough situation, often cut out of the picture entirely.
The dispute between Amazon and Texas
Texas is home to an Amazon distribution center. The Irving center ships millions of dollars worth of product each year, sold via a website based in Washington state. Amazon claims the distribution center in Irving does not amount to a physical location in the state of Texas. The Texas governor agrees, but the state Comptroller disagrees. The Comptroller sent a letter to Amazon demanding $600 million in back sales taxes. Amazon is attempting to call the bluff, arguing that in no way does a distribution center amount to an in-state location and the Comptroller is simply trying to get Amazon to fund a no fax loan to the state budget.
How states are handling online taxes
Texas is not the only state feeling cheated out of sales taxes. Experts estimate that more than $11 billion in sales taxes go unpaid each year because of online retailers. While most states do have a “use tax” on the books, most customers simply do not pay it. In Texas, legislation is being pushed through that would specifically exempt Amazon from sales taxes, but most states are trying to write legislation to ensure they get their cut. Something would need to be done on a federal level, however, because interstate commerce is the purview of the federal government. The likelihood this will happen anytime soon is low, however — meaning Amazon and other online retailers could skip out on their bills, getting a free payday loan from lack of regulation.