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Texas to force Amazon into sales tax collection?

Online retailer, which has a distribution center in Lone Star State, says it's complying with state law, but tax officials say they're "investigating" whether that's the case.

Anne Broache Staff Writer, CNET News.com
Anne Broache
covers Capitol Hill goings-on and technology policy from Washington, D.C.
Anne Broache
2 min read

Reportedly inspired by an ongoing legal skirmish in New York, tax officials in Texas are investigating whether Amazon.com should be collecting sales taxes from the Lone Star State's residents.

According to recent reports in the Dallas Morning News, the Texas Comptroller's office is currently looking into whether the Seattle-based e-tailer can be held responsible for paying as many as four years' worth--potentially millions of dollars--of back taxes. Some Texas officials said they weren't aware that Amazon had been operating a distribution center in Irving, Texas, since 2006, until receiving a call from a Morning News reporter last week.

Amazon, for its part, told the newspaper that the state is "fully aware" of its Texas operations and that the company is already in compliance with the state's tax laws. Amazon said state law doesn't require it to collect taxes on its Texas facility, which is operated by a subsidiary called Amazon.com.kydc, the Morning News reported.

But a spokesman for the Texas Comptroller's Office said it was nevertheless continuing a "thorough" investigation of the matter and wasn't sure how long it would take to complete.

It's just the latest chapter in the broader debate over sales taxes on Internet-based purchases. In 1992, the U.S. Supreme Court ruled in its landmark Quill v. North Dakota case that retailers aren't required to collect sales taxes from customers who live in states where the businesses don't have a physical presence, or "nexus."

So far, nothing has happened to change that decision, though Congress has considered taking steps in that direction, and some states are banding together in a strictly voluntary effort known as the Streamlined Sales Tax Project, which is designed to make tax collection easier for retailers.

Technically, Americans residing in states with sales taxes--Texas included--are already supposed to keep track of out-of-state purchases and cough up the necessary sales tax on April 15 through a concept known as a "use tax."

State officials, however, argue that most Americans don't actually do so, potentially depriving them of millions of dollars in revenue, particularly as e-commerce sales continue to grow. The Dallas Morning News article said Texas officials estimated losing $541 million in uncollected sales taxes in 2006 to online commerce.

Earlier this month, Amazon sued New York state over a new law requiring sales tax collection by companies that pay New York-based entities for "directly or indirectly referring customers" to their businesses. That provision directly implicates Amazon "affiliates" through its "Associates Program," to whom it pays a commission for linking to products for sale on its Web site, and the Internet merchant argued that the law is "invalid, illegal, and unconstitutional."

According to its Web site, Amazon currently collects sales tax on items sold and shipped to the states of Kansas, Kentucky, North Dakota, and Washington. Some of its merchants, such as Target, collect taxes in other states as well.