Amazon spent much of 2011 fighting tax-related battles in select U.S. states, claiming that it could not be forced to collect taxes on online sales without some sort of set standards. But Amazon is changing its tune in Texas, as it has agreed to start collecting taxes on online sales in the state starting this summer.
After more than a year of fighting with the state of Texas, Amazon has reached a settlement with Texas State Comptroller Susan Combs regarding $269 million in uncollected sales taxes on online items. The deal states that Amazon will begin collecting taxes on online sale items starting July 1, 2012 and that the e-tailer will create a minimum of 2,500 jobs. Amazon will also have to make at least $200 million in capital investment in Texas over a four-year period.
“While we continue to believe the assessment was without merit, in April 2012, we entered into a settlement with the State of Texas that included an agreement to collect sales taxes on applicable sales transactions for our US-focused internet retailers beginning July 1, 2012, resolution of Texas sales taxes up to that date, certain commitments related to capital investment and job creation in the state, and an immaterial payment to the state,” said Amazon.
Amazon has been going to head-to-head with Texas over tax issues since February 2011. At that time, Combs told the online retailer that it was responsible for $269 million in sales taxes that were not collected on online sales in the state.
Amazon said that it does not have to collect sales taxes on items sold online because of a 1992 Supreme Court decision that excuses Amazon and other remote sellers from having to collect taxes in U.S. states that do not have the company’s employees or warehouses operating within those states. While Amazon had a suburban Dallas distribution center in the state of Texas, it said that this was not enough of a physical presence to justify the collection of taxes.
After Combs pinned the $269 million in unpaid taxes on Amazon, the e-tailer announced that it was closing its suburban Dallas distribution center and canceling operation expansions in Texas.
“We regret losing any business in Texas, but our position hasn’t changed; if you have a presence in the state of Texas, you are required to pay sales tax just like any other business that has a presence in Texas,” said Allen Spelce, a spokesman for Combs.
But now, Amazon and Combs have struck a deal and are working toward federal legislation for set standards on the collection of online sales taxes.
“Amazon looks forward to creating thousands of new jobs in Texas and we appreciate Comptroller Combs working with us to advance federal legislation,” said Paul Misener, Amazon Vice President of Global Public Policy. “We strongly support the creation of a simplified and equitable federal framework, because Congressional action will protect states’ rights, level the playing field for all sellers, and give states like Texas the ability to obtain all the sales tax revenue that is already due.”
Texas isn’t the only state that went after Amazon for online tax collection. Last year, Senator Dick Durbin (D-Ill.) introduced a bill called the Main Street Fairness Act, which would require all businesses, including those online, to collect sales taxes in the state where the consumer resides.
Amazon also ran into trouble with New York, where Amazon filed a lawsuit and lost in 2009 over a dispute concerning the collection of taxes from out-of-state transactions through the online retailer.
California was another U.S. state that pushed Amazon away last year when it introduced an online sales tax bill that would require the e-tailer to collect. Amazon threatened to terminate contracts with all California residents in the Amazon Associates Program because it believed the new bill was unconstitutional. Later, Amazon asked California voters to repeal the new sales tax law and even offered the state 7,000 jobs to put the tax law on hold.
Currently, Amazon only collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington. Starting July 1, Texas will be added to that list. Amazon also agreed to start collecting sales tax on online items in California starting next year, and in Arizona in 2014.
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