April 27, 2011, 2:24 PM

The Texas House passes an online sales tax bill

Now before the state Senate, the proposed law tackles the issue of physical presence.

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Legislation that could make it easier for Texas to collect sales taxes from online retailers won approval today from the Texas House of Representatives today by a vote of 125 to 20. The proposed law would clarify that online retailers must collect sales tax even when their physical operations within the state are operated by subsidiaries. Under federal law, states can’t collect such taxes unless the online retailer has a physical presence such as a distribution center, a legal concept known as nexus.

The bill, HB 24003, now goes to the Texas Senate. Republican state Sen. Steve Ogden has indicated he would push through a Senate version of the legislation, according to Nikki Cobb, chief of staff to Rep. John Otto, the Republican who was the main sponsor of the House bill. “Our goal is to get a final bill to Gov. Rick Perry before the end of the current legislative session,” Cobb says. The session runs until the end of May.

Otto says he designed his legislation to withstand any court challenges to its stipulation that a retailer must collect sales tax on purchases by Texas consumers if the retailer has a physical presence in the state, even if such facilities are operated by a subsidiary company. Amazon.com Inc. contends that it does not have to collect sales tax in Texas because its Texas distribution center is operated by an independent Amazon subsidiary. The retailer has said it plans to discontinue operating its Texas distribution facility and kill plans to build more because of the state’s insistence that it collect sales tax.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, noted when reporting its first quarter financial statement yesterday that the expense of running an expanding network of fulfillment centers was a major contributor to its 33% year-over-year decline in Q1 net income.

According to Texas House rules, Otto’s bill was read a third time before the House today and passed with a final certified vote tally 125 to 20. In an earlier, unofficial vote yesterday, the bill passed 122 to 23, with two abstentions.

George Isaacson, a partner at Brann & Isaacson, and Steve DelBianco, executive director at NetChoice, will speak at the Internet Retailer Conference & Exhibition 2011 about taxes in a session entitled "How to be prepared when the sales tax officers call."

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