May 16, 2011, 1:33 PM

Texas moves ahead with an online sales tax bill

Headed to the governor, the bill aims to force more e-retailers to collect taxes.

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The Texas Senate approved by a 30-to-1 vote Friday a bill that would require online and catalog retailers with an in-state physical presence, such as stores or distribution centers, to collect and remit sales tax even if those facilities are operated by subsidiaries. Already approved by the Texas House of Representatives, the bill is expected to go before the governor by the end of this month.

The bill, HB 2403, was written to clarify existing Texas sales tax law requiring online and catalog retailers to collect sales tax if they have a physical in-state presence, such as stores or distribution centers. In the most high-profile incident relating to this legal issue, Inc. has announced plans to close its Texas distribution centers after failing to come to an agreement with the state comptroller’s office for an exemption for sales tax collection.

Amazon contends that it should be exempt from sales tax responsibility because its Texas distribution facilities are operated by an Amazon subsidiary and, therefore, not a part of the company’s retail operation. Under federal law, retailers can be required to collect sales tax only in states where they have a physical presence such as distribution centers or stores.

But HB 2403 says that a retailer has physical presence, or nexus in legal terminology, whether it directly owns and operates distribution centers or indirectly owns and operates them through a corporate subsidiary, says the bill’s sponsor, Rep. John Otto, a Republican. The bill says that a retailer is "engaged in business in this state" and therefore responsible for collecting sales tax if it has "substantial ownership interest" in subsidiaries that operate facilities such as distribution centers to support the retailer’s online sales. Kansas and South Dakota already have enacted similar laws.

Otto introduced his bill in March after had already said it would close its Texas distribution center and kill plans to expand its Texas fulfillment facilities.

HB 2403 was also approved by a wide margin last month by the Texas House of Representatives. The bill’s supporters say they expect Gov. Rick Perry, a Republican, to act on the legislation before the end of the current legislative session, which runs until the end of this month.

Amazon, No. 1 in the Internet Retailer Top 500 Guide, has also decided to close distribution facilities in South Carolina because of opposition by state officials to a tax incentive package Amazon had expected.

But in Tennessee, despite an effort within the state legislature to block a similar incentive package, Amazon is moving ahead with plans to expand its distribution facilities there. With support for the tax package from Gov. Bill Haslam, a Republican, Amazon said today it has started hiring for about 1,200 jobs at two fulfillment centers expected to open this fall. In addition, Amazon said it is considering locations in Tennessee for three more distribution centers, which would bring its total fulfillment work force in the state to several thousand full-time and seasonal employees.

"We're committed to growth in Tennessee because the people here have demonstrated their commitment to Amazon jobs and investment," says Dave Clark, vice president of Amazon North America Operations.

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

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