July 5, 2011, 3:29 PM

Texas grapples with web taxes

Gov. Rick Perry faces a decision whether to sign an online tax bill.

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The Texas Legislature approved and sent to Gov. Rick Perry last week legislation that would require Amazon.com Inc. and other retailers with in-state subsidiaries to collect sales tax on sales to Texas residents.

The bill, SB 1, covers a broad range of fiscal matters and includes language on sales tax collection requirements that originally appeared in a separate bill that Perry, a Republican, vetoed in May

Like the bill vetoed in May, the new legislation seeks to clarify that an online retailer is required to collect sales tax in Texas if it has a “substantial,” or at least 50%, ownership interest in a physical facility, such as a distribution center or warehouse, located in the state. As such, the bill addresses an argument made by Amazon, No. 1 in the Internet Retailer Top 500 Guide, that its distribution subsidiary in Texas does not constitute a direct physical presence that would require it to collect sales tax. Under federal law, states can only require retailers to collect sales tax if they have an in-state physical presence like stores or distribution centers.

Amazon declined to comment on the Legislature’s action, but a spokeswoman said the retailer was “in the process of winding down the fulfillment center in Texas,” a facility that Amazon has said would have created thousands of jobs if the e-retailer had followed through on expansion plans. Last month Amazon offered to increase the number of planned jobs tied to its Texas fulfillment operations if the state would agree to a temporary exemption from sales tax collection duties.

Paul Misener, Amazon’s vice president for global public policy, has estimated that the retailer’s plans for fulfillment operations in Texas would have resulted in “well over 10,000 jobs,” including 6,000 at Amazon’s distribution subsidiary and more than 4,000 in related businesses. Amazon recently announced it was moving ahead with a new distribution facility in South Carolina after the state legislature granted Amazon a five-year exemption from sales tax collection.

In Texas, however, Perry has not commented on SB 1 or Amazon’s offer to generate jobs. The governor has 20 business days from June 21 to either sign or veto the bill.

Texas is also one of several states considering legislation that would require online retailers to collect sales tax if they get sales leads from in-state affiliate web sites such as blogs and other content sites. California last week became the seventh state with such a law, which is commonly referred to as an “Amazon Tax” because of the impact it would have on the world’s largest web retailer. The seven states with such laws have a total population of 86.7 million, representing nearly 28% of the current U.S. population of 311.7 million, according to the U.S. Census Bureau.


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