Amazon Pulling Out of Texas Over $269 Million Tax Bill

ralphart writes with this excerpt from the Dallas Morning News: "As a result of an ongoing tax dispute with Texas, Amazon.com has decided to take its ball and go home. The online retailer said Thursday that it would shutter its Irving distribution facility April 12 and cancel plans to hire as many as 1,000 additional workers rather than pay Texas what the state says is owed in uncollected sales tax. Texas wants $269 million from Seattle-based Amazon in past-due sales tax. It sent the bill to the company last October." We've discussed the online retailer's tax battles with other states in the past.

Comments

Texas Budget Deficit

[eldavojohn]

While they're by no means the only state with budget problems, it is kind of coincidental that we're seeing this from Texas in the midst of a budget deficit. With $10 billion in lost revenue, they're starting to get creative like demanding university offer a $10k bachelors degree. Oh the abuse of the educational system, both lower and higher education. It's probably going to come down to just cuts across the board. My friends from Texas have often bragged about it but Texas doesn't have income tax so it's sort of asking a lot to do all this on 6.25% sales tax. You can make promises like "no new taxes" and "more tax cuts" but it looks like they'll run Amazon out of town on this one. Well, they were right that taxes hurt businesses! Bye bye Amazon!

Re:Texas Budget Deficit

[FtDFtM]

Texas is after sales taxes from before Amazon came to the state.

Re:Texas Budget Deficit

[swfranklin]

Companies don't PAY sales tax, they COLLECT it. The people in Texas that order from Internet retailers like Amazon are the ones who pay, or don't pay, sales tax. Amazon just collects the tax from the customer, and then pays it to Texas.

One difficulty is that if a Texas consumer wants to buy an item online, and they pay sales tax when ordering it from Amazon.com but not tax if ordering from (e.g.) buy.com, then Amazon will lose business. So it's in Amazon's best interests to NOT collect sales tax from Texas customers if they can avoid it.

There is no clear answer here. On the one hand, you have the Streamlined Sales Tax movement (http://www.streamlinedsalestax.org/) that is trying to enact legislation in as many states as possible requiring retailers to collect tax from customers, regardless of whether the retailer has a presence in that state. The intent is to "level the playing field" and close the no-tax loophole of ordering from out of state - allowing in-state merchants to compete fairly with out-of-state merchants. If this were enacted, Amazon would collect the tax and so would everyone else - so no one would be at an advantage or disadvantage in that regard.

That sounds well and fine, but the difficulty is the mechanics involved. Sure, Amazon and Wal-Mart and other big companies can code their web sites & shopping carts to figure out where the customer lives, and collect sales tax appropriately. The problem is that setting up a web site to do this is expensive - there are data subscriptions and a lot of coding involved. Over hundreds of thousands or millions of transactions, the cost is minimal. But the effort required by Amazon is really not much different from the effort required from doggiechewtoys.com or any other mom-n-pop operation - except that the little guys don't have the transaction volume to dilute the up-front costs. So it is VERY hard on small businesses to make this kind of change.

What to do? Beats me.

Re:Texas Budget Deficit

[AK Marc]

Rick Perry has been "in power" for more than 10 years now, and this is part of a budget shortfall that requires massive cuts. My question is, why hasn't there been cutting the last 9 years?

Personally, I think there is a class of Republicans who hate government enough to get in power, purposefully screw up, and force things like this because of the damage they deliberately inflict and then blame on "big government" which they created in the first place. He runs up a bill for billions, then cuts education and social programs left and right, leaving in subsidies for the rich. It wasn't an accident, it wasn't an unforeseen shortfall, it was deliberate sabotage in order to force hard choices while they are in power to remake it in their image.

Why did Bush push through NCLB? Because he knew that unfunded federal mandates over state matters was the core of the big-government Republican image. He knows that NCLB will shackle school districts, increasing cost and wasting resources. He knows NCLB will harm children all over the country. And he's happy to hurt the children. Why? Because when the education system comes crashing down, the vouchers he really wants will then look like a good idea.

Not that I'm trying to imply the Democrats are any better. I'm just pointing out the "capitalist" Republicans are massively supporting socialism. Take from everyone and give to the needy businesses (and every business is needy). And the small government Republicans are passing massive sweeping legislation to take away states rights and purposefully harm children to further push taxing everyone to pay for religious schools with direct government funding of religious organizations (as nearly all private schools are religious).

And for anyone wondering, I was born in TX and lived there under GWB (and a few before him) and left just after (but not because) Rick got the job.

Re:Texas Budget Deficit

[gtall]

"retardican", that's good. I've had this argument with similarly unenlightened people before. The argument goes:

Them: No public money for research unless it is medical research.
Me: Hmmm....quantum mechanics and relativity, modern techno-stuff is built on it, couldn't get funded these days.
Them: Uh...uh...yeah, but I'm talking about pie in the sky research.
Me: That was pie in sky, so was group theory, which underpins transaction security you can buy stuff on-line.
Them: Yeah, well, they could point to something useful.
Me: No they couldn't, Galois died in 1932.
Them: Oh, okay, but not social research.
Me: So, you don't want to know what social problems have solutions, like failure of schools?
Them: Okay, you made your point.

Two months later:

Them: No public money for research unless it is medical research.
Me: Recall we had this argument 2 months ago and you admit you lost.
Them: What was your reasoning again?

You see, there's no talking sense to these people, they cannot keep anything abstract in their heads for longer than a gnat's attention span.

Re:Texas Budget Deficit

[JoshRosenbaum]

This sounds easy on the outside, but in reality it is not if you are doing it right. (FYI: I have experience adding a third party sales tax vendor (similar to the API you write about) into ecommerce websites.) It definitely does not take 5 minutes and I wouldn't suggest that any script kiddie do it. (You are dealing with real money here.) In the real world, you have to deal with all sorts of things like:
*) Taxes that vary depending on the type of item being bought. (Meaning you have to make sure your items have the various classifications for all the various laws.)
*) Need to then deal with crediting taxes on order cancels/returns/changes, which can be even more fun when you are doing it for a split quantity returned.
*) Error handling when remote API goes down
*) Validating user inputted address matches up with a valid tax address.
*) Shipping is taxable for some areas and others not. So again, you get to deal with this headache every time there is an order return or other order changes.

It's definitely doable, just not near 5 minutes doable and is definitely a cost to be considered by smaller sites.

Enough of this

[schnikies79]

I can't blame Amazon at all for this.

This whole tax from the state it comes from/tax from the state you live in needs to be decided (federally) and set in stone once and for all. Same goes for who collects it and when.

Re:Enough of this

[natehoy]

IANAL, but I've done a lot of tax programming for major retailers over the years.

While I agree that sales taxes are ridiculous and hard and all that, I feel it's important to point out that Amazon actually has a presence in Texas, and therefore when they sell product to Texans they actually do need to be collecting sales tax and remitting it to the State of Texas. This is commonly known as "nexus" in sales/use tax circles. This is what Texas is asking for - sales/use tax from sales to Texans from Amazon (who has a presence in Texas and is therefore subject to the laws of Texas with regards to their sales in Texas).

If Amazon was being told they needed to collect on behalf of, for example, Maine, they have the absolute right to tell Maine's comptroller to go straight to hell. In fact, as a citizen of Maine, I'd love to be able to listen to that conversation. I'll never be able to tell our comptroller to go to hell, so it'd be great to be able to hear someone else say it.

Amazon has no presence here in Maine, therefore they have no obligation to follow Maine's regulations surrounding sales/use taxes, which are intrastate law, not interstate. The sales/use tax on things I buy from Amazon is my responsibility to track as a Mainer doing business with a company outside the state, and I owe that money to Maine at the end of the year (and we have a system called "Alternative Use Tax" where I pay a small stipend based on income tax to cover any incidental out-of-state purchases I happen to make if I don't want to track them all, which I use).

But Amazon has a presence in Texas. In the same way that the company I currently work for has to start collecting and remitting State sales taxes every time we open our first store in each State (or call center, or warehouse, or business office, or whatever), Amazon really does owe that sales tax to the State of Texas, whether they have been collecting it from their customers or not.

Now, they can certainly choose to pull out of Texas in order to avoid having to collect taxes there, that's within their rights. But they still owe the State of Texas $269 million (plus whatever other sales they make before they finish the pullout), because they were supposed to be collecting that money from their customers who live in Texas for the entire time they've had a presence there.

Note to Amazon: Please come to Maine. We could use the jobs. I'll happily pay sales tax on purchases made from you.

Re:Enough of this

[painandgreed]

While I agree that sales taxes are ridiculous and hard and all that, I feel it's important to point out that Amazon actually has a presence in Texas, and therefore when they sell product to Texans they actually do need to be collecting sales tax and remitting it to the State of Texas.

The main issue seems to be that the states are changing the definition of "presence", sometimes seemingly retroactively. It used to be if your headquarters was situated in the state, then people buying from you needed to pay income tax. Then it was if it was shipped from that state. Then if the company had any offices whatsoever, so even if Amazon had some offices serving only internal customers, then they would have to collect tax on everything bought by the state. Now, states like NY and Texas are saying that if any company they are "partners" with are in the state, then the partner company has to collect tax. Amazon hires a company in NY to do some coding, then Amazon has to collect taxes on stuff bought by New Yorkers.

Really, this is all just mail order and things should have been settled and stabalized with Sears back in the days of the wild west. However, states are looking for more money and changing the agreements and telling companies to pray they don't change them any more.

Normally

[phantomfive]

Good. Sales tax is a regressive tax, meaning poor people pay more than rich people. Even if you want to stick it to Amazon, in a very real way, sale tax is passed on to the consumer. The sooner we can get rid of that awful tax and move to a more equitable tax system, the better.

(Note: it is true you can soften the blow of a sales tax somewhat by exempting things like food, things that poor people buy; but then it's a hump tax, where the middle ends up paying the highest percentage. That's not equitable either).

Re:Normally

[Nadaka]

Yes actually. the poor spend near 100% of their income on basic goods and necessities and outnumber the wealthy 10 to 1.

A wealthy person only buys so much crap. A hypothetical 10% sales tax takes ~10% of a poor persons income while the same 10% sales tax may take 0.01% of a wealthy persons income.

The only way for sales tax to be close to "flat" is if you charged it on the purchase of financial instruments like stock.

Re:Normally

[Nadaka]

I accept your rejection of the implicit assumptions. Many people make those implicit assumptions. But I have reason behind my perspective.

The accumulation of wealth is supported and enabled by a well run society respecting personal property. The wealthy are those who reap the greatest benefits of society as a whole. Progressive taxes are (or at least can be) fair for this reason.

Regressive taxes place an onerous burden upon those least capable of bearing it. Taken far enough and it recreates the state of slavery where a person no longer works for their own gain, but for the gain of a master.

When you add categories for exception to a flat tax based on necessity, you are creating a system that is in effect progressive in relation to income. It is merely a matter of implementation.

Personally I would prefer a limited exemption flat income tax (including all income, capital gains, etc). Exemptions would be limited to a fixed multiple of household size.

Re:Normally

[pnuema]

Bullshit. You worked your ass off, AND GOT LUCKY. You didn't get sick, or have to take care of a relative. You had no financial misfortune to overcome. You were born intelligent enough to take advantage of opportunity when it came. I'm also willing to bet you are white, and a native English speaker. Working your ass off is not sufficient. Not everyone is as smart or as lucky as or as white as you, and to suggest that poverty is their fault ignores your own good fortune. Yes, it is possible to pull yourself up by your bootstraps. But it is also possible to work just as hard as you did, and have bad things happen to you. The whole "the poor are poor because they are not as good as me" idea was rejected with the rest of Victorian ideology. You sir are a throwback.

Texas asked for it in the beginning

[Stumbles]

Amazon just out of the blue did not decide to start operations in Texas. No, they had incentives, you know like tax cuts and the like. This is not an uncommon thing. The point here is this; many states have decided to suck the dicks of companies just so they will bring "tons-o-jobs" to their area. Companies have gotten used to this notion. The fault falls squarely on the states shoulders by allowing companies to expect no taxes.

Re:Texas asked for it in the beginning

[MickyTheIdiot]

These tax breaks are the great folly of our time. They can bring in a large-looking number of jobs to an area and make a politician look good for a limited amount of time, then the companies bail and often the taxpayers got very little for their money.

It's amazing that everyone thinks that big business is what drives jobs. That's a joke. The real job growth comes with small business. Big businesses will soon just be only the elite people at the top ordering all their stock from the 3rd world sweatshops. They aren't going to save the economy of the U.S. Why aren't we spending our money to support these small businesses that actually care about their communities instead of giving these huge breaks to companies that will leave at the drop of a hat. My guess it all has to do with who have the most lobbyists.

Other States

[dunezone]

Amazon thinks Texas is bad? Illinois is trying to get about 6 years back-taxes from online shoppers They want everyone who purchased goods in the past 6 years online to pay back-sales-taxes on those goods. How that is considered legal is amazing.

http://archive.chicagobreakingnews.com/2010/12/state-to-offer-sales-tax-amnesty-for-online-shoppers.html

Typical

[Beelzebud]

Another corporation that doesn't want to pay its share...

So what's the penalty?

[dkleinsc]

Last I checked, that makes Amazon tax evaders. They broke the law, and are now fugitives from justice. So I assume the state of Washington will be aggressively tracking them down and extraditing them to Texas for trial. Or maybe the state of New York will seize their assets on Wall St to pay the bill. Or maybe the feds will be getting involved and garnishing their profits.

Oh, wait. Sorry. That would be if a real person didn't pay a $269,000 tax bill. This is a corporation not paying a $269,000,000 tax bill, so they might get a slap on the wrist.

Re:They still owe texas money.

[Dunbal]

Not only that, but it will make other businesses think twice about Texas, too. There's a law about taxation: the more you try to get, the less you actually get. Bankrupt and irresponsible countries, states and municipalities should correct their spending binges instead of looking for creative taxation.

Re:They still owe texas money.

[Mr. Slippery]

Texas needs to cut some sort of compromise deal with Amazon or they will lose out in the long run

No, if every state stood up to parasites like Amazon, they'd go out of business, leaving the field clear for thousands of small businesses to spring up. That's the long-term win, not kowtowing to corporate bastards.

Every state but one has a 'budget deficit'

[nido]

The only state that's NOT having budget problems is North Dakota. Ellen Brown says North Dakota is sitting pretty because they own the Bank of North Dakota.

See How the Nation’s Only State-Owned Bank Became the Envy of Wall Street.

All the other states are slaves to their financiers on Wall Street. For example, the City of Phoenix (Arizona) borrowed a billion dollars over the past 5 years to build out the water system. Now the water department wants to raise an extra $24million a year by raising water fees... 'Cause the usury always gets paid first.

I calculate that the interest charge on a billion dollars a year (at 5%) is $50million. If Arizona owned a bank like North Dakota, the Bank of Arizona would have financed the Phoenix water expansion (at, say, 3%). Most of the $50million the city is now bleeding out to Wall Street would instead be flowing into the state's treasury.

The financial crisis is easily fixable, with the right solutions. Money and the Crisis of Civilization, and ... Richard Clark's A Bailout for the People are also on my recommended reading list.

Sales Taxes as implemented are anti business.

[LWATCDR]

They way that sales taxes are collected are really a pain for any online business.
The sales tax varies not just state by state but even county by county. And for an online order where to you charge from? I work in one county and live in another. I if I buy something online at my office do they charge the sales tax of the place where I order or where it is delivered to?
What about when I use my cell phone and I am on vacation and I buy an app or a song?
Should it use the GPS and decide?
If I buy a gift for my mother in law from Amazon should I pay Florida or Texas sales tax?
Sales tax and online sales just don't work well. And if it is a pain for someone like Amazon which probably could deal with it but a nightmare for any small company trying to do business on the internet.

Re:Oregon does not have sales tax.

[Technician]

Oregon does not have sales tax. They do have an inventory tax. The inventory tax is not only on your product, but on your furnishings and equipment. States to provide incentives to attract businesses. A couple of the largest businesses in the state are Nike and Intel. Nike distributes shoes mostly made overseas. Their inventory is relatively low and their inventory value is relatively low.

On the other hand, Intel does manufacturing in Oregon as well as a good portion of R & D. If Intel was taxed at the same rate for inventory as Nike, they would not be in Oregon at all. The equipment for manufacturing IC's is several million dollars each. Intel negotiates with Oregon for a break on the inventory tax and brings to the table the rates they pay on other locations such as New Mexico, Ireland, Israel, etc. Oregon is well aware if they didn't offer this incentive, Intel would no longer be in Oregon.

http://www.oregonlive.com/opinion/index.ssf/2010/10/oregon_intel_inside.html

Oregon is well aware that Intel contributes way more to the state of Oregon than Nike. Trying to "Tax them fairly" will result in the loss of Intel in Oregon. Intel is by no means getting no taxes. Intel contributes heavily to the local infrastructure and education.

It sounds to me like Texas has attracted Amazon with a temporary deal and it has expired. Amazon has not been able to extend the deal. Now the party is over.

Amazon may owe Texas a quarter billion dollars, but this is the last year. They are not remaining as Texas expected them to.
Texas expected they were too big to fail. Surprise..