Duel Between Amazon and Texas Comptroller

by William Grimsinger

Over the last two weeks, the dispute between Amazon, the online retailer, and the Comptroller of Public Accounts for the State of Texas has reached new heights. On Friday, February 11, 2011, Amazon advised its employees by letter that it would be closing the distribution facility in Irving, Texas, (which is owned by a subsidiary company), that it would relocate its facility and existing employees outside Texas, and would cancel expansion plans that would have created 1,000 new jobs. This latest move by Amazon follows the $269 million tax bill that Texas issued to Amazon in October 2010 for failing to collect sales tax on sales into Texas and Amazon’s lawsuit filed to force the Comptroller to explain the factual and legal basis for the tax bill. Amazon is appealing the tax bill though the administrative appeal process available in Texas.

Also on Friday, February 11, 2011, Governor Perry announced that the Comptroller’s decision to send Amazon a tax bill was the wrong decision. Governor Perry suggested that legislation should be introduced this session to protect companies like Amazon from having to collect Texas sales tax and pay uncollected taxes on a lookback basis.

The duel between Amazon and the Texas Comptroller over sales tax is part of a larger, growing dispute between state taxing authorities and internet retailers (and multi state businesses generally) over nexus. (Amazon has other cases pending with New York and South Carolina.) But the larger issue is the continuing pressure by the state taxing authorities to expand nexus and to lower the standards for what constitutes doing business for both income and transactional taxes in the face of mounting state budget issues.

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