The State of Texas issued an assessment to Amazon for $269 million in uncollected sales tax, interest and penalties. The assessment stems from sales tax not collected on Amazon’s sales to Texas customers. Amazon defends its position on the basis that it has no physical presence (nexus) in Texas. In its filing with the SEC, Amazon states its intent to, “vigorously defend ourselves.”
A 1992 Supreme Court decision, Quill v. North Dakota, established the physical presence standard to require sales tax collection. The basis of the assessment from Texas’ perspective is a distribution center in Irving, Texas owned by an Amazon subsidiary, Amazon.com KYDC, LLC. Amazon has requested a redetermination of the assessment with the next step being an administrative hearing and, down the road, potentially litigation.
Over the last two years, Amazon and other online retailers have come under fire from a number of states over collection responsibility. As state revenues drop, measures requiring online retailers to collect sales tax have increased. New York passed legislation (“Amazon law”) requiring retailers with locally based affiliates to collect sales tax. New York estimates it collected over $50 million in revenue in the first fiscal year of the law. States including California, Hawaii, North Carolina and Rhode Island have proposed similar “Amazon law” legislation in recent years, but only the latter two states passed legislation. Amazon and other online retailers are vigorously challenging new collection and nexus legislation in the courts.
If your business sells over the Internet, be sure to keep an eye on the latest legislation to avoid receiving your own Texas-sized tax bill.
Please contact Matt Dodge at firstname.lastname@example.org for further information on this issue.
Schneider Downs provides accounting, tax, wealth management, technology and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.