Online Sales Stir Up Tax Debate

A fierce debate’s brewing over where internet-based companies should owe taxes, and Amazon is at the center of the fire.

The net retailer is being investigated in Texas because even though its headquarters are in Seattle, it operates a distribution center in the city of Irving.

The whole thing comes down to a 1992 Supreme Court ruling that gives states the power to collect taxes from businesses with any type of “physical presence.” That can include anything as small as a store or delivery center. Texas has said it’s lost as much as $541 million in unpaid taxes from internet- and mail-based sales in past years.

Amazon told the Dallas Morning News it’s done nothing wrong and is in “full compliance” with state regulations. A representative cited the fact that the Irving distribution center is owned by a subsidiary, Amazon.com.kydc, not by the main company. Yet, the Morning News discovered government records showing Amazon.com as the center’s owner in 2006 and 2007.

The fight is all too familiar for Amazon. The company just recently sued the state of New York over a similar dispute.

It’s a tricky line, and lawmakers know it. Right now, Congress is looking at redefining internet sales taxes. They may end up creating a set of standardized rules across the entire U.S. They’re also looking at building in exemptions for smaller net-based businesses.