Even Sales Tax Bills Are Bigger in Texas

Everyone has that moment when they get a bill and think, “Oh my gosh, how am I going to pay for this?” Just imagine how Amazon.com felt when it received a bill in August of this year for – wait for it – $269 million from the state of Texas. The bill represents what the Lone Star state believes to be uncollected sales taxes from the online giant for the period December 2005 to December 2009 (plus interest and penalties).

Of course, Amazon doesn’t think it owes Texas anything. In its filings with the SEC, they stated:

We believe that the State of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit. Depending on the amount and the timing, an unfavorable resolution of this matter could materially affect our business, results of operations, financial position, or cash flows. We intend to vigorously defend ourselves in this matter.

What I wouldn’t give to be on Amazon’s legal team at this point. They have already been vigorously defending matters in New York, North Carolina, Hawaii and Rhode Island

But Texas has a bit more skin in this game than those other states. Amazon’s generic “but we don’t have a presence in that state” defense will be a bit harder to argue this time since Amazon maintains a distribution center in Irving, Texas. Irving is just outside of Dallas and is the former home to the Dallas Cowboys stadium (which means that I should hate it on principle). Technically, however, Amazon.com doesn’t own that distribution center directly: its subsidiary Amazon.com KYDC LLC owns it. Amazon.com KYDC LLC is registered as a foreign limited liability company in Lexington, Kentucky, with its principal office in Seattle, Washington and its initial organization in Delaware (whew, did you get all of that?).

Amazon.com seems to think that’s enough to avoid nexus (or presence, for sales tax purposes). Texas doesn’t think so. And so off to court they go.

I’ve suggested before that Amazon.com was picking its battles after the New York skirmish. With Texas – which claims the second largest GDP in the country and the 15th in the world – the stakes are a bit higher. The state doesn’t have an income tax and therefore depends heavily on sales taxes and property taxes for revenue. Sooner or later, something’s gonna give.

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  2. Brad Castro

    I’ve been following this story as well. I’m (cynically) surprised more states haven’t been more aggressive in seeking ways to tax online transactions given all the budgetary problems.

    I wonder how practical it would be for Amazon to close the Irving facility and open a new one just on the other side of the Oklahomo border?

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