Friday, February 11, 2011

Amazon Strikes Back at Texas

Beginning in May, 2008 here, I wrote half a dozen posts about the kerfuffle between Amazon and a number of states around the U.S. on the subject of collecting state taxes.

Amazon has an "affiliates" program where people advertise Amazon on their Internet sites and then earn sales commissions on each purchase visitors to their sites make at Amazon.

Individual states have been complaining that although Amazon is paying these people around the country who are, in effect, their representatives, Amazon does not pay the states' sales taxes. This gives Amazon an unfair advantage over those bricks-and-mortar bookstores who both contribute to local economies AND pay the sales taxes. Amazon is not playing on a level field.

In July, 2009, I posted here that:
Bloomberg is reporting that the price of Netflix shares jumped on Monday on speculation that Amazon may be planning to buy the mail-order movie
service ...

A security analyst was quoted in the Bloomberg report saying that Netflix is an "unlikely target for Amazon" because it has distribution centers all over the U.S. Those distribution centers would mean that Amazon would have to collect sales tax in each state where one existed.

... Forbes reported that Amazon had "notified associates in Rhode Island and Hawaii that the company was no longer working with them . . . because [those] states have passed laws to collect sales taxes on these transactions." Shortly afterward, Amazon also cut off their associates in North Carolina.
This past October here, I reported on two states--North Carolina and Texas--which were actively pursuing their demands that Amazon pay state taxes. North Carolina argued when Amazon paid their affiliates in North Carolina, that transaction triggered sales tax.

Texas argued that, by operating a distribution center in Irving, Texas, Amazon had a local presence and needed to pay sales taxes. According to the Dallas Morning News:

"Amazon contended the distribution center [in Irving, Texas] was owned by one of its subsidiaries called KYDC LLC, which is located at the same address as its corporate headquarters in Seattle."

Amazon has now struck back at Texas. Yesterday's Wall Street Journal reported here: Inc. is closing a Dallas-area fulfillment center and canceling a planned expansion of its operations in Texas after the online retailer failed to reach an agreement with the state over taxes.

In an email to staff, Dave Clark, [Amazon's] ... operations chief for North America, said the state's "unfavorable regulatory climate" prompted the decision ... The closure will occur on April 12.

I think Amazon is overplaying its hand. Article I of the U.S. Constitution says that interstate commerce is regulated by the federal government. While the Internet was growing, Congress was reluctant to take any action to harm its burgeoning businesses. Now those businesses are mature, and Internet sales are well-established. It's a different world.

The founder of Amazon, Jeff Bezos, spent a lot of time in Texas while he was growing up. His grandfather had been the regional manager for the Atomic Energy Commission in Albuquerque. "Pops" Gize retired to his Lazy G Ranch in Texas. Jeff spent a lot of time with his grandfather on the 25,000-acre ranch, learning to fix equipment, dig ditches and brand cattle.

We have signs on our roadways down here that say: "Don't Mess With Texas." Apparently Jeff has forgotten those notices.


The Raven said...

Yes, the Federal gummint will act on behalf of the states. Just like they, when, exactly?


Maya Reynolds said...

[Grin] Point taken.

But you're missing an important element. Many states are close to crashing financially. Some are even talking about backing out of Medicaid.

This could be an easy way for the Feds to give states some relief.

Amazon's ploy of creating a subdiary company and then claiming they don't have a local presence is a pretty obvious tax dodge.

I guess we'll have to wait and see.