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Amazon Plans to Mess With Texas -- Why It's a Losing Battle

Amazon.com (AMZN) has been dancing around the issue of collecting sales tax for years. When told by smaller states the online retailer has acquired a physical presence there and so must pay sales tax, Amazon has chosen to unplug all its affiliate sellers in these states to eliminate any physical connection rather than pay up.

But now it's been hit with a $269 million sales-tax bill from Texas, a state that's too big to ignore. The tapdance may be drawing to a close.

Amazon has said it plans to sue over this and fight it all the way... but noted in its financials that if it loses it'll take a major bite out of profits. Also, the retailer doesn't appear to have much of a case.

Besides its Texas-based affiliates, it recently bought online-coupon company Woot.com, which is based in...Texas. Maybe they'll order the company to move headquarters to Seattle as they attempt to dodge Texas's bill for 2005-2009 sales tax, plus penalties. Amazon also owns a distribution center in Texas...through a subsidiary, a piece of creative accounting it's used as an excuse to avoid paying tax in Texas for years. But really, who are they fooling with that?

Anyway, it's all rearranging deck chairs on the Titanic, because the days are ending when online retailers could claim it's just too darn complicated for them to collect sales tax nationwide. States have been organizing for years to offer a single tax-collection scheme to defeat this argument, and they've nearly got it done. A bill currently circulating on Capitol Hill since July would require Amazon and other ecommerce and catalog merchants to collect the Streamlined Sales Tax, rather than collecting state sales tax only where they have stores or warehouses.

So Amazon can continue fighting this change wave one state at a time, or it could take the high road, and just start collecting the tax. Maybe Texas would settle for receiving tax going forward, getting Amazon out of its back-tax mess.

Brick-and-mortar retailers have been screaming for this change for years. It's flat-out unfair to them that online retailers don't charge sales tax. When ecommerce was a tiny thing, nobody cared. But it's massive now and only getting bigger all the time. The online sales-tax issue won't be going away.

Amazon is in the spotlight simply because they're the biggest target. They should organize with other ecommerce retailers to set a date for the entire industry to voluntarily implement national sales-tax collection, if they want to avoid being ordered to do it by federal law.

Photo via Flickr user Robert Scoble
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