Texas’ very public debate over online sales tax


Statesman.com: Texas House breaks with Perry

According to this article from the Austin American-Statesman (TX) and this press release from Texas Governor Rick Perry, it seems the Texas House of Representatives is at odds with the governor over provisions that would clarify what constitutes a retailer’s “physical presence” in the state. Retailers with a physical presence in the state are required by law to collect Texas sales tax.

The debate began last September, when Texas comptroller Susan Combs “sent Amazon a notice that it owed $269 million in sales taxes it failed to collect from 2005 to 2009. She noted that Amazon had a distribution center in Irving.” In response, Amazon threatened to close the distribution center, which would eliminate 119 jobs, and dropped plans for expansion that would have created 1,000 jobs.

The proposed provisions, which have now been added to Senate Bill 1, the omnibus fiscal matters bill, makes it clear that a distribution center does qualify as a physical presence. The Texas House and Senate already passed a bill (HB 2403) containing this language, but it was vetoed by Gov. Perry less than two weeks ago. The House passed the bill on fiscal matters with the provision intact on Thursday.

Interestingly, both the governor and supporters of the provision claim to be acting to support jobs. Said Ronnie Volkening, president and CEO of the Texas Retailers Association:

“We’re disappointed that the governor does not seem to appreciate the negative impact on job creation that continuing a sales tax structure that is discriminatory against Texas retailers can have.”

In turn, the governor issued a statement saying, in part:

I believe this provision risks significant unintended consequences, including a loss of Texas job opportunities and weakening of our state’s competitive advantage.

Actually, we believe that both of them have a point. And even better, we have a solution.

Mr. Volkening is right that allowing online retailers to avoid collecting sales tax hurts local retailers. And since local retailers supply local jobs, hurting local retailers ultimately means fewer jobs. But Gov. Perry is also right to be concerned that Amazon’s closing the distribution center will cause a loss of jobs.

But the problem isn’t with online sales tax. The problem is that there is no federal legislation regarding online sales tax, which Amazon CEO Jeff Bezos has publicly supported many times. Without federal legislation, individual states are creating a multitude of laws that end up targeting particular retailers and make it more difficult for all retailers (online and offline) to collect sales tax for multiple states.

What we need is the Main Street Fairness Act, which would allow states that have made it easier for retailers to collect sales tax (by joining the Streamlined Sales and Use Tax Agreement) to require online retailers to collect sales tax.

When such federal legislation is passed, it will make sales tax collection rules consistent in every state, and states won’t need to worry about warehouses closing and eliminating jobs, and local retailers won’t need to worry that online retailers have an automatic price advantage because they don’t have to collect sales tax.

Don’t get us wrong—there will still be competition. States will still need to offer a business-friendly climate to attract companies, and retailers will still need to offer competitive prices. But that competition will finally be on a level playing field.

2 Responses to Texas’ very public debate over online sales tax

  1. […] looks at the case of Texas in particular, which has been in the news recently—and this blog—for the public debate between the governor and legislature over online sales tax: Texas cut $24 […]

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