Amazon, sales tax issue collide in Nevada

Amazon.com Inc.'s closure of a suburban Dallas distribution center amid a dispute with Texas officials over a bill issued for millions of dollars in uncollected taxes could mean the loss of jobs in other states that seek to force the online retailer to collect sales taxes.

At issue is whether Amazon's distribution centers, where products are packed and shipped to buyers, count as a physical presence in a state, and whether sales taxes should be collected on merchandise shipped within that state.

Under current law, Amazon is not required to collect sales tax in Nevada. Customers here must fill out tax forms concerning their purchases and send their sales tax payments to the Nevada Department of Taxation.

The problem, said Bryan Wachter, the Retail Association of Nevada's government affairs director, is that few people are aware that they must fill out tax forms, and even fewer people do it.

The prices charged by Amazon and other online retailers appear to consumers to be lower by 7 percent or
8 percent because the consumer is not charged sales tax by those retailers.

Amazon and other online companies have refused to collect sales taxes in Nevada at a cost of millions of dollars to the state. Wachter said a simple change in the law could mean an additional $30 million in revenue.

"That's money that could go a long way," Wachter said. "It's funding for kindergarten or mental health services."

The proposed change would have transferred the liability of tax collection to the online retailer and not consumers. Wachter said the Retail Association proposed an amendment to a sales tax bill, but the Assembly Taxation Committee rejected it.

"The Assembly Taxation Committee chose not to accept the amendment," he said. "The concern that they had was Amazon would sue the state of Nevada."

Despite the setback, Wachter said the Retail Association will continue to lobby lawmakers and Republican Gov. Brian Sandoval even after the 2011 Legislative session ends about the need to change the current system, which is inadvertently making lawbreakers of many Nevada residents.

Amazon, which is based in Seattle, has argued that without stores or offices in Nevada, it has no obligation to collect sales taxes. A 1992 U.S. Supreme Court ruling prohibiting a state from forcing a business to collect sales tax unless it has physical stores in the state has protected Amazon.

The company, however, does operate two distribution centers in Nevada: a 750,000-square-foot facility in Fernley and a 286,000-square-foot warehouse in North Las Vegas.

Amazon now gathers sales taxes in just five states: Kansas, Kentucky, North Dakota, Washington and New York.

Wachter said the current system is unfair to traditional retail outlets that collect state sales taxes.

But John Griffin, a lobbyist in Carson City for Amazon, and its affiliate Zappos.com, argues that efforts by states to impose an additional tax burden on the company are unconstitutional because the transactions cross state lines.

Zappos, based in Henderson, was purchased by Amazon in 2009 for about $850 million. Zappos, which was founded in 1999, reached $1.1 billion in annual online sales in 2008.

"Yes, we collect sales tax on purchases made in Nevada," said Aaron Magness, senior director of brand marketing and business development for Zappos.

Some major retailers with multiple outlets, such as Wal-Mart Stores Inc. Target Corp. and Best Buy Co., collect Nevada sales taxes on all sales, including online sales.

"Target recognizes the competitive disadvantage caused by the current sales tax structure," Molly Koenst, a spokeswoman with Minneapolis-based Target, said in an email. "We are actively involved in e-fairness initiatives in our home state and others."

Target operates 16 stores in Nevada. Koenst said her company supports the Alliance for Main Street Fairness, which is leading efforts to change sales-tax laws in more than a dozen states, including Texas and California.

Wal-Mart Stores, Best Buy, Home Depot Inc. and Sears Holding Corp., the parent of Sears and Kmart, are also involved in the campaign.

"A lot of our members (have been) involved with the campaign in Nevada," Danny Diaz, a spokesman for the Washington, D.C.-based Alliance for Main Street Fairness. "Amazon's business model is built on sales tax avoidance. It's an unfair advantage."

Messages left with Amazon were not returned. But Griffin said Amazon supports a streamlined sales tax effort on the federal level.

The Streamlined Sales Tax Governing Board has been lobbying for a system in which Amazon, for example, would collect and remit sales taxes under uniform, federal rules. Griffin said Amazon was not against paying taxes if it was an issue of implementing a federal tax rate, instead of state-by-state taxes on goods sold online and in catalogs.

The company has fought efforts to compel it to collect sales taxes. It has even shut down distribution centers in several states instead of collecting sales taxes.

In October, Texas Comptroller Susan Combs sent Amazon a $269 million bill covering four years of unpaid sales taxes. Last month, Amazon said it would close its Irving, Texas-based warehouse, throwing more than 100 people out of work.

Texas lawmakers sent legislation supporting efforts to change sales tax collection in the state, passed by veto-proof margins by Republican-controlled chambers, to Republican Gov. Rick Perry.

On Tuesday, Perry vetoed it, saying he believed the "legislation risks significant unintended consequences."

His preference was to "conduct a thorough policy discussion with ... lawmakers, consumers, retailers and technology experts -- and with other states and even the federal government -- about interstate commerce and the structure of state sales taxes in the 21st century."

The tax measure was expected to be included in the state's overall budget, which Texas lawmakers are expected to pass within the next couple of weeks.

Amazon also delivered on a threat to cut ties with Illinois affiliates because of a new law requiring the online merchant to collect sales taxes. As in Nevada, the sales tax in Illinois always applied to Internet sales, but individuals, not online businesses, were responsible for paying it.

California, South Dakota and Missouri are working on similar laws.

Contact reporter Chris Sieroty at
csieroty@reviewjournal.com or 702-477-3893.