In a legislative action that could be mirrored in the future by even more states currently implementing internet sales taxes, lawmakers in Texas are poised to send a bill to the governor’s desk that would once and for all put to rest the physical presence defense that Amazon and other retailers have used to argue against taxing online sales based on their affiliates and subsidiaries.
This latest development certainly raises the stakes in Texas. As our regular readers well know, the Lone Star State is one of a handful of U.S. battlegrounds for the ongoing saga over taxing internet purchases. It’s also one that Amazon has already withdrawn from over the issue.
House Bill 2043, which was authored and introduced by state Rep. John Otto (R), leaves no doubt over how out-of-state retailer’s physical presence in Texas is defined. As a result, it essentially kills the argument made by the e-commerce community that subsidiaries don’t constitute a physical presence in the state and thus are exempt from complying with state law over the collection of sales tax for online purchases.
The bill recently got a unanimous stamp of approval from the Texas House Ways and Means committee and supporters hope to send it to the governor before May 31, when the current legislative session comes to a close.
Otto and supporters claim that the new bill was not designed specifically in response to Amazon’s decision to sever its ties with Texas based affiliates, but instead, to offer a more “level playing field” among both online and offline retailers.
At its core, the legislation is an attempt at fairness and legalizing what the state’s comptroller’s office already practices. The resulting legislation will make it impossible for any merchant to operate a subsidiary in the state that supports its overall retail operation and then claim no physical presence when the tax man comes calling.
And, perhaps anticipating the legal wrangling and maneuvering that could ensue if or when the bill is finally enacted into law, Otto made a point to craft legislation that will withstand any legal challenges to it.
“I drafted what I believe will outlast any Supreme Court challenge,” he said, pointing out that he brought on a constitutional law attorney to help review the ins and outs of the bill itself.
Since Amazon has already left Texas behind, it’s hard to see this new development affecting the web’s top retailer. But if passed (and the consensus is that it will), it will certainly give other retailers in similar situations reason to pause and consider the value of their operations in Texas.
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