Skip to content v. Texas – Internet Sales Taxes

February 12, 2011

Not photographic, but darn well a pet peeve of mine that popped up today.  It is a good break from thesis defense work…

There was a story in both the Dallas Morning News (which I will not link to based on their soon-to-be-erected paywall) and in the Austin American-Statesman today dealing with the fact that is closing down either their distribution center (if you believe the judgment of the Texas Comptroller’s Office) or their subsidiary’s distribution center (if you believe over a dispute on the collection of sales taxes.  At stake is somewhere north of 100 jobs that are in the center today, and what had been expected to be a massive expansion of the center in the near future.

Why the hubbub about who owns the center is at the crux of whether or not sales tax needs to be collected.  A 1992 Supreme Court decision (Quill Corp v. North Dakota) set the current case law on whether or not companies had to collect sales tax in a particular state.  In short, if the company has a physical presence in the state, they need to collect sales taxes.  If they don’t, they don’t. gains a small competitive advantage by not having to collect sales tax.  In Texas, that amounts to somewhere around an 8.25% advantage over the competition.  Of course, they lose that advantage in shipping charges, so all in all it is a wash to the consumer.  Win goes to Amazon and their shippers.  Loss goes to the state and retailers who are upset that they, in their minds, are losing business.

Full disclosure:  I hold a Texas sales tax permit (it is called something slightly different, but for purposes of this conversation…).  While my business presence continues to be there, the permit was for in-person sales and since being in school it has been tough to go to art shows and exhibit my wares.  Effectively, I am a Texas retailer in the most liberal definition of the word.

I do not have a problem with sales taxes.  Sales taxes perform a necessary function. Those taxes pay for roads, police and fire protection, etc.  Sales tax revenues grow when the municipality in question fosters a business environment that encourages growth.  But sales taxes are a regressive form of taxation.  Without a doubt it affects the poorest of our nation far more than the richest.

Many municipalities and states look at sales tax as effectively a form of payroll tax.  Gosh darn it, you made the money here.  You are going to spend the money here.   And we’re going to get that windfall.  Many years ago in Eureka, California, there was an outcry from the local business people and far lefties to keep big box stores out of town.  Big box stores cost the mom & pop’s business and they were unfair to their workers.  The city council put it to a vote of the people and the people effectively blocked Wal-Mart from coming to town.  But when another town in the area was getting ready to welcome Wal-Mart to town, city leaders made the trip to where the Wal-Mart was proposed to go in and demanded a percentage of the sales tax revenue based on the projected numbers of Eureka city residents who would drive to the new store.

States get pretty irate about sales taxes, too.  This case in Texas is but one.  But again, the same thing applies.  It is an anticipation that the sales tax is simply an extension of a salary tax.  Texas does not have a personal income tax (yet).  But sales taxes, at a maximum of 8.25%, are in the top two-thirds of the nation (median and mode is 7% nationwide per Wikipedia) and property taxes are close to the level of oppressive.

The state of Texas does absolutely nothing for other than provide the roads their trucks ride on.  And at that, the trucks are paying fuel taxes to help pay for those roads.  Local retailers, on the other hand, benefit greatly from the tax dollars collected. (or their subsidiary, depending on your point of view) instead provides (provided) direct steady employment for over 100 Texans and untold others who worked for companies that provided services to the distribution center.  Their salaries in turn went towards keeping many other people employed.

In states where does not have a presence, there is neither loss nor gain. doesn’t do anything for the state, and the state doesn’t do anything for them.  Yet many of these states are demanding their cut of sales taxes on gross receipts, sometimes even claiming that because they have affiliates doing business in the state (businesses using’s storefront but neither owned nor operated by then they now have a physical presence in the state.  Money grab for no benefits extended.  A de facto salary tax.

Before some proposals, my take…, in my humble opinion, is trying to skirt the law.  If it walks like a duck, quacks like a duck, etc.  The distribution center’s sole purpose was to distribute purchases from  Pay your money or put up with the fact that shipments to Texas will be slower.  My kid’s schools could use the extra infusion of cash.

It is time for some sanity to be applied to the situation.  I have two somewhat contradictory proposals.

My first proposal is that there needs to be a set national sales tax on online purchases set to the median tax rate in the country.  Uncle Sam collects it and splits it down the middle with the States where the purchase is shipped.  States cannot then attempt to collect a use tax or any other kicker on top of the online tax.  One rate, no hassles, and some semblance of parity between brick and mortar and online.

My other proposal is that the sales tax to be collected is based on where the primary corporate headquarters is for the company based on the premise that the sale took place where the company is.  If it is in a state with no sales tax, then there is no sales tax.  If it is in a state with a high sales tax, then so be it.  This will encourage states to be competitive on sales tax rate as well as corporate taxes.

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