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Texas Moves Closer to Internet Sales Tax

DALLAS (CN) - Undeterred by's threat to close its Irving distribution center and lay off workers, the Texas House this week passed a bill that requires more Internet companies to collect sales tax.

The bill defines what it means to have a physical presence in the state, and requires collection of sales tax if companies pay marketers in Texas to advertise for them.

Written by state Rep. John Otto, R-Dayton, the bill passed by a vote of 122-23.

Under Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the U.S. Supreme Court ruled that a company must have a physical presence in a state for it to be required to collect sales tax.

The state Senate is scheduled to debate its own version of the bill, by state Sen. Royce West, D-Dallas.

In 2010, the Texas Comptroller's office sent Amazon a $269 million sales tax bill for purchases Texas residents made from December 2005 to December of 2009.

The state acted after The Dallas Morning News inquired about the distribution center, which opened in 2006.

Amazon claims the distribution center is owned by a subsidiary, KYDC LLC, which has the same address as Amazon's Seattle headquarters.

After months of failed negotiations with the state, Amazon announced in February that it will close the distribution center and kill plans to create 1,000 jobs in Texas. According to the Morning News, the distribution center had not closed as of April 12.

The Alliance for Main Street Fairness, a coalition of brick-and-mortar retailers including Wal-Mart, Target, Best Buy, Home Depot, and Sears, lauded Tuesday's state House vote.

"The sales tax is the primary source of revenue for the state, and maintaining the equity of that tax is essential to funding services," alliance spokesman Eric Bearse told The Associated Press. "There is no reason to treat online sales differently than purchases made in a store."

A separate bill by state Rep. Will Hartnett, R-Dallas, carved out an exception: that renting space on a computer server does not count as a physical presence in the state. That bill passed unanimously.

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