Jeff Bezos, AmazonAs states grapple with increasingly squeezed budgets, one simmering battle -- trying to collect sales taxes from retailing behemoth Amazon (AMZN) -- has heated up considerably over the past year. The jury's still out on how much money states like Rhode Island and North Carolina (which is thick in litigation with Amazon over this very issue) will get from online sales-tax initiatives. But Texas has issued its own bill to Amazon -- to the tune of $269 million.

Although the state evidently said its bill, for uncollected sales taxes from December 2005 to December 2009 with extra interest and penalties, was sent to Amazon in August, The Dallas Morning News reported that the matter wasn't made public until Amazon released its latest quarterly report on Friday. The hefty tax bill was tucked away while the company trumpeted much better news of $7.56 billion in revenue and a 16% jump in earnings for the third quarter of 2010.

In reporting the bill in its filing with the Securities and Exchange Commission, Amazon declared: "We believe that the State of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit. Depending on the amount and the timing, an unfavorable resolution of this matter could materially affect our business, results of operations, financial position, or cash flows. We intend to vigorously defend ourselves in this matter."

Not Really Doing Business in Texas?


The issue of uncollected sales tax runs deeper in Texas because Amazon maintains a distribution center in Irving (close to Dallas-Forth Worth International Airport), which it opened in 2006. Two years later, the Texas comptroller's office launched an investigation into Amazon's bifurcated status.

The company defended its lack of sales tax collection by saying Amazon doesn't actually own the distribution center. It's owned by a subsidiary,
Amazon.com KYDC LLC, which is technically based in Kentucky. Assigning the distribution center to a different holding company, by Amazon's logic, means it doesn't have nexus there -- and that's why it feels it's off the hook.

Of course, Texas disagrees, having estimated it loses $600 million a year from untaxed online sales. With a bill sent to Amazon, that opens the door to long-expected litigation between the two parties as well as to the possibility that other states will jump on the collection bandwagon. It may also hamper the retailer's plans to open several more distribution centers around the country because the prospect of sales tax collection may prove too much -- and too costly -- of a headache.


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