Will Amazon.com (AMZN) Have To Face The State Tax Collectors?

The Wall Street Journal had a story this morning about Amazon.com (Nasdaq: AMZN) potentially having to charge sales tax where it has facilities. Amazon.com has facilities in eight states and currently does not collect sales tax in those states.

Amazon is one of the last among dot-com companies not widely collecting sales tax. The fact that it can avoid sales-tax collection even where it has large facilities upsets some analysts of municipal financing. Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities in Washington, D.C., told the WSJ "Amazon is benefiting from police and fire protection, and other services in the states where it has facilities, it ought to be collecting sales tax just like any other local business."

Tax experts say Amazon's case is weak. First, it's questionable whether the subsidiaries Amazon has set up are really the independent units envisioned by the tax law. Amazon's corporate Web pages, for instance, lists all of them as facilities run by Amazon.com Inc., the parent company.

Second, the U.S. Supreme Court has ruled several times that a "presence" in state doesn't have to be a physical one before a company has a sales-tax collection responsibility.

Founder Jeff Bezos in 1996 acknowledged collecting sales tax when he started Amazon.com. He said he founded the company in a small state, Washington, because it was "without all the tax consequences." He explained that "in the mail-order business, you have to charge sales tax ...in any state where you have a business presence."

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