He Who Pays The Piper Calls The Tune

When your state finances are in disarray, businesses located within the state are well aware of the situation. So it does no one any good to demand a new round of taxes on the world's largest purveyor of books.

The State of Texas has learned that lesson first-hand. Books are cheaper on Amazon because the company reaps the benefit of economy of scale. But their product is also cheaper because buyers aren't required to pay sales tax on the purchase. Depending on where one lives, that can be as much as 10% of the sale price, and that's not small beer.

Along comes the State of Texas, budget out of balance. They send a bill to Amazon for unpaid sales taxes, to the tune of $269 million to cover 2005-2009 plus penalties and interest.

Amazon has told Texas to fuck off.

Texas believes that Amazon owes them for sales made in Texas because the firm has a physical presence in the state, in the form of a distribution center. Other states have made the same argument, insisting that an Amazon sales associate is the same as a physical presence, hence Amazon owes back taxes.

Amazon disagrees, since it's engaged in interstate commerce and books shipped out of Texas don't all go to Texas residents. It's a matter of Federal regulation, and not subject to state tax.

Texas sent a bill, and Amazon sent a change of address notice. The Texas facility is going to be closed, and plans to expand the distribution center (and hire another 1000 people) has been axed.

While Texas stands on principle, insisting its position is legal and ethical and fair to the people of Texas, the people of Texas (some of them, at any rate) will be queuing up at the unemployment office. They and their families won't think Governor Rick Perry is such a genius after all, with his attempt to bring in revenue sending a large employer scurrying elsewhere.

Sure it was easy to puff up and talk tough about Amazon, but Texas isn't in a position to call the tune and expect Amazon to contribute to the piper's fee.

It looks more like Texas had a weak poker hand and was bluffing, only to have the bluff called. And the folks who work for Amazon in Texas are made to fold.