More Questions About and Sales Tax

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The latest column by Wall Street Journal writer Lee Gomes takes a close look at what he characterizes as "an audacious legal strategy has used to avoid collecting sales tax" in some states where it has warehouses or distribution centers.

The June 25 column -- "Will Amazon Get a Visit From the Tax Man?" -- details the legal argument made by that distribution facilities shipping orders to customers are not under its control, but, rather, that they are the operations of a company that is a wholly owned subsidiary of As Gomes notes in his column, courts have allowed companies to set up subsidiaries that are legally separate entities, but they have also rejected "shell companies" that exists solely to avoid tax obligations.

The question is important because the law is clear that if a company has a physical presence in a state -- that is, nexus -- then it has a legal responsibility to collect sales tax. The State of Texas Comptroller's Office is currently investigating whether the presence of an distribution facility in the Dallas suburb of Irving means the online retailing giant has a physical presence in the state, and Gomes notes in his column that "several tax experts say Amazon's legal case appears to be a weak one." Amazon declined to respond to questions from Gomes for his column regarding tax-related issues, including the sales volume of its warehouses.'s runs fulfillment facilities in Kentucky, Pennsylvania, Kansas, Texas, Nevada, Delaware, Arizona, and Indiana. The company lists customer service centers in North Dakota, West Virginia, and Washington. At present, Amazon only collects sales tax in Kansas, Kentucky, North Dakota, and Washington. Delaware does not charge sales tax.

Since June 1, has also been collecting sales tax in New York State, following the state's passage of the Internet Sales Tax provision in the state budget. The provision's approval came following a sustained lobbying effort by the state's independent booksellers, ABA and the New Atlantic Independent Booksellers Association, the Retail Council of New York State, and other state independent businesses. has mounted a legal challenge to the provision, as has The case, which will be heard in New York Supreme Court, is slated to begin on Monday, July 7.

Gomes quotes in his column tax experts who call into question's legal justification for a separate legal status for its distribution and shipping facilities. They note that there are questions regarding whether the subsidiaries has established "are really the independent units envisioned by the tax law." The company's website simply notes that has "offices, fulfillment centers, customer service centers, and software development centers across North America, Europe, and Asia" and lists its fulfillment centers. There is no mention of any subsidiaries, and, as reported by BetaNews, was listed as the owner of its distribution center in Texas in 2006 and 2007, not its subsidiary,, Inc.

In addition, Gomes points out that the U.S. Supreme Court has ruled that a company's presence in a state does not have to be a physical one for it to have a responsibility to collect sales tax. "A close relationship with third-party contractors in the state might be enough to constitute such a presence, the top court has said." Gomes quotes Virginia tax commissioner Janie E. Bowen regarding the question of how much control an out-of-state company has on the operations of the in-state facility -- "if it looks like a shell company, then we would take a serious look."

While booksellers have won an important victory in New York State regarding the equitable collection of sales tax, ABA continues to urge booksellers in the 44 other states with sales tax to write, fax, or e-mail their governors about this key issue. To make this communication easier, ABA has prepared a template letter that can be adapted and sent. The association asks businesses that contact their governors to send a copy of the letter to ABA Public Policy Liaison David Grogan at

Additionally, last month ABA COO Oren Teicher e-mailed the booksellers in the 21 states with the largest projected budget deficits as reported by the National Conference of State Legislators, to ask that anyone with connections to a state legislator arrange a meeting with the legislator regarding e-fairness.

"We will provide you with the necessary briefing, materials, and information -- and, in some cases, might be able to participate in the meeting with you," Teicher wrote. "It is imperative that we maintain our momentum and keep the pressure on." ABA is also in the process of preparing state-specific material to assist booksellers, available upon request.

Booksellers who have a legislator in mind, or who would like to discuss this issue further, are asked to contact Grogan at (800) 637-0037, ext. 6662, or via e-mail at ABA staff can help walk interested booksellers through the process of setting up a legislative meeting and answer any questions about the association's Campaign for E-Fairness.