State House Looks At Taxing Internet Sales

AUSTIN (AP) – The House Ways and Means Committee heard testimony Monday on a bill that would require Internet retailers to collect state sales tax if the company has a connection to Texas.

Supporters say the bill could bring in millions of dollars in new sales taxes at a time when the state is facing a $23 billion budget shortfall. State Rep. Elliott Naishtat, D-Austin, introduced one version of the bill, explaining that local retailers complain that customers frequently try out a product in their stores but then buy it online to avoid the sales tax. The state sales tax in Texas is 6.25 percent, and many local governments add more.

“This bill is about fairness, it is about leveling the playing field,” Naishtat said. “The bills are about removing the unfair competitive advantage that out-of-state e-retailers have over Texas retailers who comply with the law.”

A U.S. Supreme Court ruling requires that for a state to require a company to collect and pay sales tax, the state must prove that the company in some way has a physical presence in Texas. Naishtat’s bill, which is based on a New York law, would clarify that if the company uses a Texas-based web site to market products, then that would qualify as having a physical presence in Texas.

Several business people, whose web sites market products for Internet businesses, said the bill would drive them out of business. Scott Hazard, who owns the Mineola-based online marketing firm BrightSide Media, said his customers would hire other marketing companies to avoid being required to collect Texas sales tax.

“Ten companies make up about 60 percent of my income, and I’ve confirmed with six of those that if this bill passes, I’m gone,” Hazard said. “That’s a hard one for me to swallow.”

Amazon recently announced it was shutting down a warehouse in Texas to avoid having to pay sales tax levied by the state comptroller. New York, Illinois, North Carolina and Rhode Island have similar laws.

The Ways and Means Committee heard hours of testimony on Naishtat’s bill, and a similar one introduced by Republican state Rep. John Otto of Dayton, which had less stringent language about what constituted a physical presence in Texas. Lawmakers left the bills pending in committee, where they will likely be revised before coming up for a vote.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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  • chris

    What would you say about people who run their business in the “cloud”? What I mean is my “cloud” may be based in a datacenter in washington. But current best practice standards say that this data should be replicated to other areas, so therefore I have these servers replicated and on hot standby in datacenters in texas and florida….you know in case a bomb or fire or whatever hits washington, tx and florida are ready to go. Its going to get real fuzzy. this is how current practices generally work.

  • Warren Latham

    I would think s minimum dollar amount -Five, Ten, or Twenty-Dollar minimum
    sale to which a sales tax coiuld be attached would be appropriate.
    Sales amounting to less, wouild “penny, nickle, and dime some customers
    to death” !
    Many internet sales are in the one-to-five dollar range and this would genereate
    a lot of paper-work for a few cents tax.

    • perplexed

      Yeah, nothing like handing off the burden to Joe – the taxpayer! Put it in his lap, and if he fails make him a petty criminal.

  • Graham

    The big trade-off with internet sales has always been shipping. Even if “free” shipping is offered, online companies either have to eat that cost or pass it on to the consumers somehow. So I don’t think they have any real “unfair” advantage over brick and mortar stores in that respect. In the end, this bill would KILL small businesses (think eBay) and drive up costs for customers.

  • Michael

    I have already been taxed by Amazon for a Texas purchase. Is Amazon taxing now because Texas sued them?

  • Deomdre

    How about the state takes a long look at the money that it wasted every year. I am sure not a single elected official has turned down a pay raise of trimmed its own office stay. Learn to live with less, that is what you are telling Americans, automakers and airlines workers gave deep concessions let the lawmakers following the same path, and stop trying to nickel and dime the already overburdned citizens.

  • DJ

    I have a home in Oregon and Texas. When I buy a tv on the net and have it sent to OR no tax, TX tax. So somethings are getting taxed that is sent to TX. Could you clarify?

  • Lou

    If retailers are loseing customers to the internet because of sales taxes they must charge wouldn’t common sense dictate that sales taxes should be droped on retailers instead of being imposed on internet businesses?

  • Courtier

    Drive all the business out of Texas.
    When you have a presence here and live here you Pay:
    – Property Tax.
    – Phone Tax.
    – Gas Tax.
    – Cable Tax.
    – Transportation Tax.
    – Electcity Tax
    – Water Tax.
    etc. etc.

    • Fred

      no income tax, thats a extra 100 a month in my paycheck…thank you texas…please continue to tax those that buy good and services.

    • Greg

      Exactly . In addition to these :
      School Tax
      Income Tax
      Excise Tax
      Sales Tax
      Taxes on many Services (even dishwahser installation is taxed) as I recently

  • Ms. M

    Excellent! More money from our pockets to contribute to wasteful government spending. It’s like what they say about the rich, the more they have, the more they want.

  • SocialStrain

    60 Minutes recently did a show on how corporate entities in the US are registering their headquarters overseas because of the 35% tax bracket that’s highest in the world.

    Along with a myriad of other mathematical imbalances, the US is still strongly trending downward in sustainability, so just do the wise thing and Shrug the Atlas. Let the weakest of us have each other and we’ll pick up the pieces after it hits rock-bottom. Yes, the next few generations may pay more of a penalty for their ancestors apathy, but sometimes the strongest move is investing in the weakest patterns.

  • jabisout

    The bottomless pit called “tax payers”. Will the government ever learn? NO! They are all greedy….

  • Kay

    All I want to know is when our peaceful protest will start over our greedy/corrupt government at State & National levels? My paychecks aren’t getting bigger, I’m penny pinching so why can’t they…no it’s take more and keep up the waste until they get over-thrown!

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