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State House Looks At Taxing Internet Sales

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In this photo illustration, Cyber Monday ads are seen on websites on November 29, 2010. (credit: Justin Sullivan/Getty Images)

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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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