Amazon Bolts Texas’s “Unfavorable Regulatory Environment”

But there's more to the story than we get from the AP and The Dallas Morning News

The Associated Press reports that Amazon is closing its Texas warehouse due to—and this is a direct Amazon quote—the state’s “unfavorable regulatory environment.”

That farcical statement, made by an exec in an email to employees leaked to the AP, shows how roguish the $85 billion corporation Amazon is when it comes to collecting sales taxes.

The company—like other Internet and catalog firms, to be sure— takes advantage of a silly and outdated Supreme Court ruling that says states can’t collect sales taxes from retailers unless they have a physical “nexus” in the state. Remember when you could buy stuff from and not have to pay sales tax? You can’t do that anymore in forty-two states now that the company has opened Apple Stores in just about every high-end mall in the country.

But Amazon has tried to get around having to collect sales taxes even when it does have a physical nexus in a state. This AP story is incomplete because it doesn’t tell us anything about the origins of the dispute. Amazon already has a distribution center in Texas, but it hasn’t been collecting sales taxes there. Why not?

Here’s all we get from the AP on the basis of the disagreement:

The comptroller’s office last year demanded $269 million in uncollected sales taxes from the company.

Why would Amazon build in a state—especially one like Texas, which has more potential customers than just about any other—unless it had some agreement not to tax sales or some other way to get around them?

The Dallas Morning News gives us a tease in its report:

Amazon, with $25 billion in sales last year, has operated the Irving center since 2006. It argues that a subsidiary company owned the center. The state audited Amazon after reporting by The Dallas Morning News questioned whether the retailer was complying with state law.

That’s giving short shrift to what ought to be a key component of the story: What the basis of the dispute is. I suppose it’s good enough for the close reader to get a handle on what’s happening, and it’s surely better than the AP, which doesn’t tell its readers anything.

But as a side note, it’s highly annoying that the Morning News references its own report that sparked the state probe but doesn’t bother to link to the thing. That’s a sign of a newsroom that’s out to lunch digitally. It’s one thing not to link out to other sources (though that’s bad), it’s quite another not to even link to yourself. The only links in the story are to those annoying topic pages ones that are almost entirely irrelevant.

So we turn to Slate’s Farhad Manjoo, who wrote an excellent piece a few months ago about Amazon’s tax chicanery (emphasis mine):

So, is Amazon’s tax-free status unfair? Of course it is. As Mazerov points out, Amazon has physical operations in 17 states in which the company and its employees enjoy the fruits of local taxes—police and fire protection, roads, hospitals, and other infrastructure that make its operations possible. Yet Amazon skirts tax collection in most of these places through clever legal tricks. For instance, it has incorporated its warehouses and Web site as separate legal entities in order to argue that it doesn’t really have a presence in Nevada, Texas, and other states.

And he pulled this Jeff Bezos quote to show how tax avoidance is in Amazon’s DNA:

“I even investigated whether we could set up on an Indian reservation near San Francisco,” Bezos told Fast Company. “This way we could have access to talent without all the tax consequences. Unfortunately, the government thought of that first.”

It’s too bad the Morning News didn’t link its 2008 report (which apparently you can’t even buy online), because it’s pretty darn interesting and a sweet piece of reporting to boot. Here’s what the Morning News’s Maria Halkias found then:

According to Dallas Central Appraisal District records, owned the distribution center at 2700 Regent Blvd. in Irving in 2006 and 2007. The building’s tax value is listed as $14.6 million.

Outside the huge facility, triple flagpoles display Amazon’s own flag next to the Lone Star and U.S. flags.

Nice color! More important, Halkias reported that Texas officials at that time said that Amazon lied to them about whether it had a physical presence in the state:

The state’s tax-collecting agency didn’t know was operating a facility here until this week when The Dallas Morning News called to ask why the online powerhouse wasn’t charging Texas customers sales taxes, said Robin Corrigan, the comptroller’s team leader for sales tax policy…

Over numerous meetings, Ms. Corrigan said, Amazon officials spoke about their compliance in states where they have a distribution center, but they never included Texas in that group. “In conversations with Amazon, they told me they don’t have a distribution center in Texas,” Ms. Corrigan said.

For Texas, getting tough on Amazon means it loses out on a lot of jobs that will go somewhere else that isn’t so tough. In the Amazon exec’s email we can see how the blackmail works:

We were previously planning to build additional facilities and expand in Texas, bringing more than 1,000 new jobs and tens of millions of investment dollars to the state, and we regret the need to reverse course.”

Now doesn’t this have the makings of a far more interesting story? Let’s see one.

(h/t Joe Weisenthal)

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,