Legality of Amazon’s Deal with Texas Is Questioned

On the heels of last week’s Amazon Tax Update, we read news yesterday that questions the legality of the deal made by Texas Comptroller Susan Combs to forgive Amazon.com’s $269 million Texas sales tax debt. According to the Austin American-Statesman, the deal, in which Amazon promised to bring 2,500 jobs and $200 million in capital investment to Texas, could be declared illegal, based on an undisclosed, “immaterial payment” made on the original $269 million debt, as well as the fact that the Texas state constitution prohibits forgiving tax debts.

An Amazon Sales Tax Update

Like many of you, we at MAXIMUS have been following Amazon.com’s ongoing, headline-grabbing battles with various states over the collection of sales tax for online purchases made by consumers. Over the past few months, we have discussed how the addition of a sales tax will (or will not) affect Amazon’s sales, how the nexus argument fits in with various states’ claims on Amazon sales tax, and whether Amazon was actually liable for the $269 million the Texas Comptroller claimed the company owed in delinquent sales tax.

April proved to be a busy month on the “Amazon Tax” front, so here is an update on all the new developments:

Texas Sales Tax Bonanza

A quick post today on some figures we saw over the weekend that seemed rather astounding. The Dallas Morning News (subscription required) tallied the Texas sales tax revenues for the 2012 fiscal year so far. The final figure — $11.7 billion — is up 12% from that last fiscal year, which is impressive.

We were amazed to learn, however, that the sales tax figure so fully eclipses the receipts gained by the state from other taxes. In fact, Texas sales tax receipts provide “more cash to state coffers than than all other revenue sources combined.” Astounding.

How Will The Introduction of Sales Tax Actually Affect Amazon’s Sales?

We have discussed the Amazon sales tax issue in this space on many occasions, but a Wall Street Journal article today brings up a point we had not discussed in any of our previous posts: what effect will the presence of sales tax have on Amazon’s sales?

This is an important question for the online retailer — Amazon was able to rise to prominence precisely because of the sales tax exemption for online purchases, and their prices have been consistently low enough to severely undercut even discount bricks-and-mortar retailers like Wal-Mart. Taking away this advantage could have a serious effect on Amazon’s sales, however. Even though Amazon’s sales-tax-included prices would be almost as low as Wal-Mart’s and still below Target’s, recent investigations into consumer buying behavior have indicated that sales taxes have a marked effect on online sales.

A study performed by Stanford University economists on eBay buyers concluded that online consumers are more likely to buy a product in a different state if the sales tax in their home state is higher. In fact, “for every 1% increase in the sales-tax rate, the researchers calculate the share of consumers’ online purchases from same-state sellers falls 4% to 6%.”

We will continue to watch this issue with interest.

Average Sales Tax Rate Paid by Americans in 2011 at Lowest Since 1967

USA Today reports that Americans paid a lower average sales tax rate (4.27%) in 2011 than at any time in recent history. Down from 4.63% five years ago and 5.18% in 1973, the average rate has been affected by the consumer shift toward purchase of nontaxable services and savvy shoppers’ tendency to use the internet to buy sales-tax-free goods.

The report cites high state tax rates (motivating consumers to buy elsewhere), deflation (which has lowered sales tax due to falling prices), and increased exemptions as other reasons why the average tax rate has fallen.

The Truth About Tax-Free Weekends

Texas’ annual back-to-school Sales Tax Holiday begins today and runs through the weekend. Even though you might not want to hear it as you happily make your plans to skip through the mall being a good consumer, we thought we’d be remiss in not directing you toward a timely Special Report released by the Tax Foundation that points out (through careful research and analysis) that these perceived shopping bonanzas are not necessarily all they’re cracked up to be.

The takeaways in the report that we found most fascinating are these: