Amazon's State Tax Planning: Follow-Up Commentary

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In a recent post, I asked whether Amazon's state tax planning was aggressive or tax avoidance or tax evasion.  In all honesty, without knowing all of the details, I can't tell you what category their tax planning falls into.  However, I would gather to say that their state tax planning is probably not tax avoidance or tax evasion.  It is most likely just utilizing the state tax laws to their benefit.  Not illegal, not evasion.  With that said, when I first read the articles in the media about Amazon's fights in Texas and their decision to relocate their distribution center, etc.  I thought - are we in the 1990s?  The 1990s were the "hay day" of state and local tax.  Restructuring, isolation of activities in different entities, etc. were utilized by taxpayers all across the country to minimize state and local taxes.  In most cases, it was legal and acceptable under state tax law to establish these entities and restructure in a way to minimize your tax. However, at the end of the 1990s, the states began to attack these "restructurings" or structures by applying economic substance and business purpose doctrines, requiring or adopting combined reporting, or enacting new laws that required companies to eliminate inter-company transactions.  Today, companies still create "special purpose" entities such as purchasing companies, sales companies, distribution companies, etc. similar to what Amazon has appeared to create (as I do not know for sure what the facts are in Amazon's case).  However, it has become more difficult to obtain the state tax benefits that these "special purpose" entities may provide.  Therefore, it is not a surprise to me that Amazon is being attacked in Texas.  Summary Whether right or wrong, the states and the media appear to be attacking Amazon and using them as a "punching bag" or "guinea pig" to attempt to impose sales tax collection responsibilities on Internet retailers.  Will Amazon or the states win?  Will laws change? Stay tuned.

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