Online giant Amazon facing growing tax woes

The tax hurdles Amazon is experiencing in New York are spreading to other states. For the past few months, the online giant has been challenging the constitutionality of a new law in New York requiring online retailers, or e-tailers, to collect and pay taxes on sales made to New Yorkers even if they have no concrete, physical presence in the state. Federal law dictates that states cannot collect sales taxes from a company without a brick and mortar presence.

But new troubles may be brewing. Amazon has eight distribution centers in eight different states that are operated not by Amazon but by wholly owned subsidiaries, according to the Industry Standard. Amazon is making the case that it should not have to collect taxes in those states. But The Wall Street Journal is reporting this argument can be rejected if the sole function of these subsidiaries is to avoid tax obligations.

When items are coming from the subsidiaries, the Amazon website still shows the seller as Amazon, according to BloggingStocks.com. It is well known that one of the reasons shoppers find Amazon attractive is because they save money on sales tax, which gives Amazon an advantage over other retailers. But many internet-based companies appear to be collecting sales taxes in order to skirt any problems that may arise, BloggingStocks.com reported.

"As governments are greedy for more and more tax dollars, they're looking for any and every target from which to extract money," BloggingStocks.com pointed out. "Sales tax on internet sales is an obvious one."

The Wall Street Journal reported that Kansas began collecting sales taxes from e-tailers, including Amazon, last year. The state collected $35 million in 2007.

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