The Dreaded “Affiliate Sales Tax” — Texas Considering

Legislation would require etailers to collect sales tax if it has any affiliates in Texas.

Add my home state of Texas to the list of states that are considering taxing etailers who have affiliates in the state.

At least if one state representative gets his way.

State Rep. Elliott Naishtat, D-Austin introduced legislation that would require online retailers to collect Texas sales tax if it and enters into an agreement with a Texas resident that receives a commission or “other consideration for directly or indirectly referring potential clients to the retailer by any means.”

In other words, online affiliates such as those that join the Amazon Associates program.

Many other states have tried (and some have implemented) this tactic to collect sales tax. As I’ve stated many times, the effort is futile.

I certainly understand the desire to collect sales tax that is seeping out of the system. But what happens with this back door approach is that firms like Amazon.com just can all of their affiliates in the state instead of dealing with the sales tax issue. That means the state no only loses out on the sales tax it was hoping to recover, but also loses the income tax from affiliates in the state.

Texas has no income tax, but taking away from residents’ livelihood has a trickle-up effect to sales and property taxes.

The issue is particular heated in Texas since the comptroller sent a $269 million sales tax bill to Amazon.com. The firm has a distribution center in north Texas that went unnoticed for awhile. Following investigating, the comptroller determined that Amazon has a physical location in Texas and must pay sales taxes on previous purchases.

Amazon.com has decided to close the distribution center.