The Texas Comptroller’s Office in August billed Amazon.com Inc. for $269 million in uncollected sales tax on sales to Texas residents from December 2005 to December 2009, Amazon reported in a filing with the U.S. Securities and Exchange Commission.

The tax bill was the result of a routine audit that the Texas Comptroller’s Office conducts of retailers as well as other companies conducting business in the state, a spokesman for the Comptroller’s Office says. The audits are designed specifically to determine whether companies have a physical presence, or nexus, in the state that requires them to collect sales tax from Texas customers. According to a 1992 U.S. Supreme Court ruling,  direct-to-consumer retailers can be required to collect and remit sales tax only in states where they maintain a physical presence with facilities such as stores and distribution centers.

Amazon has requested a re-determination of the state’s finding, “which means this is an ongoing audit and could be decided as part of the administrative hearings process,” the spokesman adds.

In its quarterly financial statement filed with the SEC for the period ended Sept. 30, 2010, Amazon said it will “vigorously defend ourselves in this matter” and claims that Texas “did not provide a sufficient basis for its assessment and that the assessment is without merit.”

Amazon added in the SEC filing that an unfavorable resolution of the matter could materially affect its business.

The Dallas Morning News has reported that the state’s audit of Amazon’s operations followed the newspaper’s queries in 2008 regarding why the retailer didn’t collect sales tax when it operates a distribution center in Irving, TX. The newspaper also reported that the Texas distribution center was operated by Amazon.com Kydc LLC, an entity separate from the Amazon retail organization.

Michael Mazerov, a senior fellow in the State Fiscal Project at the Center on Budget and Policy Priorities in Washington, DC, says Amazon.com operates distribution centers in several states where it doesn’t collect sales tax, including Arizona, Indiana, Nevada, Pennsylvania and Virginia as well as Texas.

Amazon declined to comment on its distribution operations; a spokeswoman said the company would not comment beyond what it said in its quarterly financial statement. Amazon is No. 1 in the Internet Retailer Top 500 Guide.

Dan Schibley, a state tax analyst at CCH, a publisher of tax and business information and a unit of Wolters Kluwer, says that many online retailers have moved away in recent years from operating their online and offline retail operations through separate legal entities to avoid the establishment of nexus for online sales tax. With the growing popularity of cross-channel sales, such as in-store pickup of online orders, it hasn’t been worth the effort to try to maintain separate entities for each channel, he adds.

But distribution operations are different from retailing operations, and some retailers may still be inclined to maintain them as separate legal entities to avoid sales tax nexus, tax experts say.

Stephen Kranz, an attorney who specializes in sales tax law at the Washington, DC, law firm of Sutherland Asbill & Brennan LLP, says retailing and distribution operations are generally accepted as separate lines of business under U.S. business law, and that a retailer’s owning a separate distribution entity in itself would not create nexus for sales tax purposes. “There’s nothing about owning another company that would create nexus,” he says.

Amazon has also been involved in battles regarding sales tax laws in states including New York, North Carolina and Colorado.

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