Is Amazon Facing a Jungle of New Taxes?

On Thursday, FedEx (NYSE:FDX) CEO Frederick W. Smith explained that the economy would improve and be healthier if the tax code changed to give companies more incentives to invest.  A prime example of the complicated tax code hindering businesses can be seen in Amazon’s (NASDAQ:AMZN) recent SEC filing.

In the world’s largest online retailer’s 10-K report, Amazon explains that towards the end of 2011, the State of Arizona issued the company assessments on behalf of the State and certain cities to the tune of $53 million.  The amount includes tax and interest penalties for 5 years of uncollected taxes.  The report states, “The State of Arizona is alleging that we should have collected a transaction tax that is similar to a sales tax on applicable transactions during those years. We believe that the assessment is without merit and intend to vigorously defend ourselves in this matter.”

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Arizona’s tax assessments on Amazon is similar to one that Texas issued.  In 2010, the State of Texas issued an assessment of $269 million for uncollected sales taxes for the period from December 2005 to December 2009.  Rather than paying Texas, Amazon decided to close its Irving distribution facility and cancel plans to hire as many as 1,000 additional workers.

However, some states are willing to negotiate with Amazon.  On Wednesday, legislation requiring Amazon to collect state and local sales taxes on goods sold to Tennessee customers beginning in 2014 passed the House Budget Subcommittee.  By delaying the tax collection process to 2014, Amazon’s Director of Global Public Policy, Paul Meisener said it “allows us to bring 3,500 full-time jobs and $350 million in capital investments to the state. And with Tennessee’s leadership, we’re now in position to actually seek federal legislation which will resolve the sales tax question forever.”  Tennessee will also benefit from the move by receiving an estimated $22 million for state coffers, and $9 million for local governments in the 2014-2015 budget year.

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