The Statesman raises a great question about the settlement deal between Amazon and the state of Texas that will get the online retailer to start collecting sales taxes in Texas while forgiving back taxes the state says it owes.
But is it legal?
Austin lawyer Buck Wood, a tax attorney and a former deputy comptroller and general counsel under the late Comptroller Bob Bullock, says no.
“While this may seem to be a reasonable resolution in people’s minds,” Wood said, “it’s not worth the paper it’s written on. She just can’t do it.”
Wood argued that the state’s constitution bars “forgiving” tax debts and that the settlement raised the specter of creating a “too big to pay” class of taxpayers who get preferential treatment.
He said it sets a bad precedent in a growing Internet economy when Combs has estimated that Texas loses $600 million a year on untaxed online sales.
[Wood] cited two articles in the constitution that, in essence, say the Legislature cannot forgive tax debts or delegate that authority.
Wood said the language, dating to the state’s early history, attempted to prevent officials from forgiving the debts of taxpayers with political influence.
There is one exception.
Wood and the comptroller’s office cited the same law that allows the comptroller to settle tax disputes, but they disagree on how broadly it can be applied.
The law says the comptroller may settle a claim for a tax, penalty or interest if the “total costs of collection” would exceed the amount due.
Wood said that if the $269 million tax bill is accurate, there is no way the cost of litigation and collection would approach that figure.
[Skip] Smith, a retired tax lawyer who has represented clients in disputes with the state, said the comptroller’s authority to settle cases is not as broad or explicit as, say, the Internal Revenue Service’s.
“They don’t really have a provision that gives them the right to settle based on the hazards of litigation,” he said.
Still, Smith said, “The comptroller, day to day, is settling these cases.”
He said the Legislature “hit Amazon between the eyes” when it changed the law last year. But he said it also gave Amazon another legal argument: Did the Legislature add the new language just to clarify the law or because Amazon wasn’t covered by the existing statute?
“It’s arguable,” Smith said.
Smith said the fact that the Irving site was owned by an Amazon subsidiary clouds the issue.
“If it’s a subsidiary’s warehouse, it becomes grayer,” he said. “I think this issue is not totally settled.”
Steve Bickerstaff, an Austin lawyer with a background in constitutional law, takes a different tack.
“It is never in the interest of the state to pursue a claim if the State of Texas is going to lose and there is a good alternative,” Bickerstaff said.
He said the constitutional prohibition against forgiving tax debts is not absolute.
I suspect that if we got a dozen lawyers together to discuss this, we’d get at least a baker’s dozen opinions. There are only two opinions that will matter. One is that of Attorney General Greg Abbott, who will undoubtedly be asked to provide it. The other is that of the State Supreme Court, once the seemingly inevitable litigation is filed. I wouldn’t even begin to guess what they might say. There is no such litigation yet, and who knows when there may be. I suppose if no one files a lawsuit then the matter will have been decided by forfeit. I don’t see that happening, however. Bottom line, we won’t know for sure for several years whether this is a precedent-setter, a one-off, or a false start.