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Amazon's tax deal with Texas is illegal, some say

AUSTIN -- Texas Comptroller Susan Combs' settlement with Amazon.com, hailed by the company's allies and rivals alike, is an unprecedented solution to a vexing standoff.

The world's largest online retailer agreed that on July 1, it will begin collecting sales taxes in Texas, just as its brick-and-mortar rivals do. It also promised to bring 2,500 jobs and $200 million in capital investment to the state over four years.

At the same time, Amazon made what it called "immaterial payment" to resolve the state's claim for $269 million in back taxes from 2005 through 2009 because an Amazon subsidiary shipped goods to Texans from an Irving warehouse. Last year, Amazon shut the facility in protest, eliminating 119 jobs.

Never before had a Texas comptroller accepted the promise of jobs and business investment to settle a tax dispute.

But is it legal?

Buck Wood of Austin, a tax attorney and a former deputy comptroller and general counsel under the late Comptroller Bob Bullock, says no.

'She just can't do it'

"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."

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.

Combs, through her aides, said she cannot legally discuss individual cases. Speaking generally, however, she denied ever "forgiving" taxes in violation of the constitution.

Amazon declined to comment.

Several lawyers -- inside and outside the comptroller's office -- disagree to various degrees with Wood's interpretation of the one statute that gives the comptroller authority to settle cases when the "costs of collection" exceed what is owed.

Wood interprets that phrase to be limited to the cost of litigation, while others say the comptroller can also weigh factors including future benefits to Texas.

"We consider the risk of adverse decision and the upside of obtaining compliance with tax laws when deciding whether to settle a case," Combs said through aides.

Transparency

The issue could be punted to Texas Attorney General Greg Abbott if lawmakers request it, or a local government could challenge the settlement because it includes local as well as state sales taxes.

State law protects businesses by keeping their tax information, including settlements, confidential. But that makes it impossible for the public to judge the comptroller's actions.

Tax professionals, however, assume that Amazon paid less -- possibly a lot less -- in back taxes or it wouldn't have settled.

Combs has championed transparency in government since becoming comptroller in 2007. Her agency maintains a "Texas Transparency" website that details state revenue and spending. And she has encouraged local governments to open their books.

Asked whether she supports keeping tax settlements secret, Combs said through aides that she follows the law.

In this instance, Amazon and Combs are having it both ways. Amazon agreed that Combs could disclose the number of promised jobs and the amount Amazon would invest in Texas over the next four years.

But Lauren Willis, the comptroller's communications director, said Amazon insisted that the rest of the deal be kept secret. Willis said she could not discuss how or whether Texas is protected if Amazon fails to deliver the promised jobs or investments.

"We intend to work with Amazon to keep the public informed regarding their progress," Combs' staff responded in an e-mail.

The Austin American-Statesman has requested a copy of the entire agreement with Amazon under the Public Information Act.

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