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Amazon tax deals may be unconstitutional

December 5, 2011

Amazon.com Inc. may be violating a U.S. Constitution commerce clause, according to legal experts. The Seattle-based company has deals in place with South Carolina and Tennessee, where it built distribution centers creating thousands of jobs, making it exempt from collecting sales tax.

Two law professors have written a report pointing out that, based on a 1992 Supreme Court ruling, a commerce clause requires retailers to collect sales-and-use taxes in states where they have a physical presence, according to Techflash.com.

People are supposed to pay their own sales tax on online purchases in many states, but rarely do.

After Amazon threatened to scrap plans to build a distribution center in South Carolina, the state passed a law that offered a tax exemption through 2016 to any company that invests at least $125 million in distribution centers and that also creates 2,000 jobs.

Amazon agreed to invest $350 million and create 3,500 hundred jobs in exchange for a two-year reprieve on collecting sales taxes in Tennessee. The legislation still awaits approval.

Now two law professors, Walter Hellerstein of the University of Georgia and John Swain of the University of Arizona, say these exemptions likely violate the commerce clause by discriminating against other out-of-state online retailers that can't operate a physical presence in the states without collecting sales tax, according to the story.

Read more about online retailing.