Amazon's (not so secret) war on taxes

  @FortuneMagazine May 23, 2013: 6:42 AM ET
AMA10 amazon war on taxes
(Fortune)

In August 2010, Cheryl Lenkowsky, an auditor for the Texas state comptroller, sent a letter to a top tax executive at Amazon.com's Seattle headquarters. At that point, Amazon had been selling a wide array of merchandise to Texans for 15 years without collecting a penny of sales tax from them. Tax-free shopping was a delight for customers, a vital competitive edge for the company -- and a hemorrhaging wound for state government.

Now, Lenkowsky informed the company, all that was about to end. Texas's audit, which had gone back four years, had resulted in an "adjustment": a bill for uncollected taxes, plus penalties and interest -- $ 268,809,246.36 in all. Added Lenkowsky helpfully: "We have included a pre-addressed envelope for your payment convenience."

Amazon responded fiercely. It appealed the assessment. It sued the comptroller for her audit records. It lobbied Rick Perry, Texas's business-friendly governor. Most of all, Amazon insisted it had no "physical presence" in Texas -- the basis for the tax claim -- despite owning and operating a 630,800-square-foot distribution center (with an Amazon.com flag in front of it) in a Dallas suburb. When all that didn't work, the company shuttered the facility and threw its 119 employees out of work, vowing to abandon the Lone Star State.

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