Jun 3

Texas Internet Sales Tax HB 2403 Vetoed By Governor

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Governor Perry Vetoes Texas Internet Sales Tax Bill

Governor Rick Perry Vetoes Texas Internet Sales Tax Bill

Veto of Texas Internet Sales Tax

Taking a pro-business stance, Governor Rick Perry vetoed HB 2403, the Texas Internet sales tax passed by a bunch of socialist state representatives.

Given the volume of support this Internet sales tax had down in Austin, don’t be surprised to see it come back again despite the veto. Remember that this Internet sales tax bill, like hotel taxes, is designed to put the screws to those who are based in another state so that Texans won’t notice their politicians are tax-hiking socialists. It’s a lot easier to steal the wealth of someone who can’t vote for your opponent in the next election.

Socialism and the Texas Internet Sales Tax

What makes this type of wealth redistribution particularly appalling is that it is done in the name of “fairness” to brick-and-mortar businesses. In reality, it’s simply a money and power grab that benefits the Wal-Marts instead of small business. If your e-commerce site has shipping fees, why not handicap it further by imposing tax and other regulatory burdens so that you’re at a disadvantage to your larger offline competitors?

That’s the twisted logic behind this type of “fairness,” also known as crony capitalism. It’s the same type of logic that supports taxpayer bailouts of General Motors and additional taxes levied on import cars in the interest of “leveling the playing field.” In other words, an Internet sales tax is designed to ensure that your slower offline competitor wins the race by having the government kneecap your business.

Congrats on the Texas Internet Sales Tax Veto

Hats off to Texas Governor Rick Perry for vetoing HB 2403.

I have serious concerns about the impact and appropriateness of House Bill No. 2403. In particular, I believe this legislation risks significant unintended consequences. My strong preference is to conduct a thorough policy discussion with Texas lawmakers, consumers, retailers and technology experts – and with other states and even the federal government – about interstate commerce and the structure of state sales taxes in the 21st century. That conversation is underway, and I believe that a consensus can and should be reached that balances the competing interests, respects federalism, and is fair and equitable. I call on the legislature to review this issue further while we reach out to our federal delegation and our friends in other states to build consensus. – TX Gov. Rick Perry (May 31, 2011)

Unfortunately, the statement of his objections makes this Internet lawyer think the governor has left the door open to a future Texas Internet sales tax.

Photo Credit: Image of Texas Governor Rick Perry by Gage Skidmore

Internet Lawyer

Internet lawyer Mike Young helps business owners protect themselves. Whether you're wanting website legal help, ecommerce agreements, technology contracts, corporate formation, LLC formation, or want to buy or sell an Internet-related business, Mike may be able to help you or refer you to someone who can.

  1. Stuart Halpryn 4 Jun 2011 |

    what a gross misrepresentation of the facts, and of the bill that perry vetoed.

    you said;

    “Texas Governor Rick Perry just vetoed a state Internet sales tax
    designed to loot the pockets of all-out-of-state business website
    owners who have customers in the State of Texas.”


    “For now, it’s one less thing to worry about when you’re based
    elsewhere but selling to Texas customers via your website.”

    when in reality, texas internet sales tax HB 2403

    “…would require online and catalog retailers with an in-state
    physical presence, such as stores or distribution centers, to collect
    and remit sales tax even if those facilities are operated by

    this is NOT a judgement as to whether or not the bill should pass
    or not, but rather a comment on how you are misrepresenting
    what the bill really represents.

    as for whether the bill should pass or not; while i have not read it in
    it’s entirety,
    and have not weighed the merits and shortcomings of it,
    based purely on perry’s record of catering to business interests at
    the cost of texas citizens (the cites are endless), as well as the
    possibly criminal coverup of exceedingly dangerous levels of
    radiation in a good portion of texas water supplies, again, at the cost
    of texas citizens, in favor of business, commited by either perry, his
    office, or both of them, once the evidence was put before them, his
    failure to censure tceq and bring criminal charges fotr endangering
    the public safety once he found out their part in in this debacle, leads
    me to believe that nearly any bill that perry passes or vetos serves a
    greater purpose of catering to big business, rather than the public

    your weak smoke screen of calling the bill ‘socialistic’ and bringing
    companies such as wal-mart into the discussion do not hold up to
    an examination of the facts.

    so mike, let’s see if you publish this comment…..

    stuart halpryn

    • Internet Lawyer 4 Jun 2011 |

      You’re not an Internet lawyer and you haven’t read the bill in its entirety. Yet you have the chutzpah to come here and flame me.

      A few points…

      1. The bill would have eviscerated corporate law by taxing out of state e-commerce sites simply because they had a subsidiary with a distribution center based in Texas. If the state wants to levy property or franchise taxes on the subsidiary, that’s one thing. Piercing the corporate veil to attack the parent entity is quite another. It’s a weasel method of extracting money from out-of-state entities.

      2. The bill has plenty of gray area where out-of-state entities could be nailed for the taxes by virtue of the acts of ad agencies or even affiliate marketers. Given that the State Comptroller was already trying to impose this tax on Amazon before the bill was voted upon, it’s highly likely that a broad interpretation would have netted many e-commerce sites without a real physical presence in Texas.

      3. Yes, Wal-Mart is one of the leading proponents behind the “Main Street fairness” campaign to kneecap e-commerce with Internet sales taxes. In fact, the Arkansas legislature (the state where Wal-Mart has its HQ) just passed similar a Internet sales tax into law with Wal-Mart (not small business) being the driving force behind it.

      4. If you don’t like what you read here, feel free to go somewhere else to share your views with fellow travelers.

  2. Stuart Halpryn 4 Jun 2011 |

    my numerous years in law school are besides the point, the fact is that you don’t have to be an
    attorney to see the holes in your argument.

    and as for not having read the entire bill, one does not have to when there are so many credible
    sources that analyze bills, etc., in depth, such as the analysis at: http://www.hro.house.state.tx.us/pdf/ba82R/HB2403.PDF

    that is not to say that i agree with everything, or even a majority of what is contained in the bill, or
    that i don’t, but,

    to start with, your original assertion was that;

    “Texas Governor Rick Perry just vetoed a state Internet sales tax designed to loot the pockets of
    all-out-of-state business website owners who have customers in the State of Texas.” and “For now,
    it’s one less thing to worry about when you’re based elsewhere but selling to Texas customers via
    your website.”, which is substantially different than the premise that you present in your latest
    response, above.

    to address your points, point by point:

    the law may have closed a loophole allowing businesses to cheat the system, and cheat having
    to pay their fair amount of taxes by allowing them to have a distribution or other type of center in a
    state, while taking payments online, from a central location that isn’t taxed.

    too many big companies have evaded their obligation by playing the system.

    gray areas are one thing, and merit discussion and clarification, but you didn’t initially discuss
    ‘gray areas’. you made a cut ‘n dry statement, meant to incite or evoke a specific feeling to cause
    people who don’t bother researching, but take for granted everything that’s ‘in print’ on the internet.

    wal-mart, to use your example, charges taxes for for items purchased online and shipped to
    states that they have a presence in…

    i never said that i didn’t like what i read here, but, as i said in my opening, while you don’t have to
    be an attorney to see the flaws in what you’re saying, by the same token, you can also try and
    convince people that the stockyard is filled with cows, and they don’t have to be zoologists to take
    a closer look and see there’s nothing there but bulls.

    stuart halpryn

    • Internet Lawyer 4 Jun 2011 |

      To respond to your points…

      #1. The State of Texas was not attempting to close a loophole. It is facing a budget shortfall. Instead of tapping into the rainy day fund more than it is already doing, the state legislature is looking to raise revenues instead of cutting additional spending. And it is easier to raise taxes on “them foreigners,” i.e. out-of-state businesses in this instance, than actually cutting the pork that’s been doled out based on prior largess in economic boom times.

      And as I mentioned, if the State of Texas wants to tax a subsidiary doing business in Texas at a location such as a distribution center, that’s perfectly within its right to do so although counterproductive from a commerce standpoint. This legislation crosses the line by ignoring the boundaries between parent and subsidiary in an attempt to tax the parent company’s commerce taking place in another state via the Internet simply because the subsidiary does business in Texas.

      If you look at the Comptroller’s actions that got this bill rolling in the first place, she was looking to impose the tax without any law in place. Under such circumstances, and as loosely as the bill was written, if anything, the bill would have been a “loophole” for the Comptroller to determine what constituted a physical presence for taxation of out of state companies.

      Now imagine the 49 other states, and a few thousand municipalities following this model. The only businesses that could begin to comply with the tax collection issue would be the Wal-Marts and Amazons. Small e-commerce site owners would be crippled by the regulatory burden. Large sites, like Amazon, would be hurt by the tax collection burden too.

      #2. This was a blog post about a specific act by the Governor and was not intended as a treatise on the subject of Internet sales tax legislation. If you’re expecting a manifesto with each blog post, you’ll be sorely disappointed. There’s too much involved, including the unlimited ways state legislatures are trying to dance around the 1992 U.S. Supreme Court Quill Corp. decision in order to tax the heck out of e-commerce without unconstitutionally interfering with interstate commerce.

      #3. Wal-Mart collects the taxes precisely because they do business in those states with brick-and-mortar stores. They’re looking to hurt e-commerce sites that compete with them, like Amazon, Overstock, and even small business websites, because each new regulatory burden imposed on the competitor makes it that much easier to “compete.”

      #4. I’m not going to get into a lengthy debate about your folksy bull analogy. We do disagree on this issue. You support higher taxes in the interest of “fairness” and sticking it to big companies by closing “loopholes” without taking into account that the so-called “loopholes” also protect small e-commerce sites.

      Conversely, I’d contend that the money isn’t the government’s funds to begin with, the income belongs to the Internet entrepreneurs who earned it in the first place, and any related taxes should be remitted in the state where the site is based.

      There are plenty of other ways to balance a state’s budget without interfering with interstate commerce. Cutting government spending would be the first place to start. Companies and individuals cut spending all of the time when revenue drops. They don’t rob Peter to pay Paul because of a deficit in income.

  3. David 4 Jun 2011 |

    One thing that has become very apparent to me is Republicans will never miss an opportunity to NOT impose taxes anywhere they can.

    Taxes are the Government’s way of funding its operations. You can argue all you want about “shrinking government”, but without revenues, there IS NO Government! And this is exactly what the GOP is working on.

    The biggest proponents of this “tax internet businesses” argument is that it’s supposed to “level the playing field” with brick-and-mortar retailers who are required to collect retail sales tax by various jurisdictions. There’s no Federal sales tax, just income tax. So sales taxes are ALWAYS imposed at the state, county, city, and other levels.

    The counter to this is not whether or not to level the playing field by imposing taxes on those businesses with no retail presents; rather, it’s to ELIMINATE SALES TAXES for local retailers!

    But … why is it we never hear THIS option discussed, eh?

    This has NOTHING to do with “socialism” and everything to do with how much and what kinds of public services we want the local government to provide. Police, fire, emergency vehicles, education and schooling, weather forecasting, public transport, street maintenance, water supplies, garbage collection and processing, sewer and waste water treatment …. yeah, socialism sucks, doesn’t it.

    If you don’t like living in a city that provides all of these services, why don’t you move into the country where NONE of them are provided? Golly gee, then you won’t be burdened with all of these “regressive socialist burdens”.

    Everybody wants to “cut government spending”, but nobody wants to go without ANY of these public services!

    My personal position is that we should solve this by eliminating sales tax and make up for it other ways, like through property taxes. People who live in a community should be responsible for sharing the cost of public services that THEY CONSUME. It’s wrong to pay for these services by taxing tourists and online marketers who don’t live there and don’t benefit directly from the public services used to maintain the quality of life in today’s moden cities.

    • Internet Lawyer 4 Jun 2011 |

      Although I agree with many of your points, including eliminating sales taxes on brick-and-mortar retailers too, there is socialism at work in the providing of the government services you identified.

      For example, a unionized teaching force that votes for one party will invariably gets tons of money appropriated for “education” by politicians of that party. This appropriation means robbing taxpayers to redistribute the wealth at the behest of the union that delivers votes on Election Day.

      Right now, there are state teachers associations screaming about “the children” and “education” when funding for schools is placed on the table. What they don’t conveniently mention is that there is no correlation between higher per capita spending on education and results. Moreover, many of the cuts could easily come from the 20% to 40% plus of those who work for school districts in non-teaching roles. Many of these non-teachers are pure bloat and not a single student would miss their absence.

      Or remember a few years ago when we had the “100,000 cops on the street” federal funding fiasco. Taxpayer money spent to temporarily fund law enforcement positions that the local governments would have to fund after a few years. Equipment purchased with those funds that was never needed. It had nothing to do with public safety and everything to do with robbing the taxpayer to throw money at a PR campaign that something was being done to deter crime.

      Other examples…

      As for street maintenance, waste management, etc., just look at what happened in New York during the last major snowfall.

      Postal workers play cards in the back of the post office instead of providing customer support at the counter.

      An 18-year-old high school dropout with one year of mall security experience qualifies for a federal TSA job fondling little old ladies and kids at the airport.

      What each of these have in common is that wealth redistribution occurs by robbing the taxpayer to do something the majority of Americans do not want. Regardless of the motives, there’s socialism at work based on the premise that the state owns the money and will determine how much the individuals who actually earned it can keep according to their “needs” as defined by the state.

  4. Jim 26 Jun 2011 |

    This discussion about Governor Perry’s Veto of Texas Internet Sales Tax is interesting but could someone please explain just something for me?

    Today (06/26/11) I ordered and took delivery of an E-book on the internet and was charged $6.35 Sales Tax.
    1. I am a Texas resident.
    2. The publisher is a Texas company. (one of your E-Books to be exact)
    3. There is no physical product, it is a E-Book.

    What difference does the governor’s veto make if they (Texas) collects tax anyway.


    • Internet Lawyer 26 Jun 2011 |

      When you buy from a business based in your state (online or offline), that business is supposed to collect and remit sales tax to the state on the purchase. If a California-based website sold a product to a California resident, it makes sense that like its brick-and-mortar counterpart it would collect and remit the sales tax to the State of California.
      What the states are now attempting to do is require collection and remittance of sales tax by businesses based elsewhere that have no presence in those states. It would essentially turn business website owners (large and small) into tax collectors for all 50 states plus all local governments that decided to jump on the bandwagon. The regulatory burden would put 99% of all e-commerce sites out of business. The larger sites that survived (Amazon etc.) would be at a competitive disadvantage because in addition to the tax collection burden, they’d also be charging for shipping that the local retailer doesn’t.
      In a mail order case back in 1992, the United States Supreme Court said that these type of tax schemes are in essence an unconstitutional interference with interstate commerce. Politicians are hoping to get a different decision by passing unconstitutional laws with the expectation that a Supreme Court made up of different justices will rule differently than the court did in 1992.
      Then there are Marxist clowns like U.S. Senator Dick Durbin who are trying to pass a federal Internet sales tax law. His state (Illinois) just passed a law similar to the one that Texas Governor Rick Perry vetoed. Durbin is hoping to protect Illinois business by handicapping everyone across the nation with additional tax burdens. It’s called kneecapping the competition with the government as the attacker.

  5. Jim 26 Jun 2011 |

    Mike, thank you for the quick response. It makes sense. I was comparing apples to oranges (not the first time (;-) )

    Thank you again,