More on Taxing Internet Sales

Yesterday, I linked to a post by Nathan Moore on the state of New York's attempt to collect sales taxes from Amazon.com. Because the internet bookseller does not have a physical presence in the state, the collection attempts likely violate the interstate commerce provisions of the U.S. Constitution.

However, The Dallas Morning News reports that the raising of that issue has been noted in Texas, which has opened an investigation of whether the company should be collecting and paying sales taxes on shipments to Lone Star State residents due to the fact that it does have a physical presence here. Amazon opened a distribution center in Irving in 2006, but appears not to have been paying sales taxes.

But this actually raises an interesting question. If Texas chooses to begin collecting these taxes, would it make financial sense for a business like Amazon to shut down its Texas location -- where a large population results in a large number of book sales and revenue, and move across the border to, say Oklahoma or Arkansas, so that it is having to charge the tax on a smaller number of orders. Obviously, having to collect the tax in Texas makes it less competitive versus another online bookseller without a physical presence here. It would seem to me that this would offer a great opportunity for states with smaller populations to attempt to recruit internet based businesses to their locales. Of course, the states would need the transportation infrastructure to make it economically feasible.