Amazon to collect Conn. sales tax, ending dispute

HARTFORD, Conn. (AP) -- Amazon announced on Monday that it has agreed to collect Connecticut's sales tax, ending a two-year dispute over the tax that the online retailer had previously refused to charge its customers.

The retailer also promised to spend $50 million to build an order-fulfillment center at an unspecified site and create hundreds of jobs.

Kevin Sullivan, commissioner of Revenue Services, said in an interview with The Associated Press that Amazon will generate about $8 million in the first year it collects the tax and $13 million to $15 million in the second year.

By agreeing to collect the tax, Amazon puts pressure on other Internet businesses to pay Connecticut's 6.35 percent sales tax, Sullivan said.

"Obviously, we will turn our attention to them in no particular order," he said. "Amazon is very clearly the leader of the pack."

Amazon will begin collecting the tax on Nov. 1 at the start of the busy Christmas holiday shopping season. The company previously insisted it was not obligated to abide by the state's Internet tax law because it does not have a physical presence in Connecticut.

It announced in December a similar agreement to collect sales tax in Massachusetts. And last April, Amazon reached an agreement with Texas officials to settle a sales tax dispute by expanding operations in the state and starting to collect sales taxes.

Democratic Gov. Dannel P. Malloy and the Democratic-controlled legislature enacted a so-called "Amazon tax" as part of budget legislation in 2011. It requires Internet retailers to collect tax on sales generated through website affiliates in Connecticut.

Amazon severed its affiliations with websites in Connecticut in response to the tax, calling the measure "unconstitutional and counterproductive."

Amazon now supports changes in federal law "that would finally resolve the sales tax issue, level the playing field for all retailers, protect states' rights and allow states to collect the revenue owed," Paul Misener, an Amazon vice president, said in a statement on Monday.

Under federal law, a state or local government cannot force a company to collect sales tax on a purchase unless the business has a physical presence — such as a store, office, warehouse or distribution center — in the state.

Congress is considering several bills that would force companies to collect the tax.

Sullivan said in November 2011 that Connecticut was not pursuing sales tax collections from Amazon because it reached a compromise with California delaying expanded online tax collections. He said at the time that Connecticut would not focus on Amazon because it would send the company the wrong message for taking what he called a "huge step."

However, on Monday he said his statement at the time was "partly a little bit of disinformation." The state has been pursuing Amazon under the 2011 state law "and talking to them constantly," he said.

What has now changed is Amazon's endorsement of a change in federal law, Sullivan said. "That created a different climate for talking with Amazon," he said.

A spokesman for Amazon.com Inc. would not comment.

Colin Gillis, an analyst at BGC Financial, said that by building order-fulfillment centers, Amazon is cutting shipping costs and increasing delivery speed.

Amazon reversed itself in the tax struggle to avoid a fight it probably would have lost, he said. Besides, he said, sales tax is paid by the customer, not the company.

"How long could they have really fought this for? There's a fair amount of brand damage being labeled a tax dodger," Gillis said.