The Associated Press May 31, 2011, 2:17PM ET

Governor vetoes Internet sales tax bill

Gov. Rick Perry vetoed his first bill of the year on Monday, a measure that would have expanded the number of Internet retailers required to collect Texas' sales tax.

The bill would have required companies that contract with marketing companies inside Texas to collect the state's sales tax. Federal law requires companies with a physical presence inside a state to collect that state's sales tax and the bill would have expanded the definition to include contractual agreements.

Big retailers like Amazon.com had threatened to cut off all relationships with marketers inside Texas if the bill became law. Advocates said the bill would have brought in hundreds of millions of dollars in new state revenue, while opponents said it would add nothing to state coffers and shut down dozens of small businesses.

Texas store owners have complained that Internet retailers have an unfair price advantage because they are not required to collect state sales tax. But Perry said he was afraid this bill would have 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," Perry said. "That conversation is under way, and I believe that a consensus can and should be reached."

The Alliance for Main Street Fairness, a group advocating for the law, said it hoped the measure might survive in other legislation now under consideration in a special session to balance the state budget.

"We are undeterred by today's veto because legislation necessary to balance the budget and fully fund schools is likely to pass in a special session," said Eric Bearse, spokesman for the alliance. "We remain confident the governor will sign legislation that will level the playing field for brick-and-mortar businesses that create local jobs, pay local property taxes and collect the sales tax. We expect to be victorious."

Four other states have passed similar legislation and it is under consideration in 13 more. Online retailers have filed suit against a similar law in New York and have canceled contracts with companies in Illinois.

A separate measure to establish a standardized approach to sales tax collection from Internet sales has been introduced in the U.S. Senate.


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