Flickr image via infrogmation

As Amazon.com racks up sales and profits, pressure is once again mounting on the online retailer to start charging sales tax on the products its sells. The case was made in a column this weekend in The New York Times by Randall Stross, a business professor at San Jose State University.

Stross starts his piece with an interesting anecdote that Amazon.com founder Jeff Bezos originally considered locating his company on an Indian reservation near San Francisco -- in order to access tech talent but avoid sales tax in the country's most populous state. As history has it, Bezos couldn't set up shop on the reservation and moved the company to Seattle.

According to Stross, Washington is one of five states where it collects sales tax. But Amazon also has operations -- warehouses, customer service operations, development centers, etc. -- in 14 other states where it does not collect sales tax.

Stross writes:

Amazon has found a way to put portions of its business into the tax-haven equivalent of reservations. By creating wholly owned subsidiaries for the parts that are treated separately for tax matters, Amazon is under no obligation to collect sales tax. This legal technique is called “entity isolation,” said Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities in Washington.

Stross then offers a piece of advice to Amazon, saying that it should start collecting sales tax and toss the "entity isolation" concept in the trash can.

And speaking of Amazon.com and taxes, GigaOm's Kevin Kelleher offers a fascinating read on why the retailer should buy Netflix (market value of $3.1 billion) now rather than later. The rumors of an Amazon.com-Netflix deal have circulated before, but Kelleher said the deal has not moved forward because of the sales tax issue.

Amazon has skillfully dodged sales taxes in most states by arguing that it’s the consumer’s responsibility to report them, not Amazon’s (of course, few consumers do). Netflix charges a sales tax for an odd reason. Businesses must collect a use in any state they have a physical presence, and every state has decided that the very DVDs that Netflix rents out constitute a “physical presence.” So buying Netflix would expose Amazon to charging sales taxes in all states, eliminating a cost-advantage that has helped it grow market share. But the days of sidestepping sales taxes may be numbered for Amazon.

Amazon.com has gone to battle over sales tax issues before as TechFlash's has reported in the past. Stay tuned for more details, with Eric Engleman exploring the topic in greater detail later this week.

In the meantime, what do you think about Amazon's obligations for sales tax?

[Flickr photo via infrogmation]