published Wednesday, April 20th, 2011

Haslam accepts Bredesen’s logic on Amazon deal

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    Tennessee Gov. Bill Haslam, right, speaks during a meeting of the Chattanooga Times Free Press editorial board. At left is William F. Hagerty, commissioner of the Tennessee Department of Economic and Community Development. Staff Photo by John Rawlston/Chattanooga Times Free Press

Gov. Bill Haslam says he accepted arguments made by his predecessor, Phil Bredesen, in which the then-governor justified his support of Amazon’s plan to build two distribution centers — and not pay state sales taxes — despite expected blowback from “brick-and-mortar” retailers.

Haslam, a Republican, said Bredesen, a Democrat, told him about striking a deal with Amazon to build the two distribution centers in Hamilton and Bradley counties following Haslam’s November election but before he took office on Jan. 15.

“I said, ‘Well, explain to me why you’d do that,’” Haslam recounted Tuesday during a meeting with Times Free Press reporters and editors. “And he [Bredesen] said, ‘Well, in my book, they [Amazon] can either build there in Chattanooga or they can go nine miles away in Georgia and build and do the same thing.’”

Haslam recalled Bredesen telling him that in “either one of those cases they’re not going to be collecting the Tennessee state sales taxes their customers are still technically required to pay.

“And he said given that, ‘I’d just as soon them build that plant and have those jobs in Tennessee. And that’s why I’m doing that.’”

Bredesen could not be reached for comment on Tuesday.

Asked directly whether Amazon would not be required to collect sales taxes on purchases made by Tennessee customers, Haslam said, “That’s exactly right.”

As to whether that was a precondition of Amazon agreeing to spend $139 million on the distribution centers, Haslam said, “I wasn’t part of that, but that’s my assumption.”

Amazon’s director of policy, Fred Kiga, has said Amazon will eventually employ 1,500 full-time workers and as many as 5,450 part-time workers at the two facilities.

Since officials announced the giant Internet retailer was coming to Southeast Tennessee, traditional retailers have charged that the state agreed to let Amazon continue not collecting sales taxes on items it sells despite the fact it will have a physical presence in Tennessee.

U.S. Supreme Court decisions have said out-of-state retailers cannot be compelled to collect sales taxes by states or local governments unless they have a physical presence.

Tennessee residents are still required by law to pay the sales tax on purchases made through Amazon and certain other Internet retailers claiming no Tennessee presence. But virtually no one does, officials say.

The state’s sales tax on most purchases except food is 7 percent. Local governments can tack on up to 2.75 percent more.

On Tuesday, Haslam repeated his belief that a national solution is necessary to resolving the whole issue of levying sales taxes on Internet purchases.

“I think the time is ripe,” Haslam said, noting it is primarily a federal issue although Congress has so far failed to move on legislation.

He said federal budget problems and Washington’s inability to provide additional aid to recession-weakened states call for action on Internet tax issues.

“What’s changing now is you have all the states going to say, ‘All right Congress, we understand the world’s changed. We’re going to be getting fewer dollars from you, but we need you all to pass this and allow us to start collecting Internet sales tax.’”

But U.S. Sen. Bob Corker, R-Tenn., later told the Times Free Press that he sees little movement on the issue this year, with federal lawmakers focused on slashing federal spending.

Applying sales tax to Internet sales “is not even on the radar screen,” Corker said. “I’ve had no discussion.”

“The entire oxygen is being taken out of the room on every federal issue around this whole issue of what we deal with [on the budget] over the next few months,” Corker said.

In February, U.S. Sen. Dick Durbin, D-Ill., announced plans to introduce the Main Street Fairness Act, which he said requires sellers to collect sales tax from out-of-state buyers regardless of whether the seller has a physical presence in the state.

Durbin said states are losing as much as $37 billion annually. The bill has yet to be introduced.

In an April 12 letter, Sen. Bo Watson, R-Hixson, urged Tennessee’s entire congressional delegation to “review, consider and support legislation ensuring that Tennessee can enforce its sales tax laws against out-of-state retailers.”

He was asked to write the letter on behalf of the entire Tennessee state Senate Finance Committee.

Bill Fox, director of the University of Tennessee Center for Business and Economic Research, estimates Tennessee’s state and local governments in fiscal year 2011-12 will lose out on an estimated $410 million in revenues because of Internet sales.

Tennessee-based businesses that collect sales taxes are disadvantaged, Fox said.

“If you want to shop in the middle of the night, I think you ought to be able to do that,” Fox said of purchasing over the Internet, “but I don’t think we ought to subsidize it.”

In a recent interview, Neal Osten, the director of the National Conference of State Legislatures’ Washington, D.C. office, voiced hopes that some type of legislation will pass given states’ revenue problems.

“We’re still fighting to some extent that this a new tax. But everyone knows deep down it’s not a new tax,” Osten said.

Giving states the authority to compel Internet retailers to collect sales taxes is in effect “fiscal relief that doesn’t cost the federal treasury a penny,” Osten argued.

Contact Andy Sher at asher@timesfreepress.com or 615-255-0550.

about Andy Sher...

Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...

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nucanuck said...

Clearly Gov Bredesen and now Haslam are agreeing that the sales tax should be abolished.

As it now stands, Amazon has a clear competitive advantage and,over time, will be able to destroy or badly weaken their retail competitors. They may add sevel hundred jobs now, but our retail sector will soon begin to lay off staff as sales are lost to Amazon and soon we will have lost far more jobs than we gained. In addition we will have more empty retail space and a degraded community.

The Tennessee tax structure should be changed to even the playing field for ALL retail.

April 20, 2011 at 1:49 a.m.
sage1 said...

I can see your point nucanuck, at least for the time being. If the ability for states to collect taxes off of internet sales ever passes, the roll will be reversed. At present, shipping is usually cheaper than sales tax on certain item categories depending on item price, weight, size and so on. If one purchases over the internet and pays shipping with no sales tax they get a better deal than buying local and paying sales tax. This advantage is lost when and if both shipping and sales tax are charged for out of state internet items. People will revert back to local merchants once this happens and internet sales from companies like Amazon will fall drastically. This could also cause a huge number of lay-offs in cities where these companies are located.

I can see an exception to this, which is the lack of items that are available locally. I’ve lived in Chattanooga for 58 years and the lack of availability and variety of certain items in Chattanooga has often presented a very noticeable problem for some reason when compared to other cities I’ve visited or worked in for short periods. This will not make up for the lost revenue to internet companies if the aforementioned scenario takes place.

April 20, 2011 at 12:10 p.m.
tnvret said...

"U.S. Supreme Court decisions have said out-of-state retailers cannot be compelled to collect sales taxes by states or local governments unless they have a physical presence."

For all practical purposes as a retailer Amazon will have no physical presence in TN. There is no showroom - no place to look, browse, touch, etc. It is simply a shipping address that could instead be CA, NY, TX, or GA; something pretty much transparent to the buyer. If the consumer chooses to buy from Amazon, it isn't a decision based upon the location of the distribution center; however, that distribution center, wherever located, does put jobs and income in the hands of those living locally. Making the stand to collect sales tax and losing the industry is simply winning the battle and losing the war. Face it; right or wrong, state and local governments make very lucrative tax deals to lure industry for the jobs - for the local economy - simply another variant of peer pressure.

April 20, 2011 at 1:32 p.m.
nucanuck said...

If you want to order from Sears, JC Penney, or any other on-line retailer with a Tennessee presence, you must pay sales tax. The Amazon exception is clearly unfair and gives Tennessee retailers a strong legal opening to boycott sales tax collection and stop collecting sales taxes on the date Amazon opens for business in Tennessee.

If Tennessee based merchants work together with a tax collection boycott, they will win in court and get equal treatment...even a bad lawyer could win that class action law suit.

April 20, 2011 at 3:02 p.m.
amazonian said...

So, they are not collecting sales tax now and Tennessee customers are ordering things from them. Just because they are opening a Fulfillment center in the state doesn't mean that local retailers are now at some unfair disadvantage. If people don't want to go to your store I doubt it has anything to do with the fact that you collect sales tax. Even if Amazon does start to collect it they will still be able to beat your prices because they sell WAYYYY more than you do.

April 20, 2011 at 7:04 p.m.
Humphrey said...

amazonian that sounds like tax-free walmart

April 20, 2011 at 7:15 p.m.
TNCitizen said...

So how did the Haslam administration accomplish the exemption for Amazon? Was it an open, public process? Or did they do it with a behind-closed-doors backroom deal? Who else will come along and bully us into giving them an exemption? The sales tax is the foundation of Tennessee's tax structure. Amazon and Haslam just took a sledgehammer to it.

April 22, 2011 at 10:29 p.m.
rolando said...

The Law Of Unintended Consequences applies...in spades.

Some say we should start requiring not just Amazon, but every online-only company with any kind of a presence in this state -- including its trucks passing through or stopping, presumably -- to start collecting Tenn sales tax on anything they sell to Tenn customers.

Neat, that. But it is still cheaper to buy from Amazon, shipping and taxes included. Not only that, but one can still order an on-line item from a Georgia on-line only company, drive down there, show your Tenn driver's license and pick the item up -- sale-tax free. Most items bought that way are still cheaper, gasoline or no. And Tenn retailers can't do a thing about it...might as well complain because WalMart has lower prices.

May 4, 2011 at 9:02 p.m.
rolando said...

Nucanuck:

If you bought things in-country a bit more often, you might learn that Sears, JC Penney, BestBuy and the rest of them have at least one store in most of our 50 states. THAT is a "physical retail presence" required under SCOTUS decision. So Sears, et al are already required to collect sales taxes on everything they sell to Tenn customers, on-line or in a physical retail store. And they do.

Personally, I hope Amazon moves their facilities south, north, east, or west of the Tenn border...and takes those 3400 plus jobs WE would have had with them.

Then come next election, those idiots voting FOR the sales tax law change just might find themselves ALSO in the unemployment line.

May 4, 2011 at 9:09 p.m.
rolando said...

For a Democrat, former Gov Bredesen had it together. Pity we couldn't keep him for a third term...but them Gov Haslem is doing quite well, too.

Both of them consider 3400 plus jobs for our people -- and the long-term sales taxes they will pay as a result -- more important than today's attempt at a quick-fix band-aid approach.

May 4, 2011 at 9:15 p.m.
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