published Thursday, February 24th, 2011

No free ride for Amazon

Gov. Bill Haslam and other state officials are being wrongly vague about whether they intend to exempt from collecting state and local sales tax on sales through the distribution centers that the country’s largest online retailer is building in Hamilton and Bradley counties. Yet one thing about this issue is crystal clear: the company should be required to collect sales taxes on sales routed through its new Tennessee facilities, just as any bricks-and-mortar business must do.

It’s the only fair thing to do. Exempting Amazon would immediately give it a hugely unfair sales advantage of roughly 10 percent over other on-site — if not online — retailers in Tennessee.

While we welcome to Chattanooga, we are well aware that Amazon will wrongly resist collecting and paying sales taxes on merchandise sold — it would say “distributed” — in or from Tennessee. We also suspect that local and state officials, in their fervor to induce Amazon to establish distribution centers in Tennessee, are poised to wink-and-nod their way to giving Amazon permission to ignore the rules — and the state’s legitimate tax-and-revenue needs — that are met by traditional stores.

In effect, they are ready to kiss good-bye an estimated $64 million — including about $8 million for Hamilton County schools — by letting Amazon escape sales tax collections

So let’s be honest. Online retailers, especially the giants of e-commerce like Amazon, Overstock, Sierra Trading Post and Blue Nile, have become hugely profitable national and international retailers by skirting the sales-tax mark-up that virtually every state requires of traditional stores, including the chain outlets of national bricks-and-mortar retailers. This unfair advantage helped Amazon rack up a nearly 30 percent surge in sales in 2008, to $19 billion, while other American retailers suffered two of their worst years in 2008-09 recession.

This disparate treatment is impossible to justify on the logic of how both online and fixed-site stores buy and sell retail goods. Both types of retailers typically purchase goods from the same sort of international manufacturers of consumer goods, most of which are imported from abroad (largely from China). The only difference is how consumers make their purchases: whether they walk into local stores or log-on to online stores.

The excuses that online giants traditionally have used to avoid collecting and remitting sales taxes to state and local governments — that it would be horrendously complex to track their sales tax obligations — have been solved by sophisticated software. Indeed, Amazon, as a distribution agent for Target, now collects Target’s sales taxes nationwide for that company’s online sales. (Unlike strictly online retailers, brick-and-mortar stores with e-commerce arms are required to collect and remit state and local sales for their e-commerce units. The difference? Go figure. There is none.)

Congress began dodging the issue of online tax collections on the excuse that it wanted let e-commerce mature. It now has matured. Yet Congress, kow-towing now to online retailers’ lobbyists, has repeatedly failed to pass a uniform federal act requiring national online retailers to compete fairly with their bricks-and-mortar counterparts by collecting and remitting state and local sales taxes to the appropriate governmental entities.

That’s allowed online retailers to fall back on a 1992 ruling by the U.S. Supreme Court which said that states could compel sales tax compliance only on those businesses that had a physical presence, now known as a “nexus,” in their states. The ruling has prompted some states to try to collect sales taxes on sales in their own states from e-commerce companies with a presence in the state; others have adopted specific laws requiring online retailers that do business in their state to collect and remit sales taxes.

Amazon reportedly collects and remits sales taxes in only five of the nearly 20 states in which it has a physical presence. But a number of other states are trying to collect sales taxes they claim are due from Amazon. That should be an imperative in Tennessee, which relies more than any other state on sales tax collections for the bulk of its tax revenue, and which faces revenue shortfall this year of more than $1 billion.

Amazon’s resistance to sales tax collections, however, is reflected in its announcement this month that it will shut down its distribution center in Dallas, Texas, and scrap plans to build other centers in Texas in response to the state’s demand for $269 million it claims is owned by Amazon in state sales taxes.

We don’t want to see such a battle here, nor do we wish to see Amazon leave. Yet we cannot see any justification for free-riders vs. the inequity and discrimination against fixed-site stores that help pay their share of the state and local tax burden — a burden that falls on all citizens to support necessary public services.

Indeed, we think our state and local government have given Amazon more than enough tax abatement incentives and job-training benefits to build its two plants here. The company should be grateful for that, and should show it by voluntarily accepting its corporate citizenship duties to pay its share of our local and state taxes.

Gov. Haslam should be ashamed if he helps the company dodge that burden. If he tries, the Legislature’s so-called fiscal conservatives should hold him accountable to explain exactly why Amazon should get a free ride on sales tax collections that other stores must collect and remit to the state.

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krk said...

Similarly, in South Carolina, Amazon has been trying to lobby for a “safe harbor” sales tax exemption on top of other concessions for locating their distribution centers in the state. This is all a sad short-sighted policy where states compete among themselves into bankruptcy.

Juxtapose this with Texas recently back-charging Amazon $269 million for sales tax it had not collected over the years while stealth maintaining a distribution state in-state. Texas got shamed into going after Amazon only after it was brought to light by a vigilant Dallas Morning News reporter. Besides challenging Texas in court, Amazon is playing the intimidation card by closing down its distribution centers in Texas.

States, instead of pursuing a “Beggar Thy Neigbor” policy pandering to the likes of Amazon to generate a fleeting “High” of prosperity, like Nations do by rubbishing their own currency, should try to colloborate and take collective action to end this permissive abuse of our antiquated sales tax system.

Only collective, colloborative action will put a stake in the "Nexus" & "Entitity Isolation" voodoo legal tactics that remote online merchants, particularly, have been getting away with.

What everyone is blind to, is the impact on mainstreet retail which too adds jobs you know. In this perverse “damn if you do, damn if you don’t” situation created by the antiquated catalog mail-order era Supreme Court ruling regarding “Nexus”, state authorities are exploited by big, predatory online businesses. The sensible thing for states to do is press Washington to speedily enact the “Mainstreet Fairness Act” which had bi-partisan sponsors but got nowhere in the past congress and its principal sponsor is now retired. This will restore a level playing field to brick and mortar retail and bring back jobs and vibrancy to mainstreet retail. Plugging such corrupting loopholes will foster a business ecosystem of free, fair and level playing field to flourish, bring back jobs and vibrancy to main street retail and much needed revenues to the state.

February 24, 2011 at 7:33 p.m.
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