published Wednesday, May 11th, 2011

Senators question Amazon on sales tax, deal with Bredesen

NASHVILLE — Senators grilled Amazon.com representatives on Tuesday about the Internet retailer’s assertions the state cannot make it collect sales taxes from in-state customers despite company plans to open two distribution centers in Southeast Tennessee.

Lawmakers also peppered them with questions about a sales-tax collection exemption deal the company struck with outgoing Gov. Phil Bredesen in 2010. His successor, Gov. Bill Haslam, has said he is honoring the deal.

Senate Finance Committee members’ skepticism came as members held a hearing on legislation sponsored by the panel’s chairman, Sen. Randy McNally, R-Oak Ridge.

The bill seeks to force Amazon to collect sales taxes, which can total 9.75 percent in state and local levies in Tennessee. Senate action was delayed until next week. A companion bill is scheduled to come up in the House Finance subcommittee today.

Earlier, McNally alluded to the fact that Amazon plans to hire some 1,500 full-time workers and several thousand seasonal employees in its planned distribution centers in Hamilton and Bradley counties.

But McNally cautioned the issue “also involves fiscal policy of the state, and it also involves equity” with regard traditional brick-and-mortar retailers.

A quartet of retailers later blasted Amazon’s business model in their own committee testimony.

Under U.S. Supreme Court rulings, states cannot force out-of-state retailers to charge sales taxes unless those companies have a physical presence, or in legal jargon, nexus, in a state. McNally said his bill would make it clear Amazon’s warehouses constitute nexus.

Amazon argues its warehouses, which fulfill orders and ship merchandise, are separate from the company’s retail business.

Amazon lobbyist John Lyell, an attorney, acknowledged there are some gray areas on what would cause the retailer to begin collecting sales tax. But it isn’t the presence of the warehouses, which Amazon calls fulfillment centers.

“The retail store — where you buy your goods — is in Washington state,” Lyell said, referring to Amazon’s corporate headquarters. “These people [at the planned Tennessee warehouses] just ship them out.”

He said “unless you have a retail store in the state, then you’re not required to pay the sales tax.”

Committee members heard from two small retailers in Knoxville and Nashville as well as executives from “big box” retailers Best Buy and AutoZone.

AutoZone’s vice president over taxes and treasurer, Brian Campbell, said the Memphis-based company has 157 stores in the state and employs some 4,000 people. The retailer collected $19 million in Tennessee sales taxes last year, he said.

“We’re turning our backs on existing business, mainly brick-and-mortar retailers who are actually creating jobs,” Campbell said. “The state should not be in the business simply of picking winners and losers and cutting special secretive deals.”

He said the retailers are “looking for fairness.”

Amazon has been fighting similar battles in other states. Last month, South Carolina lawmakers refused to go along with a tax exemption bill. Amazon later all but said it would abandon a fulfillment center it is building there.

Amazon officials told the Chattanooga Times Free Press last week they could pick up stakes in Tennessee as well if officials don’t honor their commitment. Yet the company later said it is looking at building three more centers in Tennessee because Haslam remains committed to Bredesen’s promises.

Later Tuesday, Virginia-based Alliance for Main Street Fairness, members of which range from Wal-Mart and Best Buy to small businesses like Fish Mania in Chattanooga, began airing television ads seeking to put pressure on lawmakers to scuttle the deal.

“Who gets hurt when out-of-state companies get special deals to come to Tennessee, and get a competitive advantage over local businesses?” the ad asks.

Earlier, Amazon’s director of state policy, Braden Cox, and Lyell said they had not been involved in company discussions with the Bredesen administration and were unable to provide details about the agreement on not having to collect sales taxes.

“I guess I just don’t know the legal nature of them,” said Cox, noting he would check to see if he could disclose the agreements. “Whether they’re actually something that can be upheld in state court. I don’t know that. But I know they were made in a business context, an inducement for us to want to come to Tennessee.”

In response to more questions, Cox said “it was a decision that was negotiated in more of a business-type context” between a state economic development leader” and “also people at our company on the business side.”

Sen. Brian Kelsey, R-Germantown, questioned whether it was “more of a handshake deal” than a legal written contract.

Replied Cox: “To the extent that a handshake deal matters — and I think they should — yes.”

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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timesfreepress said...

Do you think Tennessee could lose the Amazon distribution centers?

May 10, 2011 at 11:32 p.m.
alohaboy said...

The Supreme Court ruling in the Quill vs N. Dakota in 1992 said Quill, who had no employees and no physical presence in the state, did not have to collect sales taxes on office supplies shipped into N. Dakota. That's a far cry from having employees and distribution centers like Amazon. Also, I believe Amazon acts as a middle man for retailers who do have a presence in Tennessee. The jobs will be nice but are the thousands of retailers here in Tennessee and their employees being treated fairly with this deal that Bredesen cut with Amazon?

May 11, 2011 at 8:13 a.m.
MaddieMaitland said...

Does anybody really believe that Wal-Mart and Best Buy are concerned about businesses being good members of the community? Pahleeze. It's about competition. Wal-Mart arm twists and takes advantage of every bit of corporate welfare they can squeeze out of communities, up to and including convincing the Chattanooga City Council to violate a protective environmental easement and destroy a wetland to build yet another eyesore big box. Our community gave away our children's education to entice Volkswagen to build here. This is not about fairness; it's about one giant arm-wrestling another one, with no regard for the peasants who get crushed in the fight.

And please explain how building an Amazon fulfillment center here will threaten local small businesses? The entire gist of the legal argument is that there will be no storefront for customers to walk in and buy merchandise. We will still have to buy from Amazon the same way we do now: online. Online purchasing affords the customer time to price shop and think, which reduces the opportunity for Amazon to take advantage of buyer impulse, whereas Wal-Mart, Best Buy, and yes, even Fish Mania, have the advantage of offering their goods on site, where they can use live salespersons and sensory stimulation to persuade customers to make impulse purchases. They also have the advantage of providing instant gratification rather than the wait that online shoppers must endure. If your iron stops working, you can't wait a week for non-wrinkled clothes, you need it today. Amazon can't compete with that. Bricks-and-mortar retailers have advantages over online sellers that put them in a different category. They are not always in direct competition.

If Amazon builds here, they take advantage of services while collecting no revenue for the state. If they don't, we lose potential jobs. Either way, we common folk will lose something in the battle of the Titan retailers. "Main Street Fairness" is just another boring front for a consortium of big boxes with a few local retailers thrown in for window dressing, created to get you and me worked up enough to waste our energy defending them. I don't know about you, but unless they put me on their payroll with benefits and a big fat salary, I'm not lobbying for Wal-Mart.

May 11, 2011 at 9:04 a.m.
nucanuck said...

As on-line marketing grows, and it is growing rapidly, states lose revenue with which to operate. That loss will force new forms of taxation...you can count on it. Because we know the trend, we should take this opportunity to get ahead of it.

Taxing some and not others is not a solution. Either we eliminate sales taxes or we tax all the same...those are the only two solutions. Elimination is the more logical solution because we already know on-line growth will force substitute taxation soon.

A sales tax base is not sustainable and we should move now to replace it, before we are forced into a corner.

May 11, 2011 at 12:01 p.m.

"Do you think Tennessee could lose the Amazon distribution centers?"

No.

May 11, 2011 at 1:41 p.m.
rolando said...

"A sales tax base is not sustainable and we should move now to replace it, before we are forced into a corner."

Defend that statement, nucanuck. Provide examples of American bases that failed, please.

Having worked and lived under both systems in a number of states, I call BS. Every one of those states with an income tax also has a sales tax...at a sales tax level approaching that of Tennessee.

I left a state with both income and sales tax, right down to the city level. I chose Tennessee -- at least they only tax me once on the same income.

May 11, 2011 at 3:30 p.m.
MasterChefLen said...

The "bought and paid for" politicians are putting their PAC money ahead of badly needed ecomonic growth. These are probably the same politicians that get "blood money" from the the independent wine and liquor stores (bribes) to keep grocery stores from selling wine and liquor. There are a several states that will line up courting Amazon if Tennessee does not honor it's deal.

May 11, 2011 at 10:34 p.m.
nucanuck said...

rolando,

Surely you can see that on-line sales will take a huge chunk out of retail nationwide. Maybe we can't predict whether that percentage will be 20, 30, or 40%, but we know it will be big. In addition to that we suspect that overall consumption will drop substantially below the 70% of GDP that has persisted for years. Those two realities should cause any forward thinking person to realize that a sales tax base will not fare well going forward.

I understand that forward vision is not easy or common, but this should be clear enough for all to understand.

May 11, 2011 at 10:36 p.m.
tnbound said...

Under the current arrangement, whether or not Amazon comes to Tennessee, the company is not collecting sales tax from TN residents. If the state goes back on the deal, Amazon will not bring its 1500 fulltime and many more seasonal jobs and will still not collect sales tax. 1500+ jobs means that many more people earning wages and spending them within the state (and paying sales tax). The presence of Amazon in the state will not significantly increase the number of TN Amazon customers, so local businesses will not lose any more business than they already do (because they are unable to compete with a very effective business model - don't delude yourself into thinking that the only way Amazon beats local businesses is due to the sales tax advantage - even with sales tax Amazon has better prices). Seems like a no-brainer, unless there is no one in Tennessee that is out of work.

The CEO of Amazon.com, Jeff Bezos, has been quoted today as follows: "Our point-of-view on this is that we should simplify the sales tax system, and we’ve been insisting on this for 10 years. We support the streamlined sales tax initiative, and 22 states have signed on. The right way to fix this is with federal legislation. Sales tax is very complicated. We’re no different from big chains of retailers. They don’t collect sales tax in states where they don’t have nexus either. So everyone is following the same rules." -ConsumerReports.org

Maybe TN should welcome Amazon with open arms and then get on board with the federal legislation. Then they get the jobs and the sales tax as well.

Could the state lose Amazon if the deal is broken? Just take a look at South Carolina and you will find your answer. Does WalMart really care about local small businesses? They have been effectively putting them out of business for over 20 years.

May 11, 2011 at 11:11 p.m.
nucanuck said...

tnbound,

Your observations are spot on and that is why the State of Tennessee should drop the sales tax and eliminate the issue from debate. All retail would then be treated alike avoiding the necessity for Federal laws to be changed.

Replacing the sales tax with an income tax would cause controversy, but change always does. Tennesseans and Tennessee would be better served.

May 12, 2011 at 12:44 a.m.
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