Amazon.com reminds Tennesseans they may owe taxes

Amazon.com reminds Tennesseans they may owe taxes

February 1st, 2013 by Shelly Bradbury in Local Regional News

Workers process orders on an assembly line in the Chattanooga Amazon fulfillment center.

Photo by Staff File Photo/Times Free Press.

Tennessee sales and use tax collected, 2011-2012 fiscal year

* Grand total: $6.7 billion

* Total retail: $4.3 billion

* Consumer use tax: $6.3 million

Source: Tennessee Department of Revenue

* Visit https://apps.tn.gov/usetax/ to pay the use tax

POLL: Would you volunteer to pay sales tax?

East Ridge resident Jillian Alexander was sure the email from Amazon was a scam when she first saw it on her phone.

"You may owe use tax on purchases you made from Amazon.com LLC during the previous calendar year," the notice from the online retailer read. It listed the money she had spent on the site last year -- $87 and some change -- and included a link to Tennessee's state website where she could pay the tax she apparently owed.

"I was like, 'Are you kidding me?'" she said.

But it's not a scam. Online shoppers across the state are receiving the email notice this week, part of a law Gov. Bill Haslam signed early last year in which the state agreed Amazon doesn't have to collect state sales tax until 2014.

In exchange, Amazon agreed to send out notices to Tennessee purchasers to let them know they are responsible for paying the tax in the meantime. The notices went out for the first time last year.

"You are legally required to pay it," said Bill Fox, director of the University of Tennessee's Center for Business and Economic Research. "But the reality is that most consumers don't pay the use tax."

The use tax is not new -- it's been in place since 1947, said Billy Trout, Tennessee Department of Revenue spokesman. It's the same rate as sales tax and applies to out-of-state purchases that are used in Tennessee.

"It is the twin brother of sales tax," he said.

If a Tennessee resident drove to Dalton, Ga., and bought several rolls of carpet, then brought them back to Tennessee and installed them, he would be required to pay the use tax on those rolls of carpet, Trout said.

"Of course, it's a new world with people buying things on the Internet, but it is really no different," he said. "When people bring things into Tennessee, they have to have tax paid on them."

Still, many shoppers are balking at the idea of filing a return to pay Tennessee's 7 percent sales tax -- plus up to 2.75 percent more in local sales taxes -- on their Amazon purchases.

Melissa Ward Carden said she doesn't plan to pay up.

"If they want sales tax, they need to charge it at the time of the order, just like every other legitimate business," she wrote on the Chattanooga Times Free Press Facebook page.

Fox estimated the state could get around $30 million if everyone who received a notice paid the tax. The budget Haslam presented to lawmakers this week projects that the Amazon tax will bring in $35 million next year when Amazon must collect the tax at the time of each sale.

Amazon representative Ty Rogers declined to say how many notices Amazon sent out or how much money Tennessee consumers spent with the company last year.

Amazon also doesn't give the state the information on consumers' spending, which makes enforcing the tax difficult.

"As a general rule, there's no information and no easy way for the Department of Revenue to come out and audit individuals," Fox said.

The lack of enforcement leads many to ignore the tax.

"Considering they don't report it -- then why pay?" Shannon Hargiss Vaught wrote on Facebook, expressing a common sentiment. "If Tennessee wanted their tax, they should've taken it when they had the chance."

The state collected just $6.3 million in consumer use tax during the 2011-12 fiscal year -- well below the $35 million projected in Haslam's budget and less than 1 percent of the total $6.7 billion the state collected in sales and use tax.

Still, the notice has spurred some shoppers to file the return. When Amazon sent out the notices for the first time last year, the number of consumer use tax returns jumped from just 1,795 in the 2011 fiscal year to 8,766, Trout said.

"In Tennessee, we depend on consumers voluntarily complying with the tax law, and Tennesseans do a good job at this," he said.

Besides boosting the state budget, requiring Internet-based retailers to collect sales tax would also help brick-and-mortar businesses compete, Fox said.

"When I go to Hamilton Place and buy something, I pay the tax -- but when I order it from eBay, I don't," he said. "That's not in the best interest of commerce in the U.S. or in Chattanooga. It harms small retailers, and it even harms large retailers like Best Buy that are collecting for all states and trying to compete with firms that aren't."

The reason Amazon doesn't have to collect state sales tax at the time of purchase stems from a 1992 U.S. Supreme Court ruling that decided businesses have to have a physical presence in a state in order to be charged sales tax.

Since then, the debate on what exactly constitutes physical presence has raged, leading lawmakers to create standards for collection on a state-by-state basis.

In some states -- like Texas and Kentucky -- Amazon collects state sales tax when the consumer purchases a product. But it doesn't have to do that in Tennessee until 2014.

In Georgia, state law required Amazon to start charging sales tax on Jan. 1. But The Atlanta-Journal Constitution reported last week that Amazon wasn't initially collecting the fee when customers purchase items, which could lead to a costly legal battle.

Alexander said she plans to shop less online after reading the notice from Amazon.

"I'm willing to pay it if that's what I owe, but I'm more than likely not going to shop Amazon again," she said. "The whole point of shopping at Amazon was to get a cheaper price -- so if I have to pay sales tax, I might as well go to a local store."

Fox said the ideal solution to the issue of Internet-based firms collecting state sales tax would be legislation at the federal level. Congress has been aware of the issue for several years, he added.

"It is gaining more traction now -- when this was first an issue, it was kind of the state and local governments saying, 'Hey, we're losing some tax revenue here,'" he said. "Over time what's happened is the organizations that are saying, 'Hey, this needs to be a level playing field,' have broadened to include many of the large vendors in the U.S. like Walmart or Best Buy.

"There's now a lot of businesses lining up and saying we need to change the way this is treated."