Sales tax demand could drive Amazon away

Sales tax demand could drive Amazon away

May 5th, 2011 by Andy Sher in News

Katherine Braun sorts packages toward the right shipping area at an Amazon.com fulfillment center in Goodyear, Ariz., in this Associated Press file photo. Some Tennessee lawmakers object to Amazon not paying sales taxes on products that will be shipped from its Hamilton and Bradley fulfillment centers.

NASHVILLE - An Amazon.com official said Wednesday that legislative efforts to make the Internet retailer collect sales taxes on its Tennessee customers are unconstitutional and, if approved, could cause the company to abandon fulfillment centers it is building in Hamilton and Bradley counties.

"You need only look at South Carolina and Texas," said Amazon's vice president for public policy, Paul Misener, alluding to two states Amazon says it is leaving in response to similar situations.

"Here's the thing: Sure, they can pass a bill and we can go and litigate it, and we're confident that we can ultimately win," Misener said.

"But why would we want to come to a state that made a commitment not to harass us in this way and then, once we get there, the very first thing we face is a lawsuit? It just doesn't make any sense. Why not go to Indiana where we're welcome?"

Misener's comments come as the House and Senate Finance Committee chairmen are pushing to amend a tax bill so that Amazon and any other "dealer" or an "affiliate" with distribution centers in Tennessee would have to collect state and local sales taxes from in-state customers.

Amazon is spending $139 million on its two regional fulfillment centers. They will employ 1,400 to 1,500 full-time workers and perhaps more than 5,000 part-time workers to distribute books, music and other products from Amazon and third-party retailers.

Under U.S. Supreme Court rulings, states cannot compel out-of-state retailers such as Amazon to collect sales taxes from in-state customers unless they have a physical presence or "nexus" in the state.

Amazon argues the fulfillment centers are not a nexus and thus cannot be compelled to collect sales taxes. The national fulfillment center business is "separate and apart from our retail business," Misener said, and that was part of a "commitment" made by the state.

He said Amazon has no plans to create any retail operations "and therefore the tax officials, the government of Tennessee, certainly understood that and was committed to not try to force our retail business to collect."

Then-Gov. Phil Bredesen recruited Amazon last year and the state's apparent commitment was accepted by new Gov. Bill Haslam.

It infuriated traditional "brick-and-mortar" retailers ranging from mom-and-pop clothing stores to national giants such as Wal-Mart.

They argue the deal gives Amazon an unfair advantage because they still have to collect the state's 7 percent sales tax and up to 2.75 percent in local option sales taxes.

The businesses are backing efforts by Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, and House Finance Committee Chairman Charles Sargent, R-Franklin, to "make clear" Amazon would be required to collect sales taxes.

Sargent delayed consideration of the bill in the House Finance Subcommittee until next week.

McNally said Wednesday night he has asked Tennessee Attorney General Bob Coop-er for an opinion whether the legislation passes legal muster.

"I think that's fair," he said. "If there is a constitutional issue with the amendment, we'll try to address it."

As for Misener's comments about pulling up stakes, McNally said, "I've been threatened before. If they say if the Legislature takes certain action they're going to pack up and leave, I'd say it's an attempt to control the Legislature and blackmail the Legislature."

But House Majority Leader Gerald McCormick, R-Chattanooga, said he doesn't see Amazon as bluffing and referred to its decision to pull out of a proposed center in South Carolina rather than collect sales tax.

"We made the deal," McCormick said. "We've got to keep our word, and if we don't, we lose all reliability.

"I'll continue to talk to members of the subcommittee and try to make sure we hold together and defeat this thing," McCormick said. "I think it's bad for business. It's a bad precedent. It will literally run jobs out of the state of Tennessee."