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."