Amazon, lacking 'nexus,' won't tax

Amazon, lacking 'nexus,' won't tax

March 3rd, 2011 by Andy Sher in Business

NASHVILLE - A top Amazon official is defending a sales tax exemption state officials plan to maintain after the Internet retail giant opens $139.1 million distribution facilities in Hamilton and Bradley counties.

During a meeting with Southeast Tennessee legislators in Nashville, Amazon policy director Fred Kiga was asked about criticism of the break from other retailers. Unlike conventional retailers, Amazon does not have to collect sales taxes on purchases made by Tennessee customers online.

"We are now getting numerous e-mails, phone calls and letters from local retailers saying what's going to happen to the sales tax collection? And why would I have to collect tax and you do not?" asked Sen. Andy Berke, D-Chattanooga.

Kiga said the distribution centers are set up separately from Amazon. They serve as "drop shippers," providing services to out-of-state retailers that do not have a physical presence - in legal jargon, a "nexus" - in Tennessee, he said.

"The out-of-state retailer still does not have nexus in the state of Tennessee and as a result it is not required to collect sales tax online for Tennessee residents," Kiga said.

"The distribution centers are separate entities. They do not establish or maintain a market for an Amazon retailer there," Kiga said. "People cannot walk up to a facility and, you know, pick up their goods."

Former Gov. Phil Bredesen struck the deal to lure Amazon as he was leaving office. New Gov. Bill Haslam has stood by it, saying in February in Chattanooga that "I don't think because Amazon decides to build a distribution center here, that should change their tax status."

But plans to change the state tax regulation were delayed when Haslam ordered a 45-day freeze on all new regulations when he took office.

"I know the administration is still contemplating what to do," Kiga said.

Asked if Amazon's agreement to come to Tennessee was conditional on the sales-tax exemption, Kiga said, "We told them that was an issue back in November."

Haslam said Wednesday he has "had a lot of conversation over the last two weeks" about whether Amazon should collect sales taxes.

He said his "argument" about how to collect sales taxes on Internet purchases is a "bigger issue" best addressed by Congress.

Congress has refused to do so for at least a decade, but Haslam said governors should press their claims.

The chairman of the Hamilton County state legislative delegation, Sen. Bo Watson, R-Hixson, said Wednesday he is supportive of Amazon. But he said he is "not sure exactly what track that's going to take."

On Tuesday, Rep. Eric Watson, R-Cleveland, appeared to sum up colleagues' feelings when he thanked Amazon for locating the two centers locally.

"When you explain this to people back home - distribution, not a retailer - they're thankful," Watson said.