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

NASHVILLE - Christmas will come a little late for Tennessee tax collectors in 2013, but come it will beginning Jan. 1 with officials expecting a multimillion-dollar revenue boost as online retailing giant starts collecting state sales taxes on items it sells.

This holiday season is the last tax-free spree for state residents to purchase books, music, clothing and other items on Amazon without having to pay state and local sales taxes.

That's because under a 2012 state law that goes into effect with the start of the new year Amazon is required to collect Tennessee's 7 percent state sales tax and an average 2.5 percent local option sales taxes on items sold by the online retailing giant.

Consumers likely will eye the change as the imposition of a Cyber Grinch. Using 2011 figures, legislative analysts last year projected the move over the course of a year will generate $17.5 million in additional sales taxes for state government plus another $7.4 million for city and county governments statewide.

But Gov. Bill Haslam and others see it as a partial plug in a sales tax hole caused by the steady migration of consumers from traditional brick-and-mortar retailers, who have to collect the tax, to online retailers, many of whom don't.

"Obviously it's a big deal," Haslam said, noting state revenues are lagging behind projections in the current budget. "We have a tight budget and I think Tennesseans recognize that the way we fund state government is through sales tax."

In a low-tax state with no general personal income tax, the state's sales tax accounts for 54 percent of state tax revenue.

"I think a lot of people see that as a new tax," Haslam said of the change. "But what I try to remind ... people [of] is that the items being bought from Amazon they were buying somewhere else in a local store before and paying the sales tax on it there."

The law was passed in 2012 in the aftermath of the Bredesen administration's successful 2010 negotiations with Amazon that led to the construction of two fulfillment centers in Chattanooga and Charleston, near Cleveland.

Under prior U.S. Supreme Court decisions states cannot require out-of-state vendors to collect sales taxes unless they have an actual physical presence in a state.

But the fulfillment centers, which are giant warehouses used to stockpile goods to speed deliveries, fit the physical presence description as well.

Amazon originally was excluded from having to collect sales taxes under the agreement struck with then-Gov. Phil Bredesen.

Traditional retailers like Wal-Mart and Auto Zone, however, objected to that, saying it continued Amazon's unfair business advantage over them since they have to collect and remit sales taxes to the state.

Bowing to political pressure from state lawmakers and threats of a lawsuit by traditional retailers, Haslam and Amazon came to an agreement in 2012. The company would not fight having to collect sales taxes but the state agreed to delay the requirement until Jan. 1, 2014.

Amazon says it doesn't see giving up its current tax advantage impacting its Tennessee sales.

"As analysts have noted, Amazon offers the best prices with or without sales tax," company spokesman Ty Rogers said in an email.

Amazon now has five fulfillment centers in Tennessee employing thousands of full-time and seasonal workers. Besides one center each in Chattanooga and Charleston, the company now has two in Lebanon and one in Murfreesboro.

Dr. Bill Fox, a University of Tennessee economist and widely recognized expert on the impact on e-commerce's impact on sales taxes, said the law "doesn't solve the broader issue of the inability to collect tax on remote commerce."

But it will result in additional tax collections and "eliminate" the up-to-now untaxed status of a major competitor, Amazon, "that businesses sitting on Main Street in Chattanooga are competing" against, Fox said.

According to the National Conference of State Legislatures, states last year stood to lose some $23 billion because they couldn't collect sales taxes from most online, catalog or telephone purchases.

As for Tennessee estimates on the $17.5 million in additional state revenues and $7.4 million for local governments, Fox said "it wouldn't surprise me if that's a conservative number. But, having said that," he quickly added, "Amazon will face the same challenge in Tennessee that in some sense the local retailer on Main Street faces. And that is there are still millions of vendors out there not collecting for Tennessee."

Consumers who shop specifically to avoid sales taxes "will shift away from Amazon and shift to the many, many other options" from online vendors not part of the agreement.

The e-commerce phenomenon has alarmed any number of states and some, including Georgia, have taken a different approach involving laws that require online retailers to collect sales taxes when they pay in-state affiliates to promote links to items on their websites.

The U.S. Supreme Court has left it up to Congress to resolve the situation. Last week, justices refused to hear the appeal of a New York appellate court ruling on one such law. That leaves states -- at least for now -- free to engage in such maneuvers.

After years of discussion, there was movement on the issue in the U.S. Senate, which passed the Marketplace Fairness Act. It would authorize states to compel online retailers that operate across state lines and have more than $1 million in annual revenue to collect sales tax. But the bill has stalled amid opposition in the House.

Sen. Lamar Alexander, R-Tenn., a former governor, is one of the sponsors of the measure. Alexander says it leaves the issue to states to decide whether to require online retailers to collect sales taxes.

"This is a states' rights bill that allows states to end discrimination against Main Street businesses," Alexander said in a statement. "It has the support of the chairman of the American Conservative Union, [former Ronald Reagan adviser] economist Art Laffler and many Republican governors."

Alexander said the Supreme Court's refusal to hear the New York dispute last week "means that Congress needs to act on this issue, which in 1992 the Supreme Court invited Congress to do, and my hope is the House will debate the Marketplace Fairness Act soon."

Contact staff writer Andy Sher at or 615-255-0550.