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Tennessee Gov. Bill Haslam, right, speaks during a meeting of the Chattanooga Times Free Press editorial board. At left is William F. Hagerty, commissioner of the Tennessee Department of Economic and Community Development. Staff Photo by John Rawlston/Chattanooga Times Free Press

Gov. Bill Haslam says he accepted arguments made by his predecessor, Phil Bredesen, in which the then-governor justified his support of Amazon's plan to build two distribution centers - and not pay state sales taxes - despite expected blowback from "brick-and-mortar" retailers.

Haslam, a Republican, said Bredesen, a Democrat, told him about striking a deal with Amazon to build the two distribution centers in Hamilton and Bradley counties following Haslam's November election but before he took office on Jan. 15.

"I said, 'Well, explain to me why you'd do that,'" Haslam recounted Tuesday during a meeting with Times Free Press reporters and editors. "And he [Bredesen] said, 'Well, in my book, they [Amazon] can either build there in Chattanooga or they can go nine miles away in Georgia and build and do the same thing.'"

Haslam recalled Bredesen telling him that in "either one of those cases they're not going to be collecting the Tennessee state sales taxes their customers are still technically required to pay.

"And he said given that, 'I'd just as soon them build that plant and have those jobs in Tennessee. And that's why I'm doing that.'"

Bredesen could not be reached for comment on Tuesday.

Asked directly whether Amazon would not be required to collect sales taxes on purchases made by Tennessee customers, Haslam said, "That's exactly right."

As to whether that was a precondition of Amazon agreeing to spend $139 million on the distribution centers, Haslam said, "I wasn't part of that, but that's my assumption."

Amazon's director of policy, Fred Kiga, has said Amazon will eventually employ 1,500 full-time workers and as many as 5,450 part-time workers at the two facilities.

Since officials announced the giant Internet retailer was coming to Southeast Tennessee, traditional retailers have charged that the state agreed to let Amazon continue not collecting sales taxes on items it sells despite the fact it will have a physical presence in Tennessee.

U.S. Supreme Court decisions have said out-of-state retailers cannot be compelled to collect sales taxes by states or local governments unless they have a physical presence.

Tennessee residents are still required by law to pay the sales tax on purchases made through Amazon and certain other Internet retailers claiming no Tennessee presence. But virtually no one does, officials say.

The state's sales tax on most purchases except food is 7 percent. Local governments can tack on up to 2.75 percent more.

On Tuesday, Haslam repeated his belief that a national solution is necessary to resolving the whole issue of levying sales taxes on Internet purchases.

"I think the time is ripe," Haslam said, noting it is primarily a federal issue although Congress has so far failed to move on legislation.

He said federal budget problems and Washington's inability to provide additional aid to recession-weakened states call for action on Internet tax issues.

"What's changing now is you have all the states going to say, 'All right Congress, we understand the world's changed. We're going to be getting fewer dollars from you, but we need you all to pass this and allow us to start collecting Internet sales tax.'"

But U.S. Sen. Bob Corker, R-Tenn., later told the Times Free Press that he sees little movement on the issue this year, with federal lawmakers focused on slashing federal spending.

Applying sales tax to Internet sales "is not even on the radar screen," Corker said. "I've had no discussion."

"The entire oxygen is being taken out of the room on every federal issue around this whole issue of what we deal with [on the budget] over the next few months," Corker said.

In February, U.S. Sen. Dick Durbin, D-Ill., announced plans to introduce the Main Street Fairness Act, which he said requires sellers to collect sales tax from out-of-state buyers regardless of whether the seller has a physical presence in the state.

Durbin said states are losing as much as $37 billion annually. The bill has yet to be introduced.

In an April 12 letter, Sen. Bo Watson, R-Hixson, urged Tennessee's entire congressional delegation to "review, consider and support legislation ensuring that Tennessee can enforce its sales tax laws against out-of-state retailers."

He was asked to write the letter on behalf of the entire Tennessee state Senate Finance Committee.

Bill Fox, director of the University of Tennessee Center for Business and Economic Research, estimates Tennessee's state and local governments in fiscal year 2011-12 will lose out on an estimated $410 million in revenues because of Internet sales.

Tennessee-based businesses that collect sales taxes are disadvantaged, Fox said.

"If you want to shop in the middle of the night, I think you ought to be able to do that," Fox said of purchasing over the Internet, "but I don't think we ought to subsidize it."

In a recent interview, Neal Osten, the director of the National Conference of State Legislatures' Washington, D.C. office, voiced hopes that some type of legislation will pass given states' revenue problems.

"We're still fighting to some extent that this a new tax. But everyone knows deep down it's not a new tax," Osten said.

Giving states the authority to compel Internet retailers to collect sales taxes is in effect "fiscal relief that doesn't cost the federal treasury a penny," Osten argued.

Contact Andy Sher at or 615-255-0550.