Amazon Debate Centers on Details of State Incentives

A clash over Internet sales tax collections regarding Amazon.com Tuesday became yet another arena of questions over what sort of deal former Gov. Phil Bredesen struck with the online sales giant.

Sen. Randy McNally, R-Oak Ridge, has proposed legislation that would force businesses such as Amazon, which is dramatically increasing its presence in the state, to collect sales taxes on consumer purchases in Tennessee. Amazon opposes such legislation, questioning the constitutionality of such a law.

But discussion over McNally’s proposal led lawmakers to ask yet again what exactly was done in the Bredesen deal that landed Amazon distribution centers in Hamilton and Bradley counties.

Action was deferred on the legislation, as was the companion bill in the House, until next week, but there appears to be no waning of curiosity among lawmakers about the Amazon agreement — including whether the deal is even in writing.

“There are a number of questions that I have — the committee has — certainly the issue of transparency, the issue of fairness, the potential of economic impact from jobs, versus fairness to existing businesses that are here and collecting sales tax on behalf of the state,” McNally, chairman of the Senate Finance Ways and Means Committee, told reporters.

McNally said his intention is to clarify state law on sales tax requirements on businesses that have a presence in the state — an element of the issue that has become open to debate.

One side of the issue argues that letting big distribution companies like Amazon slide on sales tax collections is unfair to the bricks-and-mortar retail businesses that are increasingly failing to compete with the Internet presence of Amazon and businesses like it.

Advocates for Amazon say the sales are being conducted in the home state of Washington, that the presence in Tennessee is only for distribution of the product and that there is no real retail presence of Amazon in the state.

Amazon has reportedly said if the legislation is passed in Tennessee it will take its books and go elsewhere, where the business climate is friendlier. Further, Amazon has reportedly increased the stakes, saying it has also prepared to build distribution centers in Knoxville and Nashville.

The emergence of Amazon in Tennessee has become a significant issue because its presence would bring more than 1,000 jobs to its East Tennessee centers and potentially as many more in new locations in Nashville or Knoxville.

Tennessee has actively recruited businesses that have the potential to create jobs. Gov. Bill Haslam has said he wants to honor commitments to large companies that were made by the previous administration.

But legislators continue to be frustrated by the lack of knowledge of precisely what those commitments were.

Even if the governor and lawmakers back the previous deal, Amazon’s flirtation with new distribution centers ups the ante on whether to force the company to collect sales taxes on its transactions.

Haslam has said that ultimately the Internet sales tax issue would require a multi-state solution because no single state could remedy the problem on its own.

The discussion in the Finance committee Tuesday appeared to show Republicans and Democrats of like mind. Both parties understand the importance of sales tax collections in state revenue.

“It’s an issue that of course involves jobs, but it’s an issue that involves fiscal policy in the state,” McNally said. “This is not a tax issue, it’s really a tax collection issue.”

Sen. Joe Haynes, D-Nashville, said during the meeting, “It almost seems like somebody’s playing games with us, because you know our tax base is based on our sales tax, and that’s pretty important to us.

“It doesn’t seem fair.”

Braden Cox, director of state public policy for Amazon, told legislators the sites planned for Tennessee are “fulfillment centers” for the orders that go through Amazon.

“Fulfillment centers. This has become a new term of art,” said Sen. Mark Norris, R-Collierville, the Senate majority leader.

“I’m trying to look at this from your point of view,” Norris said. “But I’m having the same difficulty Senator Haynes has.”

When Haynes referred to Amazon sites as “stores,” a lobbyist for Amazon corrected him by saying they are “warehouses,” not stores, and noted that a consumer can buy boots from L.L.Bean without paying sales taxes.

Much of the discussion centered on the commerce clause in the U.S. Constitution, from Article 1, Section 8, that authorizes Congress to regulate commerce between several states. The issue also involves the due process clause from the 14th Amendment.

The due process clause says no state shall deprive any person of “life, liberty or property without due process of law.” The U.S. Supreme Court has ruled that the due process clause prohibits a state from taxing a company unless there is “minimal connection” between the company and the state.

A key case study involved Quill Corp., a mail order company incorporated in Delaware, that made catalog sales. The North Dakota Supreme Court ruled that there was sufficient presence, known as “nexus,” of Quill in the state and that Quill had to collect the state’s sales tax. But the U.S. Supreme Court overruled the state court, saying the case did not represent sufficient nexus as it related to the commerce clause.

Norris said there is risk in affording one company like Amazon a tax break that is, in turn, disadvantageous to other businesses in the state and could interfere with their interstate commerce.

But in the end, some of the biggest questions among lawmakers remained on deals in the Bredesen administration.

McNally asked Cox directly what the agreement was and if it was in writing. Cox referred to statutory economic incentives available to any company and that there had been “commitments made” regarding sales tax collections. He said they were made in a “business context.” He said he couldn’t speak to the legal nature specific to the state.

Lt. Gov. Ron Ramsey has been out front seeking answers to exactly what deals were made under the previous administration, at one point calling for a meeting with Matt Kisber, who was commissioner of Economic and Community Development under Bredesen.

McNally picked up that ball on Tuesday.

“I think it’s important for the people of Tennessee to know what the deal was, what we ended up giving away in order to get the jobs in the centers,” McNally told reporters.

Senate Judiciary Chairwoman Mae Beavers, R-Mt. Juliet, echoed concern about tax breaks.

“I think we’ve got to be very cautious on giving all of these tax breaks to companies because ultimately the taxpayers in Tennessee end up paying for it,” Beavers said Tuesday.

“I’m not sure how many jobs we’re talking about, and that would have an impact on some things I think. We just keep giving company after company tax breaks. How long can we afford to do that?”

Andrea Zelinski contributed to this story.

  • W. Miller

    To Whom it May Concern.
    I have lived in Memphis, TN my entire life, yet, never have I witnessed such total lack of concern for the problems that exist in the way the Republicans in this state are overlooking the West Tennessee districts of this state in areas of legislation concerning economics, healthcare, and education. If not overlooked, we are surely being ignored or not being give a voice in these matters. To say that I am totally disatisfied with the latest news in what has been legislated is as civil as I can express myself.

    Nothing that this majority Republican power structure in this state is of any benefit to the districts in my part of the state. It is as if we don’t exist. I cannot express the exasperation I feel towards those who got the vote in the November 2010 midterms, and the manner in which they are showing their obvious lack of care for the state in it’s entirity.

    If this is the way we will be ignored under the leadership of Gov. Bill Haslam, the I hope that those who will want to see a return to those seats in the state houses will give serious thought to how I intend to get the message out of how we here in the western part of the state have literally had no voice in anything that the legislators do.

    To say that I am not surprised at the manner in which the legislation is going forth, I am very much insulted and appalled. As you may note, I am not speechless, nor will I ever be. Though I send this missisve, my vote will surely be my voice.

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