Washington Can’t Ignore Amazon Sales-Tax Issue Indefinitely: Haslam

Bill Haslam may be the one person in Tennessee who has full faith and confidence that Congress will act.

No, not on the national debt or debt-ceiling. Gov. Haslam sounds as frustrated and bewildered as anyone else about that.

But Haslam, unlike many people, believes Congress will deliver a remedy for the states on what has gradually come to be known simply as “the Amazon issue.”

Amazon.com, the online retail company, does not want to collect sales taxes in Tennessee on its transactions. This is a problem for a state, particularly a state like Tennessee that relies heavily on the sales tax for its revenue.

Tennessee does not have an income tax, so its reliance on the sales tax is one of the more pronounced aspects of the state budget.

And the Amazon issue just got bigger in Tennessee. The company had already struck a deal with the administration of Haslam’s predecessor, Phil Bredesen, to establish large distribution centers in Hamilton and Bradley counties without a requirement to collect the state sales tax.

On Thursday, Amazon announced it is setting up another Tennessee distribution center, in Lebanon in Middle Tennessee. So as Amazon’s presence grows, the sales tax issue intensifies.

A plan has been in place since 1999, and supported by more than 40 states and the District of Columbia, where a level playing field would be applied in order to capture sales taxes from “remote sellers” on the Internet. The Streamlined Sales Tax idea is to make those sales play out in a way that is fair to traditional “bricks-and-mortar” retailers, who feel letting online sales go untaxed is wrong.

Hundreds of online retailers in the country do collect taxes in those states on a “voluntary” basis, but they don’t come near collecting what is “owed,” and it’s almost impossible for states to try to collect taxes in a piecemeal fashion. States have already seen how a mere threat by Amazon to pull out of a state — and take its job opportunities with it — can bring a legislature to its knees. It happened in South Carolina, where the legislature blinked and granted an exemption.

The U.S. Supreme Court has said Congress can act under the Commerce Clause of the Constitution and force a level playing field on the states. To many observers, that notion is laughable, because if Congress were to take that step it creates the appearance that Congress is raising taxes, although in reality it wouldn’t raise a penny in new tax.

Further, Congress would risk the appearance while never receiving one cent for federal coffers. So it might look politically foolish to members of Congress to boost revenue streams for states.

Haslam believes Congress will act. He says so with a straight face.

In an interview with TNReport recently, Haslam said emphatically that he believes Congress will do the right thing and help the states.

“Ultimately, they’re going to have to,” he said. “It’s not just the states. If you’re a mayor, it’s killing you, too. You also get property tax revenue. If you’re a mayor, you have to have new growth, but am I going to build a shopping center in today’s world? Probably not, because I used to think I would get a store, like a Barnes & Noble, to be an anchor.

“That new growth is what helps local governments. I think eventually the cost will be so big it will have to be looked at.”

But would a member of Congress go anywhere near such a thing? Why look like a tax-raiser when you’re not getting any of the tax?

“That’s the problem,” Haslam said. “I’m afraid the problem will get so severe Congress will say, ‘Oh, wow, these folks are getting hit with a double whammy. Number one, we’re sending them less money from Washington as we start to cut the budget. Two, a bigger piece of our economy is now transacted online, not subject to the sales tax. These local and state governments are getting smeared.'”

Haslam does insist he sees both sides of the issue.

“It’s a hard issue,” he said. “I understand why people think, ‘I’ve got a book store here. I’m paying property tax, sales tax, I’m supporting local government and state government. They’re not doing either.’ Believe me, I really get that.

“I also understand Governor Bredesen’s point. If you don’t let them build here, they’re going to build in Georgia or South Carolina. That’s a pretty compelling argument, too.”

Tennessee feels the crunch in ways many other states may not, Haslam said.

“Ours is a little more stark, because we live off the sales tax. We have no income tax. If I’m talking to the governor of Virginia on his list of priorities, it’s probably No. 52. It’s not that big a deal to him.

“One of the issues is in Tennessee if you look at our tax base, we live off the sales tax. There are a lot of exceptions and exemptions to it. As Internet sales pick up, a smaller piece of our economy is subject to the only tax we have in the state (not having an income tax). That’s an issue.”

And the problem is likely to get bigger, not smaller, Haslam said. “Amazon doesn’t just sell books anymore. You can buy a refrigerator from them if you want to. You know what I mean?”

TNReport.com is an independent, not-for-profit news organization supported by generous donors like you!