Governor Analyzing AG’s Latest ‘Nexus’ Opinion

Gov. Bill Haslam said Tuesday it was too early for him to say what the ramifications of Attorney General Robert Cooper’s latest opinion related to Amazon.com might mean for the state.

Cooper issued an opinion dated Oct. 3 that said, as a general rule, the state cannot waive a taxpayer’s obligation to collect sales taxes and that the fact sales are made electronically does not change a retailer’s liability for collecting and remitting the tax.

But the opinion also states that the Commissioner of Revenue has “substantial discretion” in determining the best measures to enforce the state’s tax laws.

Haslam told reporters Tuesday after making a speech in Nashville that he had just heard about the opinion and had little to comment on, but he said it is possible it could mean there might have to be legislative action regarding a state agreement with Amazon.

“That could be one of the outcomes, that we’d have to have some legislation passed to set up whatever the new arrangement ends up being,” Haslam said.

The Haslam administration has been involved in talks with Amazon for a long-term understanding of where Amazon stands on having to collect the state’s sales tax. The administration of Gov. Phil Bredesen agreed to allow Amazon to build two distribution centers in the state without collecting sales taxes, in exchange for their bringing hundreds of jobs to the state.

Haslam said any long-term agreement his administration were to make with Amazon would include as part of the deal that the state can publicly say what is in the agreement.

“It has become such a big deal, I think it’s important that when we do come to an agreement we be able to talk about it,” Haslam said. “So that would be part of the agreement we make with Amazon.”

Commissioner of Revenue Richard Roberts has said he cannot publicly discuss any arrangement with Amazon — or even if a deal exists with Amazon — because of privacy elements of the law.

Haslam’s comments Tuesday indicate that the public interest would be so high that his administration would feel compelled to make it part of the deal that the agreement be public. Lack of transparency has been one of the primary points of contention about the Bredesen deal with the Internet retail company.

Haslam did not address Amazon in his speech to the First Tuesday lunch group of Republicans. But he covered several other issues, including the fact he believes the outcome of the state’s request for a waiver from the federal government on the No Child Left Behind law will probably not be known until late November or early December.

He was asked why it would take so long for a decision.

“I actually don’t know the answer to that. I was initially hopeful, quite frankly, when we went up there, we’d hear an answer by late October, early November,” Haslam told reporters after his speech. “I understand now it’s about 30 days past that. I don’t really know that. I wish I did.”

Haslam also addressed the affirmation of the state’s bond ratings. After a recent trip by state officials to New York to state Tennessee’s case for strong fiscal management, the major rating agencies announced this week that Tennessee maintains its current ratings.

The state keeps its AAA rating from Moody’s Investor Service and Fitch, and it retains its AA+ rating from Standard & Poor’s. Standard & Poor’s gave the state a positive outlook, but Moody’s put the state on “negative outlook,” which is believed to be tied to concerns about the effect on states by the overall national economy.

The attorney general’s opinion that could affect Amazon appears to say that a retailer cannot dodge tax collection simply because its transactions are online.

In the analysis of the issue, the attorney general says:

“In cases where nexus (physical presence) does exist, the retailer is liable for collecting and remitting Tennessee sales taxes regardless of the method by which the retailer accepts orders for goods sold to Tennessee customers. If the retailer’s in-state activities are sufficient to establish nexus, the fact that orders are placed by electronic means, such as by telephone or the Internet, does not affect the retailer’s state sales tax obligations.”

The opinion says if a distribution house is owned by a retailer’s subsidiary that nexus exists only if the subsidiary’s activity is “significantly associated” with maintaining a market in the state.

The attorney general’s analysis further states:

“We refer you to recent Attorney General Opinion No. 11-55, in which this Office stated that, where legislation unambiguously imposes state sales tax obligations relative to specific transactions, the State of Tennessee cannot contractually waive a taxpayer’s obligation to pay the tax. … In reiterating this principle, however … we note the Commissioner of Revenue must necessarily possess considerable discretion in determining the appropriate measures to take to administer and enforce Tennessee’s tax laws.”

“…The Commissioner’s exercise of discretion is particularly appropriate when the enforcement of a tax may be debatable and must be balanced and coordinated with the Commissioner’s other duties and priorities in administering all of the taxes entrusted to him.”