McNally Seeks Compromise on Amazon Deal

Sen. Randy McNally, R-Oak Ridge, chairman of the Senate Finance Committee, is suggesting allowing Amazon.com a two-year “grace period” on collecting Tennessee sales taxes as a possible compromise on the issue of the state’s arrangement with the Internet sales giant.

McNally still prefers his original proposal — forcing Amazon to collect sales taxes like other retailers in the state. A recent opinion by the state attorney general gives McNally what would appear a green light for his legislation, which is carried by Rep. Charles Sargent, R-Franklin, in the Tennessee House.

But McNally, recognizing the political obstacles of getting the legislation through, sees putting off the sales tax collections as a possible way to help solve the matter.

Lawmakers interested in making Amazon collect the taxes put their legislation on hold this year, pending Attorney General Bob Cooper’s opinion, which came down last week in their favor.

Amazon has become a complex issue for state government. Its two distribution centers being established in Hamilton and Bradley counties are seen as tremendous job creators at a time the state desperately needs them. Yet the arrangement that allows Amazon off the hook for collecting sales taxes has become an item that won’t go away, since it means forfeiting the revenue that could be derived from its sales and creates an uneven playing field with Amazon’s competitors.

McNally said he feels a strong responsibility to protect the state’s revenue stream. But the deal struck by the administration of former Gov. Phil Bredesen with Amazon has complicated the issue.

The Bredesen team decided it was more important to bring the jobs accompanying the two distribution centers to the state than to see the company go elsewhere, where the state would end up with nothing. Many members of the current Legislature, especially the contingent from the Chattanooga area, support the no-tax deal.

McNally told TNReport he knows the Haslam administration is negotiating some with Amazon, which has indicated it might bring even more distribution centers to the state, and that he believes the current administration will be forthcoming on whatever terms are negotiated.

“I’d like to see what the administration is able to negotiate,” McNally said Tuesday. “Given what’s happened, if they allowed them to be exempt from collecting the sales tax for a couple of years, I think some type of arrangement like that would be in the best interest of the state.”

McNally also said he believes a strong possibility could be a lawsuit brought by other retailers who do not get the same luxury as Amazon. The Haslam administration has said it wants to honor prior commitments made to the company.

The attorney general’s opinion bolstered the concept — at least from a legal standpoint — of forcing Amazon to collect the taxes. Cooper said the presence of distribution centers, which some have simply called warehouses, creates “nexus” under state law, meaning there is a substantive retail presence of Amazon in the state, even if it is not a conventional retail center. Amazon calls the facilities “fulfillment centers.”

Cooper also said legislation that would require the tax collections would be constitutionally defensible.

Under other circumstances, Cooper’s opinion might prompt lawmakers to proceed, and McNally and Sargent could still do so, if they choose. But McNally called that strategy an “uphill battle.”

“Amazon has lobbied pretty well on this issue,” he said.

Several lawmakers have expressed frustration in being unable to learn exactly what Amazon got from the Bredesen administration. Lt. Gov. Ron Ramsey had attempted to talk to Matt Kisber, the commissioner of Economic and Community Development under Bredesen, about what deals were made in the last weeks of the Bredesen administration. But when asked last month if he ever was able to have that conversation with Kisber, Ramsey said no.

McNally continues to express frustration.

“My concerns are, No. 1, (the deal) is a secret incentive nobody else knows about or gets,” McNally said. “I think the public at some point should have a right to know: What are the terms of some of these incentives that state and local government give companies to come in and build the facility?

“Second, it treats one out-of-state retailer with nexus different from other out-of-state retailers with nexus. Eventually, we could see a court case come down on that issue.

“Third, it erodes the tax base. We can invest a little into industries that come into the state, and Amazon has received a pretty good deal as far as local and county property taxes. It also received a jobs tax credit. This was sort of the Cadillac of deals.”

He sees long-term ramifications from such arrangements.

“I think, eventually, if we keep doing things like this, we would be in trouble as far as sales tax revenues in the state,” McNally said.

Tennessee is not alone in dealing with the Amazon dilemma. Several states have grappled with the issue, and South Carolina actually reversed course after sensing that Amazon would leave, granting the company the ability to operate without collecting sales taxes.

“Forever and ever not to have to collect sales taxes in the state, particularly when other retailers similarly situated have to, is just wrong,” McNally said.

Amazon does collect the tax in five other states — Kansas, Kentucky, New York, North Dakota and Washington — where it has offices or other physical presence.

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