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Business and Economy Tax and Budget Transparency and Elections

Amazon Compromise Mirrors McNally’s ‘Grace Period’ Idea

Sen. Randy McNally, chairman of the Senate finance committee, says retailers still upset with Amazon’s tax agreement with the state aren’t likely to get a better deal than the one negotiated by the Haslam administration.

McNally, R-Oak Ridge, one of the key figures in trying to have the company start collecting sales tax from Tennesseans, said further action in opposition to the deal is up to those other retailers, but he said, “Certainly, if I was asked to give them advice, I would tell them that this is far and away the best deal they could get.”

Gov. Bill Haslam announced Thursday that the state has a new deal with Amazon, in which the online retailer will begin collecting sales taxes in 2014, while Amazon commits to increasing its job total in the state to 3,500 positions on an investment of up to $350 million.

McNally said he hopes this will settle the matter of Amazon’s tax status and suggests that the overall online sales tax issue should go through the courts to be resolved nationally, because he believes Congress is unlikely to act to bring uniformity to the collection of state sales taxes.

Recent reports say Amazon has its sights on locations in Rutherford and Wilson counties, as it seeks to grow its presence in Middle Tennessee, the latest development in a story that began last fall when former Gov. Phil Bredesen gave Amazon the ability to avoid collecting taxes in exchange for building distribution centers in Hamilton and Bradley counties. Haslam’s administration and Amazon negotiated the new arrangement.

The retail group Alliance for Main Street Fairness immediately objected to the Haslam agreement, saying 2014 is too long to wait, noting in particular that the deal gives Amazon three holiday shopping seasons before it has to collect. The brick-and-mortar retailers continued their campaign over the weekend with newspaper advertising objecting to the deal, saying California got an agreement for Amazon to collect beginning in 2012 and that the same should apply in Tennessee.

Haslam said he will submit the new deal in the form of legislation, to be considered when the General Assembly convenes in January. McNally and Rep. Charles Sargent, R-Franklin, chairman of the House finance committee, had initiated legislation this year and twice submitted requests for opinions from state Attorney General Robert Cooper on the matter. Cooper’s most recent opinion said no retailer can escape responsibility to collect the tax, although he said the commissioner of Revenue has wide discretion.

Haslam saw McNally at the funeral in Madisonville Oct. 2 for Lance Cpl. Frankie Watson, a Marine killed in Afghanistan. The governor told McNally that day he wanted to talk to him a couple of days later about Amazon. McNally was scheduled for surgery in Oak Ridge that Tuesday, so Haslam filled him in then on the plan. The surgery was why McNally did not attend the press conference at the Capitol on Thursday.

Haslam told McNally of the two-year forgiveness period on the tax collections and that after that the playing field would be level. McNally had suggested a two-year “grace period” as a possible solution to the matter in July. McNally said Friday he was taking no credit for the final agreement and that Haslam had not suggested that McNally’s idea was the catalyst for the deal. Neither did McNally ask if his idea had been the foundation of the arrangement.

“It just seemed to be in the best interest of the state,” McNally said.

One of the key elements of Amazon’s strategy appears to be centered on geographical factors.

The Nashville Business Journal posted a story online Friday morning saying Amazon will choose a site in Murfreesboro off Joe B. Jackson Boulevard for a facility involving 1,100 jobs and a capital investment of $87.5 million. Another facility, the Business Journal reported, would be in Lebanon, near Interstate 840, that would create up to 450 full-time jobs, a $51.5 million investment.

“I know they’re looking at sites that are close to Interstates,” Sargent said Saturday. “The same with Lebanon. They can get on Interstate 40, they can get on Interstate 840 and go all the way across to I-65 and I-24.

“Transportation is a big thing to them.”

Access to multiple Interstate highways, waterways and other modes of transportation, especially the presence of FedEx in Memphis, make Tennessee an attractive location for many different companies, state officials say.

In a recent interview with TNReport, Economic and Community Development Commissioner Bill Hagerty said logistics, one of the six major clusters of businesses the administration has identified in the state, is the premier cluster, even ahead of auto manufacturing and health care.

“You’ll see a theme running through all the clusters,” Hagerty said. “You’d be surprised. Even with health care, if you look at all the medical device operations around Memphis, they’re there because FedEx is there.

“An orthopedic firm can have their products on a plane and in a surgical field tomorrow. So they can inventory all these expensive things there, make them to order if they need to, and have it in the operating room the next day.”

Neither McNally, Sargent nor Sen. Bo Watson, R-Hixson, Senate speaker pro tempore, said they were aware Friday of sites being chosen by Amazon. Sargent said he got the chance for the first time Thursday to sit down and talk to Paul Misener, vice president for global public policy for Amazon, after a press conference at the Capitol on Thursday announcing the deal.

“They’re very excited about it,” Sargent said.

The Business Journal reported the Rutherford Industrial Development Board approved a 20-year tax break for Amazon. The Tennessean in Nashville reported the same tax break for the potential site in La Vergne or Murfreesboro, as well as a 15-year tax break for Amazon for a second, smaller facility in Rutherford County.

The Tennessean also reported incentives in Wilson County that include a $3.8-million tax break offered by the county and a break of $439,000 to $550,000 in property tax breaks by the city of Lebanon, with Amazon agreeing to make an annual payment of $28,900. State officials have said there are no state incentives in their deal with Amazon beyond standard incentives for job training and infrastructure.

Rep. Joe Carr, R-Lascassas, emphasized Friday that the deal was not done and that reports he was hearing of were premature.

“The last thing you want to hear is reports out of Rutherford County that Rutherford County got the deal and two weeks later learn that we didn’t get the deal,” Carr said.

Carr confirmed, however, that Rutherford County is very much in the running for sites to be chosen.

McNally, who had issued a formal statement on Friday expressing his support of the Haslam deal, seemed pleased with the outcome but voiced continued concern about the bigger picture.

“I think, hopefully, this would settle the issue with Amazon,” McNally said. “Now, long-term there is an enormous issue about out-of-state retailers that don’t have a presence in Tennessee that aren’t collecting the sales tax and how the states can address that.

“It’s been my theory that they ought to try to go back through the courts again. That probably would be the best option, because I doubt Congress would touch this with a 10-foot pole.”

The issue has been litigated most notably with a 1992 case involving Quill Corp., a mail-order company that made catalog sales. The North Dakota Supreme Court ruled there was sufficient presence, or nexus, of Quill in North Dakota that required Quill to collect the sales tax there. 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 in the U.S. Constitution.

For years, states have turned an eye to Congress to settle the matter legislatively, but many observers, including McNally, see Congress as unlikely to get involved in an issue that would increase tax collections for the states. Haslam called again Thursday for a national solution.

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Business and Economy Featured Tax and Budget Transparency and Elections

Amended Amazon Pact Applauded, Panned

Tennessee Gov. Bill Haslam — with an Amazon executive and several state legislators standing with him — announced a new agreement between the state and the company Thursday calling for Amazon to collect sales taxes starting in 2014.

But the rumbling in what has been one of the state’s most controversial issues was not put to rest.

Other retailers, who have fought Amazon because of its advantage in not collecting sales taxes as an online business, immediately criticized the deal. They cited the time element, saying the deal still gives Amazon more than two years, including three holiday shopping seasons, of what brick-and-mortar retailers believe is special treatment.

“If Amazon can agree to start collecting the sales tax in one year in California, why should we have to wait one day longer in Tennessee?” asked Mike Cohen, spokesperson for the Alliance for Main Street Fairness in Tennessee, in a formal statement.

“How many Tennessee jobs are lost, how many Tennessee businesses will close because the state grants Amazon a huge price advantage by not having to charge sales taxes?”

The Haslam announcement, made at the Capitol, also brings a commitment from Amazon to create a total of 3,500 full-time jobs and thousands of seasonal jobs in the state in a $350 million investment by the company, which ups the number of 1,500 jobs originally announced.

The Haslam administration said there are some standard incentive dollars for job training and basic infrastructure for new sites Amazon will be building in the state as part of the new deal. But “there are no other incentive dollars involved,” Haslam said.

Haslam said the agreement applies unless a national solution, which would bring all states under the same framework on state sales tax collections, comes first. Many people believe Congress should act to make application of sales tax law the same for online and traditional retailers.

The new agreement is a dramatic shift from the original deal struck by the state with Amazon, in which former Gov. Phil Bredesen and his team evidently agreed to allow Amazon to forego collecting sales taxes in exchange for creating hundreds of jobs with distribution centers in Hamilton and Bradley counties.

Haslam had agreed to honor that original deal, and state officials Thursday insisted the new agreement does not mean the state has gone back on its word.

Paul Misener, vice president for global public policy for Amazon, appeared with Haslam at the announcement, as did Rep. Charles Sargent, R-Franklin, chairman of the House finance committee, who had led a legislative effort to force Amazon to collect the taxes.

“We are proud that this world-wide brand has chosen to make such a significant investment in Tennessee and that they’re committed to expanding their presence here as well,” Haslam said.

“This agreement balances several needs, the needs of the company and the needs of the state by providing certainty to Amazon and to brick-and-mortar retailers about the collection of the sales tax. And it means more jobs for Tennesseans.”

Haslam said the agreement reached with Amazon will be presented to the Legislature when it convenes in January.

That was seen as a possible nod to a state attorney general’s opinion issued in the last week that said sales made electronically do not change a retailer’s obligation to collect the tax, although the opinion acknowledged the commissioner of Revenue has wide discretion. But Haslam said the administration probably would have gone through the Legislature anyway. Haslam said the deal was 98 percent completed before the opinion was issued.

“I’ve been asked several times over the course of the last couple of months if working on an agreement like this is doing what we said we would do as a state. The answer is yes,” Haslam said. “The scope of the project has changed, with the addition of newly planned facilities here, and that conversation in the Legislature and in states across the country has had an impact.”

Misener said the announcement was “a really remarkable event.”

“It’s a big deal for us, and I’m happy that it is also is a big deal for Tennessee,” Misener said.

The Amazon executive said his company supports efforts to streamline sales tax collections nationally.

“The sales tax issue must be resolved in Congress,” Misener said. “It’s the only way the state of Tennessee will be able to retain all the sales tax revenue that can be collected for the state.

“We are committed to going to Washington with the state’s leaders, both here in Nashville and also in Washington, to obtain that sales tax legislation as soon as possible.”

Haslam and Misener complimented Revenue Commissioner Richard Roberts and Economic and Community Development Commissioner Bill Hagerty for their work in the negotiations. Hagerty had been scheduled to speak to the Rotary Club of Dyersburg on Thursday but cancelled to be at the Nashville announcement.

Sargent commended Amazon and the Haslam administration for negotiating the deal.

“This is very consistent with what the attorney general’s opinion has been,” Sargent said.

Sen. Randy McNally, R-Oak Ridge, the Senate finance chair who had also sought legislation forcing Amazon to collect the tax, was not at Thursday’s event but is recovering from recent hernia surgery, his office said. McNally had suggested a potential two-year grace period on Amazon as a way to resolve the tax issue.

Haslam, noting that Misener is an astrophysicist, said negotiating the deal was “almost like rocket science. It was incredibly difficult.”

Haslam said the Department of Economic and Community Development is working with Amazon on the locations of its future distribution centers. The company recently announced plans to add a plant in Wilson County and is expected to have a larger presence in Middle Tennessee. Haslam said there would be two facilities in the state in addition to what is already in the works, one of those as a “sorting” facility.

House Majority Leader Gerald McCormick of Chattanooga, representing the area that has stood to benefit most in terms of jobs, had been critical of efforts to force the tax collections. But McCormick made the same announcement of the new deal in Chattanooga Thursday, emphasizing the additional jobs involved.

McCormick said there was no “arm-twisting” and that Amazon voluntarily went along with the plan. The Chattanooga Times Free Press posted a video of McCormick’s announcement.

Haslam said he didn’t believe the new deal necessarily brings additional jobs to those already planned for Hamilton and Bradley counties, but McCormick said in Chattanooga that the additional jobs would be split between Hamilton, Bradley and Wilson counties, making no mention of new Amazon sites. Haslam said there have been several communities in talks with Amazon.

“This is a significant day for Tennessee,” Haslam told reporters after the announcement. “It addresses an issue about the collection of sales taxes. This isn’t a new tax. This tax was already due. This just is a question of Amazon collecting.”

Roberts characterized the negotiations with Amazon as “challenging but forthright.”

Haslam also put Amazon’s role in online sales tax collections in perspective.

“Of the online retail sales where tax is not being collected Amazon is only about 10 percent of it,” Haslam said, adding that that is why he has called for a national solution. “It’s not just about Amazon.”

William Fox, director of economics at the University of Tennessee’s Center for Business and Economic Research, told a regional legislative conference this summer that Amazon comprises about 5 percent of e-commerce.

California recently reached a compromise with Amazon that gives the company one year before collecting sales taxes. Roberts said the California development helped the Haslam administration’s case but that conversations had progressed substantially by that point.

“Our situation is not the same as California’s,” Haslam said. “They have an existing physical presence that has been there for years. It’s really not an apples and apples situation.”

Haslam said he and Bredesen had talked about Amazon once in the last month or so.

“I just gave him an update on where we were,” Haslam said. “We talk periodically, so it wasn’t necessarily just about this.”

Haslam characterized reaction in the Legislature to the new arrangement as being a “warm reception.”

But the Alliance for Main Street Fairness said the deal will cost Tennessee almost 8,500 jobs.

“How can that possibly be anything but bad policy?” Cohen asked in the formal statement. “Our state government shouldn’t be picking winners and losers. This is the same failed policy we’re getting from Washington, and it’s not something we ought to emulate in Tennessee. Every business should be treated the same.”

The group also raised the issue of Amazon being allowed not to collect the tax given the recent attorney general’s opinion.

“Lawmakers can expect to hear from their constituents, businesses they will put at a huge disadvantage and employers that do pay the sales tax every day,” Cohen said. “It’s time for government to stop meddling in the free market by giving companies like Amazon special treatment.”

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Press Releases

AMSF: Claims Amazon.com Deserves Special Treatment ‘Intellectually Insulting’

Press Release from The Alliance for Main Street Fairness in Tennessee; Oct. 4, 2011: 

Tennessee Attorney General States Amazon Has Nexus; If Internet Retailer Can Collect In Golden State, It Can Collect In Volunteer State? 

Nashville, TN – The Alliance for Main Street Fairness (AMSF) in Tennessee today issued the following statement in response to an opinion issued by the state’s attorney general demonstrating under current law Amazon.com clearly has nexus or a physical presence in Tennessee and therefore must abide by the law just as retailers in the state do every single day. This opinion follows news from California where Amazon has conceded it can and will collect sales taxes.

“As more facts and information are made public, it is becoming increasingly clear that Amazon.com’s argument against sales tax collection is evaporating. A recent opinion by Tennessee’s attorney general proves that under the law as written Amazon has a physical presence in the state and should be collecting sales taxes when its distribution centers open,” said Mike Cohen, spokesperson for the Alliance for Main Street Fairness (AMSF) in Tennessee. “Amazon first stated they couldn’t collect sales taxes, then stated it was unconstitutional, and now, in California, they have conceded they can, should and will collect. Amazon is building the same distribution centers in California that they are in Tennessee, and they should play by the same rules in our state. Any claim by Amazon that they merit a special deal in Tennessee is intellectually insulting and just plain wrong. Amazon must follow the law and collect sales taxes just like every other retailer in the state.”

To view the attorney general’s opinion, click here.

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Business and Economy Liberty and Justice Tax and Budget Transparency and Elections

Retailers’ Group: $3 Billion At Stake in Online Sales Tax Issue

A brick-and-mortar retailers’ group has warned that the state could lose out on $3 billion in revenue and more than 10,000 jobs over the next five years if online retailers continue not to collect sales taxes.

The projections are in an study commissioned by the Alliance for Main Street Fairness, a national organization made up of retailers ranging from small businesses to Wal-Mart.

“From the Alliance point of view, this really tells us the Amazon deal is a bad deal for Tennessee. It’s going to cost us more jobs than it’s going to gain,” said Mike Cohen, the organization spokesman, said during a press conference at Cumberland Transit bike shop in Nashville.

The Alliance opposes a deal the Bredesen administration struck with online retailer Amazon.com, which promised to build distribution centers in Hamilton and Bradley counties under an agreement the company would not have to collect sales taxes.

Gov. Bill Haslam has said the state should honor the deal, but that he wants Amazon to collect sales taxes on its transactions in Tennessee in the future, and his administration is currently negotiating with Amazon to find a long-term solution. As of last week, Haslam said he had nothing new to report.

The Legislature is generally split about what the state should do. Sen. Jim Kyle, the top ranking Senate Democrat, is too.

“It will take the local business community to drive that Amazon issue,” Kyle said during a stop outside the University of Memphis during the Democratic Jobs Tour Monday. “There are two sides to it. One is keeping your word and the other is, doing what’s the right thing to do. The unfortunate thing here is when you’re keeping your word, you’re not doing the right thing.”

The Alliance’s study leaned heavily on a report out of the University of Tennessee, which found the state would miss out on collecting as much as $456.1 million in local and state sales taxes next year on online purchases. Taxpayers last year paid more than $8 billion in state and local sales taxes, according to documents from the Department of Revenue.

Younger Associates, which performed the analysis for the Alliance, asserts there is a direct relationship between state and local government spending and the number of jobs supported. If retailers like Amazon.com are not forced to collect sales taxes, about 6,900 jobs would be lost next year, leading to a loss in wages and decreases in consumer spending to purchase other taxed items such as gas, cars, alcohol, tobacco and amusement.

The study says that would translate to additional lost sales tax collections — in total, $480.7 million in 2012, followed by a loss of $3.02 billion in taxes and 10,567 jobs in five years.

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Press Releases

Prominent TN Furniture Retailer says Amazon Tax Deal Bad for Homegrown Business

Press Release from the Alliance for Main Street Fairness, Aug 25, 2011:

One Of Tennessee’s Oldest Businesses Calls For Change At State & Federal Level

Lebanon, TN – The owners of one of Tennessee’s oldest businesses said today that the deal the state struck to get Amazon.com to locate distribution centers in the state is wrong and bad for local employers. DT McCall & Sons, which sells furniture, electronics, appliances, guns and more, operates stores in Carthage, Cookeville, Lafayette and Lebanon. They also sell products online and collect the sales tax.

Lebanon is one of the Tennessee locations where Amazon will be opening a distribution center. Under the deal brokered by then-Governor Phil Bredesen, Amazon doesn’t have to collect and remit sales taxes in the Volunteer State. DT McCall & Sons wants both state and Federal action to fix the inequities in collecting state sales taxes so Tennessee employers are not operating at a competitive disadvantage.

“Our company welcomes Amazon and their investment to Tennessee; however, you’d like to think that after 115 years of paying and collecting state taxes and employing Tennesseans, the state wouldn’t cut a deal to give your competition an unfair price advantage,” said AJ McCall, one of the owners of DT McCall & Sons. “But that is exactly what they’ve done. They’ve used their power to put my company at risk and even helped locate them in the same town.”

Current Governor Bill Haslam has said publicly that Congress needs to pass a bill setting national policy concerning the issue so every state handles online sales taxes collection in the same manner. A study by the University of Tennessee concluded the state is losing $400 million dollars a year from uncollected sales taxes over the Internet.

McCall went on to say, “This is actually one of those cases where Congress can do something to help employers. I just hope they act soon, before more local businesses layoff employees or close up shop altogether. Those losses will grow because for every job Amazon creates, I believe we will lose two jobs at existing businesses. This deal is a lose-lose for every retailer in the state.”

McCall’s is far from alone in their view. The Alliance for Main Street Fairness (AMSF) represents Main Street business in all parts of the state that have banded together to oppose Amazon getting a government-sanctioned advantage. AMSF is also calling for a national solution that allows states to ensure all businesses operating within their borders are able collect and remit sales taxes.

“The state should be doing everything it can to help all businesses prosper,” said Mike Cohen, spokesperson for the Alliance for Main Street Fairness (AMSF) in Tennessee. “The government shouldn’t be picking winners and losers by forcing local businesses to collect the sales tax, while allowing out-of-state companies to avoid doing so. Both the state and Federal government should do the right thing by creating a level playing field level that lets all businesses compete fairly.”

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Business and Economy NewsTracker Tax and Budget

Big-Box Coalition Wants Amazon To Pay Tax

The Chattanooga Times Free-Press is spotlighting print ads by a national retailers group trying to force Amazon.com and other online retailers to pay sales taxes. The ads can be seen in Nashville, Memphis and Knoxville, the paper reported Thursday.

The piece offers a nice wrap of the legal context, what’s going on in other states, and where the Haslam administration stands. (The home team is looking the other way on the tax issue, and it’s possible Amazon will secure a “letter ruling” formally exempting its planned East Tennessee distribution centers from collecting taxes, though Revenue officials are mum.) Read the whole story here.

It’s worth noting that the group running the newspaper ads, the Alliance for Main Street Fairness, is backed heavily by Wal-Mart, Target, Home Depot, and the like.

The irony was not lost on House Majority Leader Gerald McCormick, who told the Chattanooga paper that Wal-Mart has “wiped out a number of Main Streets in Tennessee.”

While Tennessee welcomes Amazon, Illinois has taken a hard line, enacting a law requiring Amazon to collect sales taxes. California could follow suit. In Texas, lawmakers are seeking to address the tax question: at least two bills would force Amazon to collect sales taxes, and another would carve out an exception for Amazon. That state’s chief tax collector has said the retailer must pay up.