News NewsTracker

Haslam: States Need to Cooperate on Internet Sales Issues — Like Those TN’s Deal Raises

Gov. Bill Haslam said Wednesday that governors need to come together to find a solution on applying sales taxes to Internet sales, adding that the federal government won’t have the incentive to take action.

Haslam seemed to brush aside the matter of whether to hold the Internet sales giant Amazon to account on the collection of sales taxes as the company plans two large distribution centers near Chattanooga.

“My argument is it’s a bigger issue,” Haslam told reporters at a press availability after a Farm Bureau event in downtown Nashville. “I think Internet sales should be subject to sales tax for everybody, whether you have a distribution center or not.”

Amazon’s establishment in the state represents a $139 million investment. Traditional retailers object that they have to collect sales taxes while businesses like Amazon do not.

Haslam attended a National Governors Association meeting in Washington last weekend, but he said he told other governors they shouldn’t expect help from Washington on the issue.

“It doesn’t affect Congress’s pocketbook,” Haslam said. “The sales tax hits states.

“You’re not going to get leadership from Washington because it doesn’t affect them. It does affect us in every state — Republican, Democrat, north, south, east and west. I think it’s a place where governors have to, and will, lead.”

In Tennessee, the state sales tax is 7 percent, with up to an additional 2.75 percent applied by local governments. Since Tennessee does not have an income tax, the sales tax has more importance to Tennessee than most other states as a revenue source. Since Internet sales began, the issue of collecting taxes has been a problem for the state.

“We need to have a united effort,” Haslam said. “It’s too big a piece of our economy now to ignore. It’s not fair to those people who are investing in bricks and mortar.”

The nation has seen conventional bookstores suffer from the Amazon effect, and while many consumers lament the loss of traditional bookstores there is no dispute that consumers like the idea of ordering through online outlets, whether it be for convenience or to avoid paying sales tax.

“It affects everybody from real estate owners to small retailers to large retailers,” Haslam said. “It impacts too many for us to continue to ignore it.”

But the governor emphasized it will take a concerted effort to confront the problem.

“One state obviously can’t do it. That’s the whole issue we have now,” Haslam said. “I think it will take a large majority of governors saying they are going to band together on that.”

Tennesseans for Fair Taxation, a group that generally advocates on behalf of the government attracting more revenues — up to and including the implementation of  a “broad based” personal income taxhas been critical of Amazon’s ability to avoid the sales tax issue.

In Congress, Rep. Dan Lungren, R-Calif., and Rep. Zoe Lofgren, D-Calif., recently introduced a resolution urging lawmakers to say no to congressional efforts toward imposing sales taxes on small retailers online. The resolution was presented as a way to protect small businesses and entrepreneurs.

Amazon, based in Seattle, Wash., has been involved in battles with states recently over sales tax collections.

The U.S. Supreme Court ruled in 1992 that retailers can’t be forced to collect sales taxes on out-of-state purchases unless they are established in those states.

Press Releases

TFT: Where is the Revenue, Justice in Deal?

Press Release from Tennesseans for Fair Taxation, Feb. 24, 2011:

Revenue ?with? Justice ?Report

This “Revenue with Justice Report” inaugurates an occasional service by Tennesseans for Fair Taxation (TFT) to provide fact-based analyses of pending issues related to Tennessee’s state budget, public programs, and tax policy. Recipients are free to use this material, in whole or in part, with or without attribution to TFT.

TFT is a statewide non-partisan coalition of people and groups working to assure a balanced, just, and equitable tax system in Tennessee, one that provides revenue critical to economic growth, prosperity and essential citizen services. For further information about this “Revenue with Justice Report,” be in touch with:

The? Amazon? Fast ?Shuffle

Tennessee has chosen to rely on the retail sales tax as its principal source of public revenue. Thus, it is critical that this tax be administered in a just and effective manner. For this obvious reason, the under-the-table, backroom deal that is designed to relieve Amazon of its legal obligation to collect sales taxes from its Tennessee customers and remit those tax receipts to the Tennessee Department of Revenue is unacceptable for two major reasons:

  • Tennessee, like most states, faces a serious revenue shortfall and related budget deficit. Every legitimate tax dollar, as determined by Tennessee law and the U.S. Constitution, needs to be collected.
  • Relieving Amazon of its constitutional and legal obligation—while enforcing this obligation against Tennessee-based retailers—places homegrown and Tennessee operated businesses at a severe competitive disadvantage at a time many are struggling just to stay alive.

What is going on here?

In the closing weeks of the Bredesen Administration, Amazon agreed to construct two affiliated distribution centers near Chattanooga. Details of the deal have been declared confidential but, in addition to the expected incentives of job-creation and property tax credits, money for employee training assistance, and free land, it now appears that the deal includes promises to overlook constitutional principles and Tennessee law to determine whether Amazon will be required to collect and remit sales taxes in Tennessee.

  • The Department of Revenue is planning to change a regulation under Tennessee tax law that has been in effect since 1974 (Tax regulation 1320-5-1-.96) which imposes an obligation to collect and remit sales taxes on in-state distribution centers. The proposed change will carve out an exemption for Amazon while continuing to require existing distribution centers to keep imposing the sales tax on their customers.
  • Without this change in Tennessee’s tax regulations, it is clear that Amazon’s proposed distribution activities will meet the standards, defined by the U.S. Supreme Court and the Tennessee Court of Appeals, that require a business to collect and remit the Tennessee sales tax.
  • A public hearing on the proposed regulation amendment is scheduled for Friday, February 25, 2011, at 1:30 PM CST on the third floor of the Tennessee Tower, 312 Rosa Parks Avenue, Nashville, TN.

What are the costs to Tennesseans of this under-the-table, backroom deal?

  • The deal will cost Tennessee in excess of $64 million in revenue each year. ? The City of Chattanooga will give up an estimated $720,000 each year. Hamilton County will give up $435,000 in revenue (but Amazon will pay the school tax portion of its tax bill–$430,000). ? Local retail competitors of all sorts (Amazon sells a lot more than books) will be at a permanent price disadvantage since they are legally obligated to collect retail sales tax. (Amazon’s sales topped $24 billion in 2009—one of the worst years for U.S retailers.)

What about the jobs that Amazon will create with its distribution centers?

It is estimated that Amazon will hire 1400 full time workers and 2000 seasonal workers. Here is an interesting calculation in that regard:

  • On the assumption that full time workers will average $30,000 annually and seasonal workers will be employed for two months, the total annual payroll would be in the vicinity of $55 million.
  • This cost is roughly equal to the tax revenue lost to Tennessee. So, in one sense, the citizens of Tennessee end up paying the wages of all of Amazon’s Tennessee employees each year . . . and forever!
  • Any job created by Amazon’s under-the-table, backroom deal could well be offset by the loss of employees currently working at Tennessee’s existing distribution centers, due to the unequal playing field created for Amazon.

TFT? wants? to? know: In? the ?Amazon? deal,? where ?is ?the ?revenue?? Where? is ?the ?justice?