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.