Online Sales Tax Confusion

Amid talk of compromise on whether Amazon should have to collect sales taxes in Tennessee and lingering questions about disclosure in his administration, Gov. Bill Haslam Wednesday said the state needs to get a firm definition on what its relationship is with the online retailer.

Amazon is building two distribution centers in the state — one each in Hamilton County and Bradley County — and has hinted it might want to bring more.

But while the company wants to create jobs in Tennessee, it does not want to collect sales taxes on its online sales operations. The state agreed, under Haslam’s predecessor, Phil Bredesen, not to require Amazon to collect the tax.

Attorney General Robert Cooper has opined that distribution centers — the kind Amazon intends to use in the state — create sufficient nexus to establish a retail presence in the state and that the legislature would be on sound constitutional grounds to require sales tax collections under that circumstance.

Haslam Wednesday said he had nothing new to report on further plans by Amazon in Tennessee, but he said the tax issue needs to be cleared up on a national basis.

“What we need to do is define exactly what that relationship is going to look like with Amazon going forward,” Haslam said. “Then the legislature can make a decision about whether or not they want to pursue that.”

Haslam offered to play a leading role in getting the issue resolved in all states, possibly through the National Governors Association, and pursue a streamlined sales tax system on online purchases. He was speaking Wednesday with reporters after an event at the Capitol.

On Tuesday, Sen. Randy McNally, R-Oak Ridge, chairman of the Senate Finance Committee, who has introduced legislation that would effectively require Amazon to collect, said delaying collection of the tax for two years might be an acceptable compromise. But Haslam said Wednesday he believed such an approach would leave the issue with too much uncertainty.

McNally said he believed the Haslam administration would be forthcoming about any negotiations it has with Amazon. Haslam said so, too.

“There’s nothing really to hide there,” Haslam said. “You all really know everything we know there. They have expressed interest in building a couple more in Tennessee, but so far nothing really has progressed on that.”

However, in a story focusing on disclosure issues in the Haslam administration, the Associated Press reported this week that documents show an e-mail pertaining to Amazon revealed a conscious effort on the part of the Department of Economic and Community Development not to be responsive to a member of the media.

According to AP, a story by Andy Sher in the Chattanooga Times Free Press about a decision by lawmakers not to further proceed this year on the Amazon legislation was followed by an e-mail from the department’s director of communications, Mark Drury, to Commissioner Bill Hagerty. The e-mail read:

“My guess is you’ve already read this morning’s story in the Chattanooga Times Free Press, which makes me think our decision simply not to return Andy’s phone call was the right one.

“Not sure that any response we could make at this point would be helpful to the situation.”

Haslam was asked Wednesday if that is the way he wants the department to operate.

“Absolutely not,” Haslam said.

“If you look at the way we’ve dealt with the press and media, I think we’ve actually had a very forthcoming relationship, and we’ll continue to do that.”

No legislative action could be taken on Amazon until the Legislature reconvenes next year.

McNally said Tuesday one concern is that other retailers who do not enjoy the pass given Amazon on the sales tax issue could file suit and that a disparity in treatment would be hard to defend. Haslam was asked Wednesday if he believed a lawsuit would begin to erode the state’s tax base.

“I am actually concerned anyway,” Haslam said. “It’s not going to begin eroding the state’s tax base. It already is. We’re losing — I don’t know, you see $300 million, you see $500 million — in sales tax on Internet goods we’re losing right now. That’s why I said something has to happen nationally.

“The whole streamlined sales tax is a big deal. And as I’ve said, I’m more than willing to play a leadership role. It has to be addressed that way on the national level or we’re going to keep playing these move-around games.”

Haslam said Tennessee is not alone.

“The governors are all feeling the pressure,” he said. “Local government is feeling it, too, because they’re impacted by sales tax. They feel it in property tax if a bricks-and-mortar retailer goes out of business.

“Unfortunately, it’s going to take a congressional change. It doesn’t impact their (Congress’) collections because they don’t get sales tax, so I think one of the roles the governors have to play is to raise the level of importance on the national scene.”

Tennessee is among states in a Streamlined Sales and Use Tax Agreement, which is meant to simplify sales tax administration. The alignment was formed in 2000 after Congress attempted to prohibit taxing online sales. Tennessee, since it has no income tax, is more dramatically impacted by a loss of sales tax revenue than states that do have an income-tax revenue stream.

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