published Sunday, December 5th, 2010

Should Amazon buyers pay sales taxes?

The world's biggest Internet retailer is proposing to open distribution centers in Hamilton and Bradley counties that could handle hundreds of millions of dollars of shipments a year.

But those sales won't necessarily generate any more sales taxes for Tennessee.

Unlike conventional brick-and-mortar retailers, Amazon doesn't collect taxes on most of its sales in Tennessee and 44 other states.

That could change in Tennessee if Amazon builds 1 million-square-foot warehouses in Chattanooga and Cleveland, Tenn. But it might not.

"We are having discussions right now with the state on this," said Fred Kiga, director of policy for Amazon. "The distribution centers here are not retailers, but rather drop shippers."


* Amazon collects sales taxes on all items shipped to four states where it has operations -- Kansas, Kentucky, North Dakota and Washington -- but not in 14 states where it operates fulfillment and customer service centers.

* Amazon began collecting sales taxes for New York purchases after that state adopted the so-called "Amazon tax" on the company's affiliates in the state. Amazon and are challenging the law in court.

* Amazon collects sales taxes for shipments to nearly all states on books and other items it sells for retailers such as Target and Harper Collins Publishers.

* In August, Texas billed Amazon $269 million for uncollected sales taxes from December 2005 to December 2009, with interest and penalties. Amazon is appealing the action.

* Amazon is in talks with Tennessee about sales tax collections as part of its plans for an Amazon affiliate to build distribution facilities in Hamilton and Bradley counties.

Source: Amazon, Center on Budget and Policy Priorities

Amazon has resisted having to collect sales taxes in all but five of the states where it sells goods. That includes most of the 18 states where it operates fulfillment centers like those planned in Southeast Tennessee.

Nationwide, states lose $20 billion a year from Internet retailers that don't collect sales taxes for most of their goods -- Amazon, and CDW among them -- according to studies by the University of Tennessee's Center for Business and Economic Research.

Technically, consumers are supposed to pay sales taxes on all purchases, whether the merchant collects them or not. But UT economist Bill Fox, a national authority on Internet taxation, estimates that less than 2 percent of sales taxes due are paid if people are allowed to self-report and pay them after a purchase.

"This is not just a revenue question; it's important as an economic and fairness question to get this worked out," Fox said. "What we have today is an incentive for people to purchase goods out of state in a way that I don't think is in the best interests of our state's economy."

Advocates for conventional retailers and some state governments are moving to close what they claim is an unfair tax loophole for e-commerce. In Irving, Texas, where Amazon operates a distribution center, the state sent it a $269 million tax bill this summer for uncollected sales taxes on goods it sold in the state over the last four years.

Amazon is appealing the levy. The company insists its distribution center is owned by a separate entity and does not meet the legal definition of a "physical presence in the state" that would make it a taxing retailer.

Tax revenue vs. jobs?

With nearly 1,500 full-time and as many as 2,200 more part-time jobs planned for Amazon's proposed local distribution facilities, Tennessee may be cautious about getting too tough over taxes.

A ruling that Amazon's facilities constitute a physical presence under Tennessee's revenue definitions could mean the state would require Amazon to collect millions of dollars of sales taxes on Tennessee purchases. Tennessee consumers could be required to pay when they order online.

Amazon must collect sales taxes in some states where it has distribution warehouses, such as Kentucky and Kansas, but not in most others with warehouses, such as Indiana, Virginia and Nevada.

The Tennessee Department of Revenue and the state Department of Economic and Community Development are working together to recruit Amazon. Officials with both departments declined to discuss whether Amazon would have to collect state and local sales taxes in Tennessee if the proposed facilities are built.

Revenue Department spokeswoman Sara Jo Houghland said both offices "worked closely to develop and implement" tax and other incentives for businesses to locate in the state. But she said the state doesn't discuss taxes on any individual business.

"Tennessee's approach has been highly successful, attracting more than 190,000 new jobs and $33 billion in new capital investment over the past eight years," she said.

Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities in Washington, D.C., cautioned states against granting sales tax breaks to Amazon or other companies just to lure them to a state.

"Clearly in the case of Tennessee, which is so reliant upon sales tax revenue, giving [required sales tax collections by an online retailer] away for the warehouse jobs you get in a distribution warehouse is not a very good tradeoff," Mazerov said.

Gov.-elect Bill Haslam said last week that untaxed online sales are a growing problem for states such as Tennessee.

"I do think this is something we need to look at long term, but I do not think it needs to interfere with our recruiting of Amazon to Tennessee," he said. "That's a huge priority for us."

Defining a retailer

The U.S. Supreme Court ruled in 1992 that retailers don't have to collect sales taxes in states where they have no physical presence, such as a store, office or warehouse. The legal term for this physical presence is "nexus."

The high court and online retailer advocates argue that requiring a company to comply with the varied rules and regulations of more than 7,500 local taxing jurisdictions would burden interstate commerce.

"Each of those jurisdictions applies the tax and determines who should be taxed differently," said Jerry Cerasale, a senior vice president of government affairs for the Direct Marketing Association, which represents catalog and online retailers. "It is so complex, and getting more complex all the time with tax-free holidays and other changes."

Streamlining taxes

To help standardize the definitions and rules for sales tax collections, the National Governor's Association and the National Association of State Legislators created the Streamlined Sales Tax Board in 1999.

In January, Georgia will become the 24th state to join the board.

Scott Peterson, executive director for the Nashville-based Streamlined Sales Tax Board Inc., said the group has helped bring more uniformity to sales tax rules. That allows software vendors easily to apply sales tax rates for any purchase.

The group is pushing Congress to adopt the Main Street Fairness Act to require online retailers to collect sales taxes for any states that adopt the streamlined standards.

Such legislation has yet to get out of committee in Congress, but Peterson said he remains hopeful.

"This is a states' right issue and gives Congress the opportunity to help states to manage their own affairs," Peterson said.

But Cerasale said the recommendations of the Streamlined Sales Tax Board "are streamlined in name only" and still too complex for many online retailers.

"This is not a question of whether taxes are owed on the sales," Cerasale said. "It's a question of whether a company should be forced to collect taxes in another state when it doesn't have any presence or voice in that state."

States get tough

Some states aren't waiting for Congress or the Streamlined Tax Board to act. New rules known as "Amazon laws" in New York, Rhode Island and North Carolina require online retailers to collect state sales taxes on purchases.

The National Retail Federation, which represents the nation's biggest shopping centers and conventional retailers, is urging legislatures and Congress to treat online retailers the same as brick-and-mortar stores.

"The merchandise sold online is no different than what is sold in a store," said Maureen Riehl, spokeswoman for the National Retail Federation. "There is no reason one group of merchants should be given an unfair price advantage over another."

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subito said...

One must not forget that all those newly employed individuals will be able to purchase groceries and maybe some luxury items, like a new winter coat, upon which sales tax is levied. These folks will be paying more sales tax and will be able to pay their property taxes on homes they will be able to afford when they are once again earning a living instead of drawing down the state's unemployment funds. With one of the highest sales taxes in the union on just about everything, including food and clothing, Tennessee needs to be careful here. Brick and morter companies may complain about an unfair advantage, but those retailers don't charge customers shipping. I think it's fair competition. However, the little shops and big box stores may have to be a little more creative in marketing to offset the convenience of shopping at home in one's pajamas!

December 5, 2010 at 7:10 a.m.

The newly employeed may be able to pay sales and property taxes, but they will probably pay them in North Georgia like many who are employed in the Chattanooga area do. Look at your high sales and property taxes and retailer limitations (like wine) in Tennessee and see why people are choosing to live/spend in North Georgia. Tax breaks are given to lure companies but the residents are so burdened with high taxes that they are choosing to live/spend across the border. Thank you Tennessee, we appreciate it in Georgia!

December 5, 2010 at 8:46 a.m.
TeaParty330 said...

We need low and fair taxes for all. Brick-and-mortar retailers pay property taxes, but Amazon is getting an 11-year forgiveness on most city and county property taxes. Brick-and-mortar retailers pay for the property they own, but the city and county are giving 80 acres to Amazon. Now Amazon may continue to enjoy the advantage of not collecting sales taxes on its Tennessee sales which brick-and-mortar retailers must collect. As more and more people shop online -- and we continue not to tax those sales -- Tennessee tax revenues will go down even as the economy recovers. But brick-and-mortar retailers will still be forced to collect one of the highest sales tax rates in cities like Chattanooga. Unfortunately, it now looks like sales taxes -- along with property taxes, franchise and excise taxes, employee training, land purchases and basic infrastructure -- are being given away to some but not others.

December 5, 2010 at 9:17 a.m.
sideviews said...

Amazon is a tremendous company Chattanooga and Cleveland will be very fortunate to land, if we can. Tennessee doesn't get the sales tax revenues from most Amazon sales right now so we are not giving anything away that we get right now. What we have to gain from the best online company in the world locating here are thousands of area jobs and a real boost in the economy when we need it most. State and local officials need to do what they can to recruit Amazon and its excellence to our community. Thank you Amazon for considering our area.

December 5, 2010 at 9:22 a.m.
MasterChefLen said...

Sales tax is double taxation, period. You are taxed when you earn money, then taxed again when you spend it.

December 5, 2010 at 11:14 a.m.
inquiringmind said...

To billybobbillygoat, MasterChefLen, and the teapartiers:

There is no income tax is Tennessee so you are not taxed twice, the property taxes are appreciably lower than Atlanta where I came from, there is no ad valorem tax on cars, but the sales tax in Chattanooga is about 10% not much different than Atlanta but let us add in the price of housing being lower than most places in Georgia (where I'd want to live anyway). Economically it does not make a lot of sense to move to GA to avoid sales tax in Tennessee.

Now the public school system and public university system is crappy in Tennessee, which higher taxes might help, but the public school system in Georgia is also very bad; so name your poison.

When the tea party types are giving 30-50% (or more) of their income to help the economically disadvantaged in TN, send their kids to public schools instead of private and church-related private schools, and stop driving their new cars to Church, synagogue or mosque on Sunday in their nice clothes, or stop spending Sunday on the lake in their boat, then their complaint about lower taxes will make more sense. After that, you can then eat all the cake you want and count your money, just take your jack boot off the neck of people who have less than you.

December 5, 2010 at 12:12 p.m.
TeaParty330 said...

The jack boot on the neck of Americans is primarily the taxes they pay in all forms. Cut taxes and let individuals, businesses, churches and charities help lift up those in need

December 5, 2010 at 12:31 p.m.
inquiringmind said...

Dear Teaparty330, May I suggest you and your buddies put your money where your mouth is and then start talking about high taxes. We pay less taxes than most well-to-do countries in the world; there is hard data showing the well off give a grossly lower proportion of their money to charity than the poor give who give a higher percentage. Personal selfishness always is lurking around those proclaiming opposition to taxes, we should not kid ourselves. I've seen it in small business owners in Chattanooga as they proclaim their Christian morals. We have only one really good exception in Chattanooga, and he recently passed away, you know his name

You still are wearing rose-colored glasses or dreaming about a world that does not exist. There has never been a shred of evidence individuals, businesses, or even churches will "help lift up those in need." The pervasiveness of segregation in society and in churches and the resistance of mainline protestant churches to Martin Luther King, Jr is a good example of how much we can depend on organized churches to pursue the good of all. Or do you not remember? How shall a charity help if you don't donate.

If you have more than your neighbor and call yourself a Christian, read Luke. You have an obligation that transcends any worries about taxes, give until it hurts, friend. The gate is narrow.

December 5, 2010 at 1:07 p.m.
alohaboy said...

ChefLen, the state sales tax is not double taxation since TN only has the Hall Income tax and very few residents pay it.

December 5, 2010 at 1:32 p.m.
KWVeteran said...

The government (i.e., the liberals) has always maintained that money goes to it first and you get what's left over. Collecting taxes on sales IS NOT conscionable... but then when was anything of that nature that has to do with democrats? Any of you liberals care to defend this?

December 5, 2010 at 4:25 p.m.
inquiringmind said...

KWVeteran; I'm not sure where "liberal" fits in with this other than as a smoke screen.

Actually a sales tax is thought by some pretty conservative people to be more progressive than an income tax. Sam Nunn is one who comes to mind. But, darn, he was a southern Democrat, and a lawyer at that, who wanted to reform if not abolish income tax. At least the democrats are trying to do a pay as you go plan, a refreshing relief from the spend all the money you do not have of the Bush era that got us in this mess. We ran a budget surplus in the Clinton administration (hardly a liberal and regardless of what consenting adults did in the Oval Office).

I think history proves the record pretty well that whether liberal or conservative, republican or democrat, government likes your money and spends it the way the folks who elected them want it spent.

If we took care of the poor ourselves we wouldn't need the inefficient government programs. But that is a pretty radical idea, isn't it.

December 5, 2010 at 5:15 p.m.
mrredskin said...

why is this even bringing politics or lefty/righty arguments into it?

the residents of TN are the ones who will be funding the tax incentives that Amazon will receive. of COURSE Amazon and the state are "discussing" the sales tax issue. Amazon gets a break from practically all taxes so they can bring in their 1400+ jobs (2200 is not ADDITIONAL, which the article portrays. it's a seasonal max total, based on previous TFP articles).

So, Amazon moves in for little to no cost, and TN residents end up having to pay for the shortcomings in the Chatt/Bradley areas.

This is entirely different from the VW breaks; at least the majority of those positions require some form of skilled labor. It's already been stated that the majority of these Amazon jobs would require the skill set similar to that of a pump jockey.

December 6, 2010 at 7:59 a.m.
mrredskin said...

BTW, I'm glad the TFP finally put out a stand-alone article on the sales tax issue with this agreement.

December 6, 2010 at 8 a.m.
rkumarsmail said...

All the wailing & gnashing of teeth I think will come to naught. Fair or unfair, Bezos is a grandmaster at this game against a bunch of feckless mainstreet brick & mortar retail.

You Can't Fight Bezos.Join Him!

December 6, 2010 at 9:11 a.m.
rolando said...

Almost ANY business with a retail physical presence in a state must collect state sales tax for items sold to customers residing WITHIN THAT STATE. So far as I know that is a universal.

Think Sears, Penney's, BestBuy, Target, or any company with a mail-order/internet business.

If Amazon will have a retail outlet here, every Tennessee resident must pay sales tax on their purchases.

December 7, 2010 at 11:14 p.m.
fairmon said...

All on line purchases should be taxed at the rate in the state from which they are purchased with the revenue going to that state. If the retailer can't compete they can reduce profits, relocate or cease to operate. It is called capitalism which everyone thinks is great until it doesn't accommodate them.

Government intervention with grants, subsidies, deductions, reductions and other tools of manipulation usually does not have a good ending but increases government debt and future liabilities. Taxes legislatively imposed on businesses are passed on to consumers so there should be no business taxes other than the sales tax collected from consumers and passed on to the state. Goods and services people buy have an embedded 22% to 30% and in some cases more of local, state and federal legislatively imposed cost. Goods and services could be at least 22% to 30% cheaper if politicians abolished their legislatively imposed cost to businesses. Tax on income, property and profits are the most unfair form of taxes. A consumer tax is fair and those making and spending more pay more. It is transparent and if governments make no exceptions it would be totally fair. The wealthy and politicians don't like this concept, it reduces their ability to manipulate and control.

Congressional leaders will not allow SB HR-25 out of committee for debate and consideration by congress.

December 11, 2010 at 7:35 a.m.
rolando said...

One state cannot tax the residents of another, harp. That's in the Constitution somewhere...interstate commerce or something.

The retailer is NOT the end consumer...they are merely part of the product pipeline...might as well go all the way up the distributor chain and charge the manufacturer/importer state sales tax on everything it makes/imports -- based on the suggested retail price, of course.

That will really work, won't it? yeah, right.

December 11, 2010 at 8:46 p.m.
fairmon said...

rolando, I think you may be referring to state income tax when someone from another state works in a state that has income tax, the state income tax is not withheld. If you travel to another state and make a purchase you pay the state and local sales tax on that purchase. Why should it be different when buying on line?

December 12, 2010 at 8:01 a.m.

What's the issue? Amazon should have no problem with the sales tax. THEY don't pay it, Tennessee residents that make a purchase pay it. What people don't seem to realize is that property taxes alone won't cover all the services that we seem to take for granted. Things like road repairs and maintenance, police, fire, emergency and such. Amazon has nothing to complain about if they have to collect the tax. It's not coming out of their pockets. The retailers of Tennessee already have to do this with less available resources than Amazon has. If Amazon is exempt from collecting sales tax, many of the Tennessee retailers that sell products that Amazon sells will most likely close. (Since Amazon will be able to get Tennesseans their goods within a day or so.) Shipping charges are not an issue since many time there aren't any. With brick-and-mortar closings, other taxes on Tennesseans are inevitable.

December 21, 2010 at 6:41 p.m.
Newsshooter said...

I look at amazon purchases as my little way of paying what i should for a product. I buy twice a week minimum. I have been doubling up my purchases since the announcement. I like to think of it as giving the middle finger to a government that already taxes me too much for the services i recieve. The second the distribution center opens. Im done spending money at amazon. I refuse to pay tax for my items. I guess i will have to return to shady ebay deals.

January 24, 2011 at 2:30 a.m.
chuckhumprey said...

I think that businesses done on line should have a part on taxes too.. like amazon and different merchant services providers.. Those who earn should be taxed..

May 10, 2011 at 6:03 a.m.
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