published Tuesday, August 16th, 2011

CBL vice president challenges Amazon.com deal

Construction continues on the Amazon distribution center at Enterprise South.
Construction continues on the Amazon distribution center at Enterprise South.
Photo by Jake Daniels.
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    Michael Lebovitz, CBL and Associates' executive vice president of development and administration

NASHVILLE -- Owners of Chattanooga's biggest mall say it is unfair for Internet retailing giant Amazon.com to continue enjoying a competitive edge over traditional brick-and-mortar retailers.

Michael Lebovitz, CBL and Associates' executive vice president of development and administration, said Monday that Amazon, which is building two distribution centers in Southeast Tennessee, competes on an "uneven playing field" since the company is not required to collect state and local sales taxes.

That amounts to a 9.25 percent leg up over retailers that lease CBL-owned space at Hamilton Place and other shopping centers in Hamilton County, Lebovitz argued. The advantage includes not collecting the 7 percent state sales tax and another 2.25 percent in local option taxes.

"We think Amazon is great for Chattanooga, first and foremost," Lebovitz said. "At the same time, we think that if you can buy a shirt at Hamilton Place and pay $100 for that shirt, you shouldn't be able to buy the same shirt for $90 or $92, whatever the exact number is, from Amazon.

"I'm talking about the exact same piece of merchandise," Lebovitz said. "They're doing business with a tax advantage."

Amazon did not respond to an e-mail request for a response.

The company is spending $139 million to build distribution centers in Chattanooga and in Bradley County. The centers will employ some 1,200 full-time employees. Amazon recently announced plans to open yet another center outside Nashville.

Lebovitz said traditional retailers in Hamilton Place and elsewhere in Tennessee spend money to build stores, pay employees, advertise and "provide good jobs. And they also pay sales tax. That [Amazon advantage] doesn't constitute a level playing field."

Then-Democratic Gov. Phil Bredesen struck the deal last year to get Amazon to build two distribution centers in Hamilton and Bradley counties.

Saying the issue needed a national solution, Bredesen said the company could continue not collecting sales taxes from its Tennessee-based customers despite creating an actual physical presence in the state.

Amazon refuses to charge its customers sales taxes in most states, citing U.S. Supreme Court decisions saying retailers must have a substantial retail presence before states can compel them to collect sales taxes.

Bredesen's successor, Bill Haslam, endorsed Bredesen's decision. But Haslam dropped a proposed rule change that while not mentioning Amazon by name would have exempted it from collecting sales taxes despite the two centers.

Some retailers have said they suspect Amazon got a "private letter ruling" from the Revenue Department seeking to exempt it from collecting sales taxes. Revenue Department officials, whose operations are shrouded in secrecy, refuse to discuss the matter. Retailers like Wal-Mart and AutoZone have questioned the legality.

Southeast Tennessee legislators held off attempts in this year's General Assembly aimed at making Amazon collect sales taxes once the distribution centers are in operation.

But Haslam said last week his Revenue Department is in discussions with Amazon about collecting sales taxes down the road even as they talk about the Internet retailer expanding its presence in Tennessee.

"Given the commitments we've made to Amazon in the past, I wouldn't like to see us do something they wouldn't agree with," Haslam said. "On the other hand, I want to see Amazon be flexible and realistic as well."

According to the University of Tennessee's Center for Business and Economic Research, Tennessee state and local governments this year will lose out on $410 million in taxes on Internet sales. Not all of that is attributable to Amazon.

CBL, one of the largest mall and shopping center operators in the U.S., has previously been muted in its concerns, unlike major retailers and some mom-and-pop businesses.

Also weighing on the issue Monday was the International Council of Shopping Centers, a global trade association with 2,200 Tennessee members.

The organization's president and CEO, Michael Kercheval, said mall operators say they are finding that as their retail customers seek to recover from the recession, "it is difficult for them to compete as they are paying their share of sales taxes, regardless of the size of their business."

In some cases, consumers are using brick-and-mortar retailers as "showrooms" to look for products, then go home and order from another retailer online.

"ICSC strongly supports a federal solution that ends the unintentional subsidy given to Internet retailers by closing the sales tax collection loophole," Kercheval said. "The current system is no longer effective and certainly doesn't reflect 21st Century commerce."

Contact Andy Sher at asher@timesfreepress.com or 615-255-0550.

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about Andy Sher...

Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...

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nucanuck said...

Time to drop the sales tax completely and substitute an income tax. Problem solved and Tennessee would have an advantage then over other States that still had sales taxes. Get ahead of the curve.

August 16, 2011 at 1:07 a.m.
jcomm said...

He is right. Amazon should pay sales tax like all other stores. Was this "special deal" approved by the legislature? I don't think so. Everyone should play fair.

August 16, 2011 at 5:45 a.m.
OldBuckeye said...

California's tax on Amazon has already backfired on them:link text

August 16, 2011 at 6:21 a.m.
Johnnie5000 said...

Rich people are always the first to get butthurt about something aren't they? A deal is a deal, and if we break that deal... amazon walks. They take all of the jobs they were going to create here and give them to another state. That doesn't matter to the greedheads that own Hamilton Place though does it? Why should they care?

August 16, 2011 at 6:26 a.m.
mrredskin said...

that same shirt isn't $92 on amazon. it's probably more like $70ish

August 16, 2011 at 7:30 a.m.
eeeeeek said...

It doesn't hurt Newegg's sales having to add sales tax to TN purchases.

Officer Barbrady, I call shenanigans!

August 16, 2011 at 8:05 a.m.
gimmeabreak said...

If the brick and mortar retailers get their way, the deal negotiated by Bredeson will not stand. Amazon won't build distribution centers in TN to provide residents jobs. Meanwhile, those TN consumers that were already buying tax-free goods from Amazon will continue to do so. How exactly does this scenario increase sales by brick and mortar retailers? It doesn't.

August 16, 2011 at 8:14 a.m.
khargis said...

"waaahhh, it's not fair"

i'm betting the strip mall and stand-alone merchants thought the same thing when hamilton place was built.

i know mom & pop operations, nationwide, think the taxbreaks walmart (the biggest player in the coalition to force amazon to texas) gets are unfair.

internet shopping is mail order. an amazon distribution center isn't a brick & mortar. one can't stroll around in it, shopping. its existence is of a logistical nature, much as the local ups, fedex, or local usps is to traditional mail order.

August 16, 2011 at 8:15 a.m.
crow1033 said...

Poor CBL! Turn Hamilton Place into a distribution center and you too could exempt from taxes. Of course all the CBL executives pay less taxes than anyone thanks to Bush tax cuts! Not having Amazon in TN is not going to stop me from buying from them! Just some other state will enjoy the jobs created by them!

August 16, 2011 at 8:16 a.m.
twharr said...

Let me get this straight...Amazon has been open for god know's how long and just because they are openning distribution centers in TN that means Hamilton Place will lose dividends? So if they decide to pack and go else where does that mean Hamilton Place will continue to lose dividends? How about this; we Tennesseans purchase Amazon products from one of their distribution centers that's out of state? The distribution centers that will be here will be for consumers outside of TN. Problem solved.

August 16, 2011 at 8:31 a.m.
hafner said...

Amazon repeatedly said if TN made them collect sales tax they would locate elsewhere. After they spend millions erecting buildings and building infrastructure, we have them "locked in" and are going to change the deal? While you might get a short term victory of more tax money, long term you lose. TN would prove that what it said could not be trusted, and a smart company would build in a state whose reputation isn't tainted.

August 16, 2011 at 8:32 a.m.
beccatn said...

Amazon is not the only online retailer that does not collect sales that has a physical presence in the state! HSN has a distribution center outside of Knoxville and they don't charge sales tax for online purchases. These retailers that are fussing need to quit. If a person doesn't have a job they won't have the $$ to spend in your store in the first place!!

August 16, 2011 at 8:35 a.m.
Astropig said...

I presume that CBL and other "main street" coalition partners will now lobby to do away with sales tax holidays because they are also "unfair" to some businesses.

The reason that these companies are doing this is because they get their tax breaks before they even open the doors (Costco in Catoosa County for instance). Its all done in secret with tax abatements , free land ,free utilities and the like. Of course they want Amazon to collect those taxes. That tax money can then be handed to companies (like CBL) in other ways,out of the sight of taxpayers.Ways that benefit those companies.

Look, any time you see a big company or industry start yelling about a "level playing field",you are about to get fleeced.The last thing these giant companies want is a "level" field. They want every advantage they can get and it doesn't matter who gets hurt as long as Wall Street is happy. Think,people ! These companies are demanding that Amazon raise prices by the amount of the tax that they will collect. How on earth will this benefit you ? How will having less money make your world a better place? Tell these guys to stick it and don't shop in their overpriced malls.

August 16, 2011 at 8:39 a.m.
hf1707 said...

Can we all please remember than it is not Amazon that is not paying taxes, it is the consumer that is not paying taxes. Traditional retailers just collect and remit the taxes that the CONSUMER pays. Sales tax is not imposed on the retailer, it is imposed on the consumer. I agree that consumers should have to pay sales tax on all purchases, whether made at brick and mortar retail stores or via the internet, but I feel like the lines were blurred in this story when Mr. Lebovitz says "they also pay sales tax" (referring to the brick and mortar stores). NO, the consumer pays the sales tax!

August 16, 2011 at 8:47 a.m.
zulalily said...

Amazon provides more products at better prices than all of the mall's stores combined. If Tennessee refuses to keep its promises to Amazon, then they could relocate and any other businesses looking at placing stores in Tennessee will go elsewhere. Times are hard for many folks and we need both jobs and quality products. Also, as a disabled Tennessean, shopping with Amazon is very handy.

August 16, 2011 at 9:18 a.m.
harrystatel said...

Another reason I stay away from Hamilton Place Mall and have for years-"Baby" Lebovitz's crying disturbs my repose.

Take your spending money and start spending it in gray and underground markets. Buy used, at flea markets, barter, eat at home, use cash, wheel and deal, and buy from Amazon every chance you get. I do and will continue to do so.

But I won't step foot in Hamilton Place Mall and will tell everyone I know to do the same.

I am wondering if there's an extra big diaper changing station at CBL. "Baby" has pooped his pants again.

August 16, 2011 at 9:27 a.m.
NetModem said...

Who the hell buys $100 shirts? This doesn't even connect with the average consumer right now.

August 16, 2011 at 9:29 a.m.
sweetdream20 said...

Before you complain about these sales tax issues at least have a clue how it works. Reporting and paying sales tax for in-state transactions is the legal responsibility of any business with a nexus in that state. Businesses may or may not collect sales tax from the customer. HSN may not charge their customers, that does NOT mean they don't pay it to the state. If amazon does not pay the sales tax (collected or not) they'll start going after the customers who fail to report and pay their USE tax and THEN the customer is most definitely responsible.

August 16, 2011 at 9:42 a.m.
nucanuck said...

Amazon is not a net creator of jobs, as a matter of fact, retail jobs contract under Amazon's lower overhead distribution model.

If you want more jobs in America, on-line sales won't do it. If you want a short time local jobs advantage, then allow Amazon their sales tax advantage, but remember that what the states lose in sales taxes will have to be made up in other taxation.

Government should create a level playing field, not try to pick winners and losers.

August 16, 2011 at 9:46 a.m.
inquiringmind said...

Baasically the malls are facing the same problem as the recording industry. Stopping one or two distribution centers won't make it easier for me to order what I need on-line for delivery to my door.

On-line sales, nucanuck, do offer more jobs than a few stock clerks and high school sales reps at your local teenie bopper shops, but either way, on-line sales are the future. Who enjoy the gross traffic congestion of Shallowford and Gunbarrel Roads?? The change happened when the mom and pop local stores and the 5 & dime stores died when you stopped shopping there.

August 16, 2011 at 10 a.m.
PaulWilson said...

Blockquote In some cases, consumers are using brick-and-mortar retailers as "showrooms" to look for products, then go home and order from another retailer online.

Do retail operators not think this isn't already occurring? I and many other buyers, do this already because even some shipping charges are less than our current sales tax in this state. This is the case with many other states as well.

August 16, 2011 at 10:17 a.m.
heisenberg said...

I was surprised a CBL exec would step out of the shadows and even comment on the Amazon deal. Major shopping centers (like Hamilton Place) often just don't get built without some type of public subsidy. Tax freeze, special taxing district, grant, or major publicly paid infrastructure improvements. In an ideal world, these subsidies would not exist for any private business. However, that is not the world we live in. It is very competitive at the state and local level to attract business and jobs to their communities. Not to mention, jobs get politicians elected.

The main reason these deals are done is in the name of jobs. Bringing in major developments such as VW, Amazon, or a Hamilton Place not only creates direct jobs but also creates hundreds of spin off jobs, that add to the tax base and justifies the initial incentives provided by local and state governments. CBL has certainly had its fair share of incentives and tax breaks over the years. These breaks got deals done and at the end of the day probably worked out well for all sides including the tax payer. This same CBL executive was promoting his own deal (reported by TFP: http://www.timesfreepress.com/news/2008/apr/29/top-story-0429/) a mere 36 months ago, to have tax payers subsidize a major expansion at Hamilton Place. The voice from CBL could be sour grapes that CBL deal hasn't moved forward. I can assure you that if the shoe where on the other foot, the Amazon facility would clearly not be retail facility but a warehouse/industrial use. As someone already noted, you cannot physically do to this facility and go "shopping". In any event, I suggest Mr. Lebovitz return to the large glass house and dim the lights. His opposition may come back to roost in the future.

August 16, 2011 at 10:27 a.m.
timbo said...

As usual you all have missed the point... The Amazon deal is wrong because it is a repeat of the government picking the winners and losers. Giving tax incentives and tax breaks to any business over another business is wrong. This is no different than the government stealing money from me to pay VW. Same thing, same problem.

It is simple, all businesses should play by the same rules as the businesses who aren't "picked" by government hacks because they didn't pay the bribes (campaign contributions) needed to get special treatment. Bringing jobs is another form of bribery.

What the state and local governments have become is job whores. They will pay any price and give outrageous incentives to get a few jobs. Just so someone else like you and I foot the bill.

Let's just follow the constitution and treat all businesses the same and not give our political hacks the chance to screw everything up.

The problem with Lebowitz is that he is not consistent. He probably praised the VW deal because his ox wasn't being gored. When it affects his business the howl can be heard from here to Knoxville.

Life is not two dimensional. Why don't you guys try to be consistent?

August 16, 2011 at 10:50 a.m.
xcergy said...

Mr. Lebovitz, Sounds to me that what you really want is Fed. mandated price fixing. Even if Amazon did collect tax, they can still out price your Mall items. Amazon is a small piece of the tax pie. There are still internet sales made on eBay and other websites where Sales Tax is not collected by those vendors, as they are not required to do so by Federal Law. Fact is, the playing field is level now, as Use Tax is owed for all internet purchases. Look at what happened in SC. Lawmakers gave Amazon nexus exemption for 2 warehouses and 2K jobs. In exchange Amazon agreed to send a notice with each purchase that Use Tax is owed. At least Amazon is doing a better job at informing the public than TN DOR (education of Use Tax law) is doing.

August 16, 2011 at 10:54 a.m.
nucanuck said...

Let us assume that Amazon and non-tax-collecting on-line sales will continue to grow rapidly, that on-line shopping is a big part of our retail future. What impact will that have on our lives?

First, we know the states will have to tax us in other ways to replace the lost revenue, our state survives off of the sales tax. Second, retail sales won't increase, only shift, which will reduce the bricks and mortar sellers and their numbers of employees. We will lose convenience, we will lose retail jobs, we will save the sales tax (and gain a replacement tax) as we increase efficiency.

On-line selling is going to grow with or without their sales tax advantage, but we need not hasten the fall of in-place retail by disadvantaging one segment over another.

August 16, 2011 at 11:42 a.m.
TicketWilliam said...

Internet sales of goods are not going to slow down anytime soon. We need to be proactive and go ahead and tax these companies before we allow local businesses and brick and mortar businesses go out of business. Amazon does hurt small businesses, but that it not the point here. Amazon is locating business operations to TN and should contribute to the state.

August 16, 2011 at 1:27 p.m.
timbo said...

Mohammad_Van_Buren....That was the dumbest post I have ever read on the TFP website. It had no redeeming quality whatsoever.

August 16, 2011 at 1:46 p.m.
sweetdream20 said...

omg xcergy a fellow boardie =) small world!

August 18, 2011 at 6:15 p.m.
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