published Saturday, February 26th, 2011

Critics cry foul on Amazon tax advantage

Tennessee’s tax giveaways to Amazon could be nearly as much as the company will pay the 1,476 workers it plans to hire this year in Hamilton and Bradley counties, according to a new study by a group opposed to tax exemptions for Internet retailers.

  • photo
    In this Nov. 11, 2010 photo, Leacroft Green places a package to the correct shipping area at an Amazon.com fulfillment center, in Goodyear, Ariz. Amazon.com, the source of many presents good, bad or ugly, (AP Photo/Ross D. Franklin)

Tennesseans for Fair Taxation, a Knoxville-based advocacy group, estimates state and local governments could lose more than $30 million a year in sales tax revenues and millions more in property and franchise taxes because of tax exemptions granted to Amazon.

The world’s biggest Internet retailer is building $139.1 million of distribution facilities in Southeast Tennessee and plans to create more than 3,000 full-time and temporary, seasonal jobs by Christmas.

But some critics claim that investment doesn’t justify Amazon’s tax breaks and hurts conventional retailers that must collect and pay such taxes.

“The economic output from Amazon just won’t measure up to what is being given away,” said Elizabeth Wright, executive director for Tennesseans for Fair Taxation. “Amazon can afford to collect these taxes, but Tennessee can’t afford not to have them do so.”

Amazon officials did not respond Friday to the study. The company has urged Tennessee and other states not to require Internet retailers to collect sales taxes.

But Chattanooga Mayor Ron Littlefield said Amazon will boost the local economy “and all of those Amazon employees will pay taxes on the cars, homes and goods they buy.”

BY THE NUMBERS

Amazon sales and investment

  • 18.7 billion: Amazon North American sales in 2010, up 39 percent from 2009
  • $270 million: Estimated Amazon sales in Tennessee in 2010
  • $91 million: Value of Amazon distribution center being built in Chattanooga
  • $48.1 million: Value of Amazon distribution center being built in Bradley County
  • 1,476: Number of full-time jobs at new Amazon centers in Southeast Tennessee
  • $47.2 million: Projected full-time payroll for new Amazon facilities

Tax breaks and incentives

  • $35 million: Projected annual Amazon sales tax losses in Tennessee in 2012
  • $6.6 million: One-time job tax credit applied against half of franchise and excise taxes
  • $4 million: Value of 80 acres given to Amazon by city and county this year.
  • $720,000: City of Chattanooga property tax break in 2012
  • $435,000: Hamilton County property tax break in 2012.
  • $70,000: Bradley County property tax break in 2012

Sources: Study by Tennesseans for Fair Taxation, Amazon sales, Hamilton County Trustee’s Office, Tennessee Department of Economic and Community Development

If Amazon didn’t come to Chattanooga, it still wouldn’t collect taxes on Tennessee sales and there would be fewer jobs and less investment in the region to generate other taxes, Littlefield said.

“This is a good deal for Chattanooga,” he said.

Calculating the tax losses from any Amazon decision is difficult to gauge, however.

Tennesseans for Fair Taxation initially released a report this week indicating that Amazon was avoiding $64 million a year in sales taxes in Tennessee. But when asked about the methodology of the study by the Times Free Press, the group recalculated the figure Friday and Middle Tennessee organizer lowered the sales tax loss estimate to only $30 million to $35 million on Friday.

Collecting sales taxes

Without a physical retail presence in Tennessee, Amazon isn’t required to collect sales taxes on all its sales as most merchants must do.

Tennesseans who buy from Amazon are supposed to pay state and local sales taxes themselves. But few do, according to studies of Internet retailing by the University of Tennessee.

The 1 million-square-foot distribution centers Amazon is building near Volkswagen in Chattanooga and in northern Bradley County could mean it has a physical retail presence and must collect taxes.

Last year state and local recruiters offered property tax breaks, job training and infrastructure assistance and 80 acres of free land in Chattanooga to lure Amazon here.

Littlefield said recruiters talked with Amazon about exempting it from collecting sales taxes, but he said no written guarantee was offered.

The Tennessee Department of Revenue is proposing a rule to exempt “any dealer operating as a distribution center” from having to collect Tennessee sales taxes if at least half of its sales come from shipments out of state.

A hearing originally set for Friday on the rule was delayed because Gov. Bill Haslam has put a 45-day moratorium on state rule changes.

State rules differ

Haslam has suggested Congress adopt rules to govern taxation of Internet sales. But until then, he doesn’t think Amazon should have to collect sales taxes because it is building distribution centers in the state.

Amazon has said it will close a Texas distribution center in April over a bill for $269 million sent by the state comptroller bill.

“Despite much hard work and the support of other Texas officials, we’ve been unable to come to a resolution with the Texas comptroller’s office,” Amazon said in a statement.

In 2009, Amazon cut ties with affiliates in Rhode Island, North Carolina and Hawaii over the issue. The company now collects sales taxes on all of its goods only in Kansas, Kentucky, New York, North Dakota and Washington, according to its website.

Tennesseans for Fair Taxation and some conventional retailers contend local stores are being hurt by Amazon’s tax advantage.

“This hurts small business in our area by immediately putting us at a cost disadvantage,” said Kim Smith, owner of a 2-year-old outdoor clothing company known as JK3 SoftWear in Chattanooga.

“As a mother of two boys in public schools, I’m also concerned about Amazon not paying their fair share of taxes to support our schools in Tennessee.”

Smith cited two independent Chattanooga bookstores that closed in the past year, in part because of competition from online retailers.

“It doesn’t make sense for a governor who says he wants to support business to hurt our local business people in this way,” Wright said.

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acerigger said...

IOKIYAR fits the "free market" agenda here pretty well.

February 26, 2011 at 2:08 a.m.
Beamis said...

The issue is taxes themselves. We need less of them not more. Why aren't we talking about that? Regardless of how much governments tax their subjects they are always in the red and need MORE, MORE, MORE! Let's frame this issue with a plea for less taxes and don't make me pay sales tax for an Amazon purchase. Then let's talk about getting rid of sales taxes altogether. The crappy schools and other government waste need to be eliminated eventually and replaced with a more contemporary and competitive model of operation, so starving the beast would be a good start. A sales tax holiday would be great trail balloon. You'd be amazed at how much money you'd get to keep for yourself just for the privilege of buying yourself some food and shoes.

February 26, 2011 at 5:39 a.m.
KWVeteran said...

Critics cry foul on Amazon tax advantage Instead of Critics that should have been headlined Liberals

February 26, 2011 at 8:51 a.m.
krk said...

Similarly, in South Carolina, Amazon has been trying to lobby for a “safe harbor” sales tax exemption on top of other concessions for locating their distribution centers in the state. This is all a sad short-sighted policy where states compete among themselves into bankruptcy. http://www.fitsnews.com/2011/02/24/problems-with-amazon-deal/

States, instead of pursuing a “Beggar Thy Neigbor” policy pandering to the likes of Amazon to generate a fleeting “High” of prosperity, like Nations do by rubbishing their own currency, should try to colloborate and take collective action to end this permissive abuse of our antiquated sales tax system.

Juxtapose this with Texas recently back-charging Amazon $269 million for sales tax it had not collected over the years while stealth maintaining a distribution state in-state. Texas got shamed into going after Amazon only after it was brought to light by a vigilant Dallas Morning News reporter. Besides challenging Texas in court, Amazon is playing the intimidation card by closing down its distribution centers in Texas.

Only collective, colloborative action will put a stake in the "Nexus" & "Entitity Isolation" voodoo legal tactics that remote online merchants, particularly Amazon.com, have been getting away with.

What everyone is blind to, is the impact on mainstreet retail which too adds jobs, you know. In this perverse “damn if you do, damn if you don’t” situation created by the antiquated catalog mail-order era Supreme Court ruling regarding “Nexus”, state authorities are exploited by big, predatory online businesses.

The sensible thing for states to do is press Washington to speedily enact the “Mainstreet Fairness Act” which had bi-partisan sponsors but got nowhere in the last congress and its principal sponsor is now retired. This will restore a level playing field to brick and mortar retail and bring back jobs and vibrancy to mainstreet retail. Plugging such corrupting loopholes will foster a business ecosystem of free, fair and level playing field to flourish, bring back jobs and vibrancy to main street retail and much needed revenues to the state.

February 26, 2011 at 9:05 a.m.
Humphrey said...

So a local business person works hard and builds a local retail store. They have to collect state sales tax. But the big company comes in - gets tax breaks to do so - and then doesn't have to collect state sales tax. Does that seem fair? Does it seem like the local business person is getting support from local politicians? Will the business person be able to compete on a fair playing field? The problem here is confounded by the regressive tax policy in the state of Tennessee. Our government is funded - and well receive the benefits of education, roads, fire fighters, police, etc. - mainly through sales tax. This shifts a larger burden of taxes on to working people, who spend a larger portion of their incomes on daily living necessities, and away from richer people who spend a smaller percentage of their money on daily living. The idea here is that this encourages the richer people to invest their money, and therefore create jobs for the working people. The down side is that the richer people can easily spend and invest that mnoney out of state, and so the state of Tennessee sees no benefit. Because there is no income tax, the jobs coming to Amazon will not bring a tax benefit, and the sales will not. One can argue that the trickle down will happen - the employees will spend more money and that will spur sales tax. But will that counter balance the impact of lost sales taxes from those local businesses that are now competing with Amazon on an unfair playing field? Will the gain in jobs account for the loss? I'm afraid what we are doing here is taking more money out of our state. Sales tax has a real benefit - when someone driving through the state or visiting the state buys something, we bring money in to the state. That's good. But when we who work in the state spend our money elsewhere to avoid Tn. sales tax, that is bad for our state - for our schools, roads, etc. For the overall quality of life. now, each of us as individuals like the extra money in our pockets - I love to shop amazon and get stuff tax free. But it hurts us as a state. It would be more sensible to reduce the overall percentage of sales tax - not eliminate it, but reduce it, and add in a very small percentage of income tax to counter balance it. The overall tax level wouldn't increase for working families, but it would provide the state a more reliable and dependable tax base. It is just more sensible. One could argue to get rid of taxes altogether, but that is balderdash. We all benefit form living in a civilized society and we should all pony up for it and show a little responsibility - working folks and rich folks. Just my opinion.

February 26, 2011 at 9:21 a.m.
TNCitizen said...

There's more at stake here than the current level of tax code spending the administration proposes. If Amazon is exempted, sales will continue to migrate to them and other Internet retailers instead of local businesses that employ more people. It's a slippery slope. The local retailers will be squeezed, they'll layoff workers and eventually they will shut down, further reducing state revenue and increasing unemployment causing another deep recession.

It's part of a big conservative strategy to defame government, defund government, deregulate business and divest public assets. All in order to transfer wealth from working people to the rich.

February 26, 2011 at 11:01 a.m.
nowfedup said...

Tennessee’s tax giveaways to Amazon could be nearly as much as the company will pay the 1,476 workers it plans to hire this year in Hamilton and Bradley counties"

So how long will it take for the workers to pay sales tax to equal the amount of the tax welfare TN-all have given away to Corp USA for "jobs" which if we offend the masters will leave on next truck out? Seems most states NOW IN RED, Deficit dangers etc" and employment rates still steady, yet we give jobs to a few and someone is going to make up the shortfall, right now seems the people and services, educations and such so big money can make a few bucks and developers, campaign funds always do well. So has anyone calculated just how long it will take before the workers sales tax pays off the corp welfare?

February 26, 2011 at 8:11 p.m.
moon4kat said...

Bringing Amazon to Chattanooga won't change the amount of sales tax generated locally. Most of those tax-free Amazon sales would be made anyway, although through a processing center employing people in another state.

February 27, 2011 at 9:19 a.m.
grandmastaj said...

I love when liberals get blamed for things that aren't their fault.

"Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, and House Finance Committee Chairman Charles Sargent, R-Franklin, have legislation they say would make it clear the two distribution centers Amazon is building in Hamilton and Bradley constitute “nexus.” "

May 10, 2011 at 2:39 p.m.
dt4c said...

I personally think it is time for a nationwide class action lawsuit against the states for unfair taxation for small business. There is no reason in the world why we should have to collect sales tax and internet businesses do not. Unfair competition. And the ones on here calling this liberal thinking are FOS. Fair is fair. Period. This definitely puts local businesses at an unfair advantage.

September 17, 2011 at 7:08 a.m.
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