published Tuesday, July 26th, 2011

Group threatens suit over Amazon.com taxes

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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NASHVILLE -- An attorney for an association representing some of America's biggest retailers says the group may file suit if state officials don't require Amazon to collect sales taxes when the company begins using two Tennessee-based distribution centers now under construction.

"Do my clients have standing to bring an action in court? In my opinion we do," said Bill Hubbard, a Nashville-based attorney for the Retail Industry Leaders Association, which includes Wal-Mart, AutoZone and other major retailers battling Amazon on Internet tax-collection issues nationwide.

"And yes," said Hubbard, "I think the court is a potential remedy for my client."

A 1992 U.S. Supreme Court opinion says states cannot compel out-of-state retailers to collect sales taxes unless the retailers has sufficient physical presence in the state.

In a legal advisory opinion issued June 28, Tennessee Attorney General Bob Cooper said an out-of-state retailer's use of in-state distribution centers would support a finding of physical presence -- or "nexus" in legal terms -- if its activities are "significantly associated" with the retailer's ability to establish a market for the sales.

Hubbard has argued all along that the two $139 million distribution centers Amazon is building in Hamilton and Bradley counties constitute physical presence.

Cooper's opinion also stated that bills introduced by two top legislators to compel Amazon to collect taxes would be constitutionally defensible.

On Monday, asked if there were concerns about Tennessee getting sued over the Amazon deal struck by former Gov. Phil Bredesen before he left office, Gov. Bill Haslam declined to make a concrete statement one way or the other.

"I'm not a legal authority, and it would be premature to conjecture on that. I really don't know the answer to that," he said.

In late May, the Amazon sales tax bill was postponed until next year in the General Assembly to give Cooper time to write his opinion. The bill sponsors say they are ready to come back with it in 2012 but also say they are willing to accept a compromise that exempts Amazon from having to collect the tax for two to three years.

Hamilton and Bradley lawmakers say that flies in the face of the deal that was cut with Amazon to get them here.

Meanwhile, some observers say a little-noticed July 11 legal opinion by Cooper could give additional ammo to Amazon's critics.

The opinion, sought by Jim White of the General Assembly's Fiscal Review Committee in a matter involving pharmacists, says that "state statutes obligating sellers to collect sales tax from purchasers of tangible personal property at retail cannot be waived by contract."

White said Monday he "would not hazard a guess" on whether it could apply to Amazon.

"I hate to get into hypotheticals," he said.

Pressed on the issue, White explained, "If the activity results in taxable sales, if the law makes collection of that tax mandatory, [if] there's no exemption or provision in the law for that to be waived, then the parties could not basically forego or waive the sales tax through the contract."

But White said he can't say if those facts apply to Amazon or not. Retailers in the past have openly speculated the state Revenue Department has issued Amazon a private-letter opinion that seeks to exempt it from sales tax collections.

Revenue officials have refused to comment, citing state confidentiality laws.

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

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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Comments do not represent the opinions of the Chattanooga Times Free Press, nor does it review every comment. Profanities, slurs and libelous remarks are prohibited. For more information you can view our Terms & Conditions and/or Ethics policy.
nucanuck said...

From the day that the State commited to allow Amazon to avoid collecting legally owed state taxes, the only logical fair course was to craft the same terms for all retailers on on-line purchases.

The State has created this problem and is now faced with a possible loss of tax revenue as their best solution.

Does that mean another form of tax will tale it's place? Peobably.

July 26, 2011 at 1:54 a.m.
rolando said...

The SCOTUS heartily disagrees with your view, nucanuck. Again.


The questions are, does Tennessee honor its legally-made commitments or not? And, does Tennessee consider money it wrenches from its residents more important than jobs?

Make no mistake -- any taxes Tennessee seizes from Amazon will be passed on to us. Companies do not pay taxes -- not even WalMart -- they just pass them on to us, the ultimate payer, as higher prices.

July 26, 2011 at 7:10 a.m.
harrystatel said...

I suggest that people no longer buy from retailers. Buy secondhand, barter, go underground with your money.

Stop feeding the beast and its offspring.

Avoid spending your money where you're taxed for earning it, taxed while spending it, taxed on what you own, taxed every time greedy politicians, welfare-businesses and individual welfare recipients steal it from those that earn it.

Grey and black markets—my kind of shopping.

July 26, 2011 at 7:14 a.m.
Humphrey said...

so, Amazon just builds in another state. Tenn. still gets no taxes, and Tenn. then gets no jobs.

Cut the sales tax rate, replace with small income tax. Less regressive, more fair, more reliable.

July 26, 2011 at 9:44 a.m.

WallyWorld and AutoZone have brick and mortar RETAIL stores. Amazon on the other hand does ALL of their business online. Leave it to an attorney to muddy the waters. Dang him and his clients...how dare they threaten the jobs that we so desperately need. If this silly lawsuit pisses Amazon off, they will pick up and leave. Leave it alone already and take a good long look at how well Amazon stock is doing. A well run business that has grown quite successfully. Might also add that WM sells stuff online, so they are still getting their fair share of profit, too. Furthermore, competition is good for the HATEFUL souls who run those big box stores. It's the American way, folks. When people are working, they are spending money and helping the economy. All the clients that 'attorney' represents will still get more than enough...greedy fools.

July 26, 2011 at 12:34 p.m.
eastridge8 said...

Agreed HLT...we need these jobs...Walmart and AutoZone are as you said...RETAIL...Amazon is NOT!

Lawyers!! They'll take any case that gets their name in print!

July 26, 2011 at 3:12 p.m.
Facts said...

Governor Bill Haslam is showing he is not capable of leading by permitting this to go on. Questions were asked in the first few weeks of the year with no answers provided by the Bredesen folks who crafted the plan with, now Deputy Governor, Claude Ramsey as the chief salesman. Gov. Haslam has allowed this constant drip of complaints that has given lobbyists time to move in with the money wagon. Shame on a Governor who doesn't lead. We're stuck with a lot of folks like that these days.

July 26, 2011 at 3:13 p.m.
sage1 said...

Physical presence should have been better defined. Does a warehouse/shipping center qualify under the same principle and intent as the decision? Amazon does NOT have the same retail presence as Wally World and Sears for example.

A 1992 U.S. Supreme Court opinion says states cannot compel out-of-state retailers to collect sales taxes unless the retailers has sufficient physical presence in the state.

To me this is a reference to a physical RETAIL presence BRICK AND MORTOR walk in a buy it and carry it home presence. With Amazon, you cannot walk in and buy anything. You order it and it is shipped to you even if you live a block away from the DISTRIBUTION CENTER.

July 26, 2011 at 3:30 p.m.
76lumberjack said...

This is crazy - why should major corporations get special deals? Every single business in TN must collect taxes - but not Amazon? How many jobs have they cost small businesses? Ever heard of Borders Books and 10,000 people out of work (no jobs) because of unfair tax competition from Amazon? GO HOME AMAZON IF YOU CANT PAY EQUAL TAXES OF YOUR COMPETITORS!

July 26, 2011 at 5:11 p.m.
76lumberjack said...

Wait - aren't citizens supposed to pay taxes of internet purchases voluntarily? How many of you do that? This is a joke - in the name of kickbacks, our politicians approve an unconstitutional back room deal to allow amazon to not collect badly needed taxes that all other retailers must collect. Can't wait until every state passes fair tax laws for huge corporations to equally collect sales tax on ALL purchases - then where will amazon threaten to go to?

July 26, 2011 at 5:15 p.m.
nucanuck said...

For those who make the on-line distinction, should not ALL on-line purchases be subject to the same tax policies as Amazon? In other words, buy at a Sears store...pay the tax. Buy from Sears on-line...the tax is not part of the transaction, you pay voluntarily, or not.

July 26, 2011 at 5:50 p.m.
rolando said...

You don't like the decision, lumberjack, blame the SCOTUS.

It said if a company has no presence in the state, they don't collect sales taxes on orders shipped to that state. Period. If you consider a distribution point or a warehouse a "presence", you have just opened a whup-as size can of worms. You would have it so:

-- If a company is located in Georgia and has a storage facility used as a waystation for an order shipped to you in Tenn then you want that Georgia company to collect Tenn tax. Now, picture that "storage facility" to be a double-wide trailer. Tax still due, right? Now split the trailer and put it on wheels, call it a semi-truck, and deliver the company's merchandise to your house...and all the other stuff to all the other homes in Tenn that ordered stuff.

Same "waystation" as before only this one is mobile.

Now picture this mobile waystation [semi-truck] as loading up in Atlanta, driving to Chattanooga and spending the night in the company's huge parking lot before starting deliveries the next day.

Please note: Under your rules, spending the night in a lot isn't necessary. As soon as the company's truck enters Tenn with the intent to deliver, the company suddenly has a "physical presence" -- by your definition -- in the state...regardless of whether or not it delivers anything to your house or any other house in Tenn.

July 26, 2011 at 6:21 p.m.
rolando said...

It doesn't work that way, nucanuck. Again.

Sears has a retail presence in most every state -- it only takes one retail store to meet the "presence" rule. So Sears-online must collect the sales tax, just as if you bought the item in the retail store. Buying it that way is not cost-effective since you pay the same total price either way...plus postage/shipping to your home in many cases.

However, since Sears pays no property/business taxes to Tenn for their on-line only sales, and since you pay the same price either way, Sears' costs are lower and they make a tidy little profit over its on-line sales over its retail sales.

In other words, they are screwing you by not passing that savings on to you. Do I hear any gripes about that? Anyone?

All Amazon does is pass those savings on to their customers -- very smart business model since it brings customers back.

Obviously, Amazon does not have retail stores so the rule does not apply. Tenn claims a "warehouse"/waystation creates the legal presence.

July 26, 2011 at 6:26 p.m.

Am guessing those of you who have sided with the 'attorney's' lawsuit (on behalf of the big boxers) are employed. So happy for all of you and my heart aches for those trying to feed their families.

July 26, 2011 at 8:04 p.m.
76lumberjack said...

Again, HigherLevelThinker, what about the 10,000 unemployed Border's employees? (Am not, nor ever been employed by Borders). It is widely accepted that Amazon has killed the retail book business. Most times the price difference was just the tax amount. So the states, in their wisdom, just gave up tax REVENUE from local book resellers to NO REVENUE from Amazon types. The fella that referenced the SCOTUS case forgets that this "no tax" idea was initially developed to "help" the emerging technology of the internet. Times have changed now haven't they? Finally, rolando, cases have sided with the states in exactly the situation that you have sited - the furniture delivery truck from North Carolina that delivers to Tennessee has nexus in TN - even with no retail store. The truck itself is nexus. It will be soon that State governments all over the USA will start to charge sales tax on all purchases. YESSSSSS!

July 26, 2011 at 10:12 p.m.
eastridge8 said...

Boarders couldn't get their "emerging technology of the internet" to work...hence they went belly up.

It was not Amazon's fault that Boarder's went under...

I do agree tho that in time ALL online purchases will be charged local sales tax...but I do think Tennessee should honor their agreement with Amazon.

July 27, 2011 at 10:42 a.m.
76lumberjack said...

eastridge8, now come on! Does amazon have an almost 10% unfair price advantage vs. a brick & mortor retail store in TN? Yes or no? Do the "tax-hating/pro amazon" types pay the almost 10% sales tax as required by law each year? Yes or no? I have a great solution: REQUIRE Amazon to directly link to TN Revenue all names and addresses of all shipments to TN residents with tax due notices. This is fair, wouldn't you agree?

July 27, 2011 at 10:20 p.m.
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