For those of you who think state employees are slackers, you should know that last Christmas Eve someone in Gov. Phil Bredesen's Department of Revenue generated a document to ask the Secretary of State's office to call for a rule making hearing in February to change the definition of a distribution center.
This would seem to indicate that the Bredesen administration thought the regulations needed to be changed in order for Amazon to operate distribution centers in Tennessee without collecting sales tax on the purchases. The distribution centers would become "fulfillment centers." Cute, huh?
The rule-making hearing to change the regulation was scheduled for Feb. 25.
So we had the inauguration and the Haslam administration was installed and the new Department of Revenue team canceled the rule-making hearing. The hearing was never rescheduled. So how then is it possible for Amazon to operate without collecting sales taxes if no rule-making public hearing was ever held and the rules were not changed?
The state Attorney General has opined that the Amazon "fulfillment centers" satisfy the legal definition of a "nexus," meaning they are doing business in Tennessee and thus can be required to collect sales taxes.
The Department of Revenue says a letter was sent to Amazon giving them the state's position and justification for not having them collect the taxes. But state retailers have been unable to get a copy of the letter. It is considered proprietary information. How can the state outline, in a document, a change in tax policy, and that document not be available to the public? And other taxpayers? Is the exemption forever?
It is a matter of some concern to state retailers, who collect almost 10 percent in sales tax on retail items, that they have a competitor who doesn't have to collect it. The sales tax is higher than big-box store profit margins.
Lawmakers and county and city mayors need to pay attention. If the Amazon ruling stands, it strikes at the heart of the state tax structure. In the last decade we killed a state income tax for a generation. The sales tax funds schools and is the most important source of the state's revenues.
Last week we learned that Amazon competitor Borders book chain will close its stores. They have more than 10 stores in Tennessee and a distribution center. When they sell the inventory and shut the doors that's about 800 jobs lost, with 35 jobs per store and the distribution center. Let's subtract that from the 1,500 jobs Amazon is bringing to Chattanooga. And then let's ask, who's next? Best Buy?
In addition to the jobs, each county, like Knox, should look at the sales tax collected by all the Borders stores over the last five years, including two in Knoxville, and ask a question: What will replace that revenue in your budget? Ask how many small businesses in your community are at a competitive disadvantage to e-retailers and have closed their doors.
University of Tennessee economist Dr. Bill Fox told legislators at a conference in Memphis recently that e-retailers nationally have cost 260,000 retail jobs thus far. E-commerce in general is a threat to retailers and the market will sort it out. But we do not need to use the government to put a 10 percent handicap on state retailers during the fight.
Amazon is moving into different sectors of retailing every day. They are experimenting with groceries. Hey, county mayors—how will your budget look when grocery store chains in your community start to close?
State Sen. Randy McNally, R-Oak Ridge, sees the danger and has legislation that would likely pass the Senate if he brought it to a vote. But the House has a Majority Leader in state Rep. Gerald McCormick, a Republican from Chattanooga—the site of the Amazon "fulfillment centers." The Amazon deal was originally negotiated by premier industrial recruiter and the mayor of Hamilton County named Claude Ramsey. Ramsey is now deputy to Gov. Bill Haslam.
This issue is about more than fairness—our tax system is at stake.