Amazon's Unfair Tax Advantage

Will Gov. Haslam use state power to give one retailer advantage over another?

You can't tax the Internet—one of the enduring principles of our time. We can't have the government getting in the way or erecting barriers to prevent business development.

I agree, though I wonder why we let the government erect barriers and get in the way of starting a business in every other area of our economy. Taxing websites, taxing portals, taxing the structure of the Internet would have had a dampening effect on the explosion of Internet businesses we've seen in the last decade.

But when you start selling retail goods by taking orders on the Internet and shipping them, taxing those goods isn't taxing the Internet. It's taxing products on which every brick-and-mortar store has to collect sales tax and turn it over to local and state government. That brick-and-mortar store pays local property tax and supports your schools. That brick-and-mortar store employs you or your neighbors. That brick-and-mortar store collects sales tax to pay for police protection and fire protection and, yes, schools as well.

Technically, when you buy something from Amazon and they ship it to you, you owe sales tax on it. But as a practical matter there is no mechanism to collect it. It would be the same if you went down to Sears and bought school clothes and the store depended on you to compute the sales tax you owe and mail it to the state of Tennessee. Yeah, right.

So Sears and Best Buy and JCPenney collect the tax at the point of sale and send it to the state Department of Revenue.

But the confusion between "taxing the Internet" and taxing goods sold online has allowed companies like Amazon to use the government in order to provide themselves with a competitive advantage. They have an advantage of almost 10 percent of the purchase price in Tennessee alone.

The state of Tennessee, like most other states, has lacked the power to compel Amazon and other online retailers to collect and remit sales taxes. Until now.

Amazon proposes to build massive distribution centers in Bradley and Hamilton counties (Chattanooga suburbs). Tennessee state law is very clear that if you have a physical presence in the state and sell retail goods, you are subject to collecting sales tax on purchases.

Amazon, enjoying its competitive advantage over traditional stores, has recently announced it is pulling its operations out of Texas because that state has had the temerity to insist that anything they sell in Texas is subject to sales tax and has demanded that Amazon collect it and turn it over.

There ought to be a 50-state agreement that requires Amazon, and other online retailers, to collect the state sales tax and remit it to state governments. They have your address for shipping, they have your zip code. Computing your sales tax on a computer sale is three or four lines of code and not a complex operation.

Perhaps the fear of losing the Amazon facilities (and 1,200 jobs) has prompted the state Department of Revenue and Gov. Bill Haslam to initially argue that Amazon will not have to pay sales tax on goods sold to Tennessee residents. If they insist this is the case, then they had better get some legislation passed to give Amazon an exemption.

And if they do, then the brick-and-mortar retailers of Tennessee need to raise Holy Hell—with the governor, with legislators, and with local governments to whom they render daily tribute in order to stay in business. The issue is fairness, and if it can't be resolved then let Amazon take its jobs somewhere else.

I'm told Amazon typically uses sleight of hand and that once its facilities are operating you won't find Amazon's name on anything, just an anonymous drone company doing Amazon's business. If that's the plan, it needs to be stopped right now. Whatever the name on the front company, the company delivering retail products needs to be paying sales tax. If any legislation is passed, that ought to be it.