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.

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Comments » 4

BrazenHussey writes:

"Taxing the internet" is not the best choice of words. I would suggest "Taxing internet sales" would be more accurate.

Next: "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" Actually that would be a 45 state agreement - 5 states do not have a sales tax. How would merchants in those states would feel about the new burden of doing work for 45 states. New Hampshire merchants - home of "Live Free, Or Die" - might get a bit cranky.

Next: "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." Actually ... it is a complex operation. If it weren't complex, the Streamlined Sales Tax Agreement would have been accomplished ages ago.

There are approximately 7500 sales taxing jurisdictions in the 45 states.

States define taxable items differently. Some states do not tax clothing below a certain price, some states have a sales tax holiday ...

krk writes:

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.

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, 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.

erhwright writes:

Amazon is a corporate bully that can easily afford to collect sales tax in Tennessee. Tennessee cannot afford to exempt Amazon from following the law. The state will be throwing away $30-$60 million in potential revenue to hand this corporate giant YET ANOTHER giveaway - the state and local governments already provided Amazon $30 million in tax breaks and incentives for the location deal.
This absolutely harms local businesses and is patently unfair. Local businesses represent 60% of our economic growth and employment, so why would a governor who is supposed to be about "job creation" side with Amazon on this one (which he did)? Haslam also said he plans to run Tennessee like a business, but I don't know any business that would give away millions to a "business partner" without any guarantee of getting a return on that investment. It makes no sense - research has shown time and again that tax incentives and breaks don't play a large part in corporate relocation decisions, but Amazon is using the fallacy to its full advantage.
They should pay their fair share. Tennesseans for Fair Taxation is working on this issue, and supports the Out-of-State Sales Tax Act (SB1489/HB1912 by Marrero/Stewart) that would require online vendors selling more than $4,800 of goods in Tennessee annually to collect the sales tax. This would include Amazon. If you agree, go here to let your representatives know:

meigslee writes:

Same tax dodge has been going on for years in a different manner. For example if you purchase carpet from an outlet in GA, some may tell you that you do not have to pay sales tax if you ship it by a common carrier. I have been told same is true in NC with some of the furniture outlets. What they should say is you don't have to pay unless you get caught.
Something of interest I found out over 20 yrs ago is that if someone purchases carpet, has it shipped here (and doesn't pay sales tax on it) and hires someone to install it, that the installer is resposible for the sales tax (it is called "use tax" when installed).

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