The state’s deal with Amazon.com sparked a donnybrook at the state Capitol, pitting Republicans against Republicans with high-powered lobbyists slugging it out and threats of lawsuits and political reprisals flying.
But after months of escalation, is peace finally at hand?
With plans now in the works to open three distribution centers in Tennessee and hire thousands of people, Amazon is said to be negotiating with state officials on a new agreement under which the Internet retailer no longer could decline to collect sales taxes from Tennessee shoppers for online purchases.
Haslam administration officials are treating the talks like CIA Black Ops. From the governor on down, all they will reveal is that discussions are taking place.
“It’s to be determined,” Gov. Bill Haslam said. “We’re in ongoing discussions with Amazon, which are incomplete.”
But House Majority Leader Gerald McCormick said he expects Amazon to come to terms before the start of next year’s legislative session, when some lawmakers are threatening to push a bill to compel the company to collect taxes.
McCormick said he believes Amazon will agree to charge Tennessee sales taxes “not immediately” but after a moratorium of perhaps a few years. In South Carolina, where Amazon is building a $125 million warehouse, the company now is hiring workers after receiving a 4 ½-year tax exemption.
“Based on my talks with Amazon folks, I feel like they really want to resolve this,” McCormick said.
“They probably see it as something inevitable. They’re growing so fast and making so much money that at some point this becomes more of a distraction to them than it is part of their central business plan. I think they’d rather spend their time trying to sell things than having to defend against lawsuits.”
In his last days as governor, Phil Bredesen enticed Amazon to build distribution centers in Tennessee by promising not to require the company to add the state and local sales tax, adding up to nearly 10 percent in some places, to its customers’ bills.
In the past, Seattle-based Amazon hasn’t had to collect the tax in Tennessee or any other state where it didn’t maintain a physical presence. That’s because of a 1992 U.S. Supreme Court ruling that said online retailers were freed from that obligation if their businesses had no physical presence in the state where the buyer lives.
If Amazon built distribution centers in Tennessee, it arguably would have a physical presence here — as defined by the court — and therefore it probably would have to collect the tax unless the state granted the company a waiver.
Just before Haslam was inaugurated as the next governor, Bredesen phoned him to talk about his deal and succeeded in securing his permission to go forward with it. Given the anemic state of the economy, neither probably imagined that bringing thousands of new jobs to Tennessee would trigger such intense opposition. Amazon is spending $140 million to build two warehouses in southeast Tennessee that will employ 1,400 full-time workers and another 2,000 or so part-timers. The company announced last month that it will open another distribution center, this one in Lebanon, and hire hundreds more people.
“In fairness, Gov. Bredesen did call me before they signed it,” Haslam said. “They signed it in between the election and the inauguration, so he called and said, ‘We’re going to do this. But if you want to jump up and down and scream, now’s your time.’ … His point was, we’ll take the jobs. If they built it in Georgia, we still don’t get the sales tax, so why not let them build it here?”
Enter Walmart, Target, AutoZone and a slew of other major brick-and-mortar retailers — all of whom marched to the state Capitol during the past legislative session to cry foul. They argued that the state was putting them at a competitive disadvantage by letting Amazon off the hook on taxes.
Quickly thereafter, what two governors saw as a win-win for Tennessee became a terrible economic injustice in the minds of some lawmakers and a threat to the integrity of the state’s tax system.
Tennessee’s sales tax is riddled with loopholes. Exemptions for everything from newspaper advertising to haircuts add up to a whopping $3.6 billion in annual lost revenue to the state. Yet the Amazon deal, which would cost only $11 million a year, has become a hot controversy. Why was it suddenly so important to stop the sales tax drain?
“I’ll tell you why,” McCormick said. “Because Walmart hired a bunch of lobbyists to make sure it got on everybody’s list as something to worry about. That’s exactly what happened.”
The nation’s retailers association has threatened to sue if Amazon isn’t compelled to collect taxes in Tennessee. Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, has led the charge to quash the Amazon deal. He makes three arguments against Bredesen’s agreement: It was concocted in secret without legislative approval; it knocks yet another hole in the sales tax, which the state relies on to finance the government; and it’s unfair to other retailers.
“One of my duties as the Finance chair is to safeguard the state’s revenue base,” McNally said. “This is an erosion of that base.”
If Amazon doesn’t agree to collect the tax in its talks with the state, McCormick is vowing “to do everything legally possible” to stop legislation to require it.
“I’d be lying dead in the road in front of the train that came through to make that happen,” said the majority leader. He represents Chattanooga, where one of Amazon’s distribution centers is under construction.
“Bredesen made a deal with these guys, and even if it wasn’t the best deal possible, we’ve got to keep our word as a state no matter who the governor is or who’s in control of the legislature,” he said. “We can’t go and change the deal after we make the deal. Just like in any other part of your life,
if people decide they can’t trust you and you won’t keep your word, you’re pretty much finished.”