Budgeting, Planning & Forecasting

Budgeting, Planning & Forecasting

January 25, 2011

Amazon Requesting Sales Tax Exemption from Tennessee

In a sluggish economy, the leverage is always in the hands of the investor. This sentiment is proving especially accurate in the case of Amazon's current negotiations with the state of Tennessee.

Late last year, the Volunteer State made an aggressive pitch to Amazon to try and convince the online retail giant to develop a large distribution center within its borders. As part of the proposal, Tennessee would provide Amazon with free land, job training and $12 million in property-tax breaks, among other incentives. The state made the offer because it would help to create nearly 1,500 full-time and as many as 2,200 part-time jobs, according to the Times Free Press.

After months of behind the scenes discussions, Amazon and Tennessee officials finally agreed to a deal in November of last year and began releasing details to the public.

However, a number of news sources, including the Seattle Times, have recently reported that negotiations between the two parties are still ongoing and that Amazon is looking for Tennessee to hand them one other major economic incentive.

Amazon policy chief Fred Kiga has asked the Volunteer State to not collect sales tax from Tennessee customers once the center is built because the company is based in Seattle, Washington, and is an online retailer. As of now, Amazon does not collect sales tax from Tennessee-based consumers because it has no "physical presence" in the state.  

"We are having discussions right now with the state on this," Kiga, a former head of Washington's revenue department, told the Times Free Press in December. "The distribution centers here are not retailers, but rather drop-shippers."

Tennessee should not be surprised with Amazon's request, as the company has convinced all other six states in which it has built distribution centers to agree to similar deals. Amazon has argued that it does not have a physical presence in these states. Instead, the company has described these distribution centers as "affiliates."

While admitting that the vague nature of online retail tax law is a serious issue, the state's newly-elected governor, Bill Haslam, seems to be on the side Amazon.  

"I do think this is something we need to look at long term, but I do not think it needs to interfere with our recruiting of Amazon to Tennessee," he told the Times Free Press. "That's a huge priority for us."

At some point, the federal government may look to step in and create more definitive rules on sales tax for online stores. As of today, Amazon only collects sales tax in five states. The Internet giant is also currently in legal battles with multiple states over sales tax collection issues.

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Juliana Kenny


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