Amazon doesn't play fair - state loses while Internet Goliath posts record profits

The new governor's and new legislature's first months in office have shown their willingness to give corporate welfare handouts in one hand while the rest of the state gets program cuts and layoffs in the other. More than half of the state's revenue crisis would be solved if corporations were required to pay their fair share - the state could receive up to $600 million in additional revenue while it currently faces a $1 billion deficit.
Amazon has located two distribution centers in Tennessee, and the state and local governments are bending over backwards to pay most of the corporation's expenses, now with a proposed amendment that seems tailored to specifically reprieve Amazon of the legal requirement Tennessee business owners must follow to collect sales taxes in the state.
The current law states: "1320-5-1-.96 TANGIBLE PERSONAL PROPERTY SOLD BY DEALERS TO OTHER VENDORS WHERE DELIVERY IS MADE FOR USE AND CONSUMPTION. Except in cases where specific and satisfactory arrangements are made with the Commissioner before sales and deliveries are made, sales of tangible personal property or taxable services made by a dealer to an out-of-state vendor who directs that the dealer act as his (the out-of-state vendor) agent to deliver or ship tangible personal property or taxable services to his (the out-of-state vendor) customer, who is a user or consumer, are subject to the Sales or Use Tax. The dealer so acting as agent for the out-of-state vendor must collect the tax involved on the transaction unless the transaction comes within the conditions indicated herein."
The amendment would state: "The obligation under this rule to collect tax or provide a Tennessee resale certificate with respect to sales within Tennessee shall not apply, however, to any dealer operating as a distribution center. As used in this rule, a distribution center is a facility at which more than fifty percent (50%) of the gross receipts are derived from the delivery or shipment of orders, on behalf of another vendor, to destinations outside this state."
Interesting timing for such an amendment, as Amazon just agreed to locate two distribution centers in Tennessee, and recently announced plans to close its Texas distribution facility when the state asked it to pay its fair share in sales taxes. Texas sought $269 million in taxes - Amazon's worldwide sales surged nearly 30 percent in 2008 to $19 billion and topped $24 billion in 2009, two of the worst years in recent memory for U.S. retailers. I think they can afford to pay their fair share.
“Brick-and-mortar companies are going bankrupt and going out of business altogether and that is helping Amazon gain market share,” said Imran Khan, an analyst at JPMorgan, in a New York Times article titled "Amazon Posts Profit Gains as Offline Rivals Struggle."
Tax incentives for Amazon's recruitment to Tennessee include state grants, job-creation and property tax credits and money for employee training assistance, worth more than $30 million total for both sites.
"Under the agreement, Amazon gets a break on its property taxes for its 80-acre site in the Enterprise South industrial park, but it would pay 100 percent of the schools' share of the tax.
The county is giving up $435,884 in tax revenue per year, and receiving $429,624 in school taxes. The city will give up $722,716 in tax revenue per year.
Trevor Hamilton, the vice president of economic development for the Chattanooga Area Chamber of Commerce, said Hamilton County's and the city's portion of the incentives are worth a combined $9 million."
Many of the incentives have been touted for the economic boon in Amazon's "plans to hire several thousand people and inject at least $64 million in annual payroll into the area," but a closer looks shows the state is covering that cost for Amazon, too. The revenue TN would lose if the amendment passes to exempt "distribution centers" from collecting sales tax would range from $30 million to $60 million. Amazon would hire 1400 full-time workers and 2000 seasonal workers. If we assume 2 months for the seasonal workers and annual wages averaging $30,000, the total payroll would be $52 million. The tax break is roughly equivalent to TN paying the wages of all of Amazon's TN employees every year forever.
How does this make any sense?
A public hearing on the amendment is scheduled for Friday, Feb. 25, 2011, at 1:30 PM CST on the 3rd floor of the Tennessee Tower, 312 Rosa Parks Ave. in Nashville. If you want to join TFT in speaking out against corporate welfare handouts given from the wallets of Tennessee taxpayers, call or email our offices to join the fight!