Amazon: Pressure Builds, "It's About Fairness" AND REVENUE

Tax break issue about fairness
By Roger Harris
Sunday, March 20, 2011
Pressure is building to end the unfair price advantage enjoyed by Amazon.com and other Internet-only retailers that don't collect sales taxes.
Recently, Illinois adopted a law closing this tax loophole. Similar legislation is being considered by other states. Unfortunately, Tennessee is unlikely to join the movement, which means small businesses across the state will continue to be pummeled by giant online retailers.
Knoxville businesswoman Flossie McNabb says the sales tax loophole is a serious threat to the downtown bookstore she plans to open at the end of April, Union Avenue Books.
"It's an outrage for Tennessee to let Amazon get away with this," McNabb said.
John Bevis, CEO of the Disc Exchange in South Knoxville, said it's hard to compete when a competitor starts with a 10 percent price break.
"We have to work harder to make a sale. Amazon doesn't have to do anything," Bevis said.
Since 1992, online retailers have benefited from a Supreme Court ruling that said companies were not required to collect state sales taxes if they didn't have a physical presence - office, factory, distribution center - in the state where a purchase was made.
Amazon is fighting to hang on to its tax break, threatening to close operations in states that demand it collect sales taxes. In Illinois, which broadened the definition of physical presence to include affiliate companies that funnel shoppers to online retailers, Amazon cut ties with affiliates.
Amazon doesn't have a physical presence in Tennessee, but last year it announced plans to build distribution centers in Hamilton and Bradley counties. Normally, that would mean Amazon would have to collect sales taxes on Tennessee purchases, but before leaving office former Gov. Phil Bredesen agreed to a sales tax rule change that would exempt Amazon from the physical presence rule.
Bredesen's successor, Gov. Bill Haslam, ordered a temporary freeze on any new rules, but has spoken in favor of granting sales tax incentives to companies like Amazon. "I don't think because Amazon decides to build a distribution center here, that should change their tax status," Haslam said in Chattanooga in February.
McNabb said state government cutting a deal with Amazon is "almost like selling our soul to the devil. There's a short-term benefit but in the long run it's very dangerous."
One thing is certain, a lot of money is at stake. The advocacy group Tennesseans for Fair Taxation estimates that granting Amazon a sales tax exemption will cost the state about $64 million a year. That's money Tennessee can't afford to lose.
As Bevis said: "It's a fairness issue, but I also feel like you're looking at a state here that relies completely on sales tax and to not collect sales tax doesn't make any sense."
Reducing the size of government is a popular mantra these days, but government should level the playing field "so everyone can compete," said Danny Diaz, spokesman for Alliance for Main Street Fairness, a Virginia-based group that opposes online sales tax breaks.
The issue is "really, very straight forward," Diaz said. "There's a tax due and it only makes sense to collect it."
Business writer Roger Harris may be reached at 865-342-6342. Follow his comments on business news on the Rant$ and Rave$ blog.