By Phil Schoggen
Tennessee law has long required the state’s online shoppers to pay our very high Tennessee sales tax on Internet-purchased goods just like they pay when shopping at bricks-and-mortar stores in the state. However, the law is ineffective — enforcement by the Department of Revenue has been minimal, and many are unaware of their obligation or simply choose to ignore it. The law also requires online vendors to collect and remit the state sales tax when the vendor operates a physical facility in Tennessee. The state loses up to $365 million a year in revenue from non-compliance with the law.
Amazon is currently in the news because it is building facilities in Tennessee. But Amazon wants Tennessee to grant it a waiver that would free it of that obligation to collect and submit Tennessee sales tax, despite the considerable incentives and tax breaks the online giant already received from the state as part of its recruitment deal — free land, job-training assistance and more than $12 million in property tax breaks.
Quite understandably, Tennessee bricks-and-mortar businesses are complaining. They have been collecting and remitting the sales tax for years, often losing business to online and out-of-state retailers because the Tennessee sales tax is the highest in the nation. Online vendors are major competitors, often selling the same kinds of articles on which local businesses have to remit sales taxes — many communities have seen locally owned businesses close their doors because they can’t compete with online sellers, leading to job loss and disinvestment in many Tennessee neighborhoods.
Local business owners are now speaking out to say they feel Amazon, now physically located in the state, must be required to collect and remit the same sales taxes they do. Otherwise, online vendors have a most unfair advantage, almost 10 percent of each sale, over the bricks-and-mortar vendors. In addition, the state should improve its collection of the sales tax on all out-of-state and online sales.
For years, this has been the position of Tennesseans for Fair Taxation (TFT), an organization that advocates revenue-generating measures to replace cuts in important and much-needed state services. The Out-of-State Sales Tax bill would bring in up to $365 million to the state by improving collection of online and out-of-state sales taxes. The bill is one of several TFT has proposed, and collectively TFT’s tax modernization proposals could generate up to $1 billion in new state revenue while still giving most Tennesseans a tax cut.
The legislature and previous administrations have been slow to hold consumers and online vendors responsible for their obligation, and are now slow to require Amazon, with a physical presence in the state, to the same standards other businesses are held to. This apparently stems from a misled belief that following the law will harm industry recruitment to the state. Economic data and research show that corporations perpetuate this myth to use it as leverage in getting the best deals for locating facilities, but that it is actually low on the list of criteria for locating to a state. Online retailers can certainly afford to collect the sales tax — as small businesses closed their doors during the recession, Amazon’s annual profits, for example, almost doubled in 2008 and 2009, reaching $24 billion.
TFT's position is that while it is important to attract new companies to Tennessee, it should not be accomplished by placing local businesses at a serious disadvantage. Noting the lost revenue to untaxed online sales, $12 billion nationwide, many states are now pursuing sales tax collection from online and out-of-state vendors, and Tennessee should do the same. A groundswell of small business owners are now speaking out seeking support from legislators on the issue, and TFT stands with them — the state needs the revenue, and our small business owners need the playing field to be leveled.
