State’s attorney general says Amazon bill constitutionally valid

Lawmakers sought opinion on proposed collection mandate

NASHVILLE — Tennessee’s attorney general said Tuesday that a proposed law to mandate that Amazon.com collect Tennessee sales taxes when it opens facilities in the state would be constitutionally valid.

That would be true, the opinion says, even if the governor and revenue commissioner issued a rule declaring that sales taxes would not be collected.

But the formal opinion from Attorney General Bob Cooper left open the question of whether the Internet retailer would be subject to collecting Tennessee sales taxes without the enactment of a bill sponsored by Sen. Randy McNally, R-Oak Ridge, and Rep. Charles Sargent, R-Franklin.

The bill sponsors requested the opinion in May after abandoning a push to pass the legislation during the 2011 legislative session. McNally said he plans to bring the proposal back for further discussion when the legislature returns in January.

Amazon plans to open two distribution centers in Tennessee, one in Chattanooga and the other in nearby Bradley County. The company has negotiated with former Gov. Phil Bredesen and Gov. Bill Haslam for assurances that the move would not trigger a requirement that the company begin collecting sales taxes from Tennessee residents.

Haslam said in an interview Tuesday that those negotiations are nearing completion. The governor, as with Bredesen before him, supports an exemption for Amazon from sales tax collection duties, but many retailers with a physical presence in the state that collect the tax feel that would be unfair.

At a legislative hearing in May, Amazon officials said the company might not come to Tennessee if forced to collect taxes. On the other hand, the company is exploring the location of distribution centers in the Knoxville and Nashville areas, in addition to the Southeast Tennessee sites, assuming there is no tax collection requirement.

McNally posed four legal questions to Cooper, none directly mentioning Amazon because of state rules on confidentiality of taxpayer dealings with the state.

The first question was initially framed to ask whether an out-of-state retailer could be required to collect Tennessee taxes under existing law after opening a distribution center in the state.

The question was revised, McNally said, after Cooper voiced concern to him that the attorney general’s office might wind up in a lawsuit over that very issue at some point.

“I thought it was as good an opinion as we could have asked for,” said McNally. “It didn’t directly answer the question we originally proposed to him … but I understand that an attorney general may be reluctant in that situation.”

The revised question basically outlines general law on when a company operating a distribution center, but not a retail outlet, can be required to collect taxes.

“An out-of-state dealer’s use of an in-state distribution center will support a finding of nexus if the in-state distribution center’s activities are significantly associated with the out-of-state’s dealers ability to establish and maintain a market in this state for the sales,” the opinion says.

Nexus is the legal term for a close enough association of a company with a state to require collection of taxes.

The other questions deal with the proposed legislation, SB529. The opinion said the proposed law, if enacted, would be “constitutionally defensible.”

The proposed law would be valid, the opinion says, even if the governor or revenue commissioner had used a “rule 96” procedure to declare a company does not have to collect sales taxes in what is called a “private letter ruling.”

That apparently is the procedure being used by Haslam and the state Department of Revenue to ensure that Amazon need not collect taxes. Amazon and the revenue department have declined to make public any letter rulings that have been issued, citing taxpayer confidentiality.

Asked if the opinion will mean a boost for his legislation, McNally said that could depend on further developments.

“We’ll see what the governor is able to negotiate,” he said. “There is a transparency issue and a fairness issue, and I think those need to be resolved.

“I would hope they (Amazon officials) are not treated differently than other taxpayers in similar situations,” McNally said. “They are getting certain monies from the state for job creation, which comes off franchise and excise taxes … and they have a pretty sweet deal, as I understand it, from the cities and counties for property tax relief.”

Tom Humphrey may be reached at 615-242-7782.

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Comments » 4

AZbeachfrontagent writes:

This is a load of .... They are willing to risk a couple of thousand jobs over this. Amazon will not quit selling to Tennesseeans even if they pass this. They will simply pack up their center and move elsewhere. It doesn't meet the definition of a physical presence in that a person can't go there and purchase something or even pick it up (correct me if I am wrong here). This is all about lobbyists in Nashville getting to a couple of politicians who could care less if people outside their districts lose jobs over this. I don't really believe this state is being over-run with major corporations trying to set up shop so we don't need to run the few that are away. Unless it is Publix and Costco(go Knoxville?).

Youwish writes:

Go tell it to all the new employees at the new Barnes and Noble or circuit city. Let them know that the reason their employer is closing its doors is because it is better for everyone if a all the smaller stores go out of business to support the big distributor tax break their competitor gets.

Youwish writes:

And as far as the AGs opinion goes it is worth less then the paper he writes on. According to him, unequal taxation is constitutional, an income tax is constitutional and appointment of judges is constitutional even though the constitution clearly says these things are not.

He says and does what ever his bosses tell him to say and do.

huntermr writes:

Well, in California, yesterday the Governor signed into law a bill that will require Amazon to charging sales tax if they have a "marketing affiliate" located anywhere in the State of CA. This morning Amazon ended those affiliate agreements with every business in the State of CA. Approximately 25,000 business' located within California are now going to close as a result. They employ anywhere from a single person to 70 employees. The net sales tax gain is a negative several million dollars to the State as these business shut down immediately and their employes are all laid off! Stupid politics instead of actual revenue gains for the State. Is that what we want in TN or do we want solid job growth and actual revenue growth as a result? Amazon and Ebay has changed the way business operates. We have to learn to live with those changes not try to force business back to the way things were done before the Internet. The same thing occured when catalog sales began mail order shopping many years previously.

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