Remember the joke about the sadist and the masochist? The masochist says, "Hurt me! Hurt me!" — and the sadist replies, "No! No!" Something similar seems to be happening between Internet behemoth Amazon.com and the Tennessee legislators and officials desperately courting it.
Amazon, as you may have heard, is sitting on a massive tax-abatement package and other incentives that could ultimately cost Tennessee more than $100 million in revenue over the next decade. In exchange, the company is offering to create about 1,200 full-time jobs at two distribution facilities in or near Chattanooga.
Now the $14 billion online retailer is threatening to take its toys and leave if lawmakers require it to collect sales taxes on purchases from its online bazaar. The item is such a dealbreaker that in late April, Amazon officials dangled a massive new commitment — three more facilities, $180 million — to inflame the state's ardor.
The offer was a steamy whisper to lawmakers, if they like to be bound and threatened. But state Sen. Randy McNally and Rep. Charles Sargent aren't asking Amazon to pay anything with their bill, mind you. They just want to require Amazon to collect sales tax, so the state revenue department doesn't have to pretend anymore that people actually use its sales/use tax return forms.
If the phrase "sales/use tax return forms" draws a blank, you're not alone. According to state tax law, you're supposed to file a return for — and pay sales taxes on — each purchase you've made from a vendor that doesn't collect that tax. Have you shopped on Amazon this year? Me too. Have you filed a return for it? Er, we'll talk. Some estimate Tennessee loses out on more than $60 million annually in sales tax revenues from Amazon alone.
The legislators found an ally in Main Street Fairness, an organization that launched a media campaign here to force lawmakers into a "values" argument over Amazon's seemingly unfair tax break. On its face, that's understandable. Hasn't Amazon hastened the closing of enough hometown bookstores, hardware stores and the like?
That argument doesn't carry much weight, alas, coming from Main Street Fairness. The Virginia-based group works with the Retailer Industry Leaders Association, which reps such mom-and-pop boutiques as Target, Best Buy and Walmart — all of whom collect sales tax here, and are losing money because of Amazon.
Despite the odious corporate meat-hooking, the point seems hard to dispute: If you're going to do business in our cash-strapped state, you should collect the same sales taxes as everybody else. Fair and free, that market, no?
Not exactly. In a boom economy with low unemployment, Tennessee could stare down Amazon over the sales tax issue, and possibly even tell it to go suck a Borders gift card. But an insider familiar with high-stakes business recruitment in Tennessee and other states says the home field has no advantage today. States are desperate for jobs, he says, and corporations know it. Amazon recently abandoned a build in South Carolina over political issues similar to those in Tennessee.
The strategy today, for a company considering relocation/expansion, is to pick several vacation spots and let them cut each other's throats (and ultimately their own) with tax breaks and other incentives. For Amazon, if that means haranguing a state into exploiting the company's competitive advantage against Walmart, Target and Best Buy, so much the better.
That advantage boils down to a legal concept known as "nexus," established in 1992 by the U.S. Supreme Court in Quill v. North Dakota. It holds that a company without a physical presence in a state cannot be required by that state to collect sales and other use taxes there. The decision was manna for the mail-order milieu, which grew by the billions as consumers both individual and institutional figured out how to shave a few bucks (or thousands) through what amounted to a loophole.
But "nexus" is different in the Internet age. (McNally and Sargent have asked the attorney general for an opinion on the matter; it's expected this week.) Many argue a federal sales tax policy is needed for Internet transactions. Gov. Bill Haslam favors "a larger, national discussion" on taxing Web-based companies, his spokesman tells the Scene.
Amazon is required to collect taxes on its online sales in five states: Kansas, Kentucky, North Dakota, New York and Washington, where it is headquartered. It maintains facilities in three of those five states. It also collects sales taxes in certain states for a number of companies, including New York Times Inc., Electronic Arts Inc. (aka E.A. Sports), and major publishers HarperCollins and Penguin.
And Amazon does a lot of business outside its Web mall. Like FedEx in Memphis, the company holds and ships goods for all kinds of third-party vendors via its "fulfillment centers" — a term only an Orwell could love.
Negotiations to bring the two centers to the Chattanooga area straddled two administrations, with Gov. Phil Bredesen's team handing off the deal to their counterparts under Gov. Haslam. Among Haslam's men is former Hamilton County Mayor Claude Ramsey, who served the local angle on the deal last winter. (Ramsey said through a spokesman it was "not appropriate" to discuss the original deal now.)
According to a source familiar with the proceedings, Amazon officials claimed they needed the sales tax exemption so the company wouldn't be on the hook for collections on behalf of third-party clients. They told state officials they weren't sure how much business from the two facilities would come directly from Amazon.com versus third-party vendors, says the source (who was granted anonymity because of the situation's current sensitivity).
Bredesen's team apparently made it clear that a transition was imminent, and that the same deal might not carry over. Rather than a "handshake deal," as the negotiations have been characterized, Amazon was given a presentation that included many details being discussed now. An Amazon official refused an interview request from the Scene.
Amid that debate, though, people seem to have lost track of a basic truth: The Internet monolith is in the Volunteer State because local and state governments essentially bribed it, using a potpourri of tax breaks, incentives and land giveaways that add up to some $40 million.
In November, Chattanooga's city council voted unanimously to give Amazon a $30 million incentives package that ensures the company rebates to offset city property taxes until 2022. Amazon got an 80-acre site for free, and the state spent a reported $4 million for preparation and grading.
This was the list price for what Amazon said at the time would be 1,476 full-time jobs and some 2,400 seasonal positions. But when Amazon announced on Monday it would begin hiring for the two facilities, the figure for full-time workers had dropped to 1,200 and the seasonal spots to 2,000.
Through $4,500 tax credits for each new worker hired, a break on school taxes worth a reported $12.7 million over the 11-year term of the deal, and various other measures, Chattanooga is buying full-time jobs at a rate of about $25,000 a pop. Add in the seasonals, and that figure drops to about $13,600.
If you want to be angry at some institution over this giveaway, then, at least choose the right one. Why rage against Amazon but side with Best Buy, Target and Walmart? Instead, guide your disenfranchisement toward someone who can actually do something about it. Haslam says he intends to honor the deal. Most who agree see only the jobs-at-all-costs argument.
"I think people in the legislature will be happy to see more jobs coming to Tennessee," House Majority Leader Gerald McCormick, R-Chattanooga, told the Chattanooga Times Free Press. He said the company's willingness to locate more centers in Tennessee "might blunt" criticisms.
Say what you will about Amazon, at least it's acting in its best interests.
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