Sales Tax Fairness Campaign Heats Up in South Carolina, Tennessee, Texas

The campaign for sales tax fairness has heated up in key states where Amazon.com has or is planning to open warehouse or distribution facilities.

On May 13, a bill that would require Amazon.com to collect sales tax in Texas cleared the state legislature. The approval came in the face of threats from Amazon.com that it would close a distribution facility in the state rather than collect sales tax. However, in two other states where Amazon.com has issued economic threats, the online giant seemingly has had more clout.

This week, the South Carolina House of Representatives reversed its position following an announcement that Amazon.com would cancel plans to build a distribution center and passed a sales tax exemption for the out-of-state online retailer. In Tennessee, following similar tactics from Amazon.com, House Finance Chairman Charles Sargent withdrew legislation that would have blocked a sales-tax exemption for Amazon, though legislative leaders noted publicly that he still expects the online retailer to collect and remit sales tax under existing sales tax laws.

South Carolina

On Wednesday, May 18, the South Carolina House of Representatives reversed itself regarding sales-tax exemptions for Amazon.com. Only three weeks after the South Carolina House of Representatives voted down a five-year sales-tax exemption for Amazon, this week, the State House of Representatives responded to the news that Amazon.com was canceling plans to open a distribution facility in the state by overwhelmingly passing legislation to provide the online giant with a five-year sales tax exemption. Amazon.com’s announcement that it was abandoning its plans to build a distribution facility in South Carolina made clear that the decision was based on the legislature’s having voted down a proposed sales-tax exemption.

“Today, the South Carolina House of Representatives essentially voted to keep their own in-state businesses at an unfair competitive disadvantage to an out-of-state retailer for the next five years,” said Oren Teicher, ABA CEO. “This sends the worse possible message — that bullying tactics work, and that a state government will play favorites among businesses. This decision comes at the direct expense of South Carolina’s Main Street businesses. Gov. Haley has been very clear and articulate in her support of Main Street businesses in South Carolina, and we urge her to veto this harmful legislation, which she has publicly stated she opposes. Government should not be in the business of picking winners and losers. Let’s let the free market decide that.”

Amazon.com already has nexus in the state via its broad network of online affiliates that act as sales agents for the remote retailer, Teicher said. “Providing them with a legal exemption would mean another five years that our members must compete on an uneven playing field with little recourse to change it,” he stressed. “That is unacceptable.”

Booksellers are urged to e-mail or call Gov. Haley and ask her to veto the sales-tax exemption. “Explain to her how the current sales tax inequity has negatively impacted your business,” Teicher said. “Make your voice heard.”

Tennessee

In Tennessee, Amazon.com is threatening to cancel plans to build two new distribution centers in the state if it is not provided with a sales tax exemption. On Wednesday, May 18, House Finance Chairman Charles Sargent dropped HB 136, legislation to put an end to special sales tax exemptions for remote retailers, as reported by the Daily Reporter [1]. While the legislation was tabled until possibly the 2012 legislative session, whether or not Amazon.com receives a special sales tax exemption is still up in the air.

The chairmen of both the Tennessee Senate and House Finance committees told Amazon.com that they expect the Internet giant to play by the same rules as 30,000 existing Tennessee businesses that collect and remit sales taxes when the online-only company opens distribution facilities in the state, according to the Alliance for Main Street Fairness. Amazon claims it secured a special deal that would give the company a competitive advantage over Main Street retailers. However, Amazon has been unable to provide documentation of the deal that would exempt it from collecting and remitting sales taxes.

Former Chief Deputy Tennessee Attorney General Bill Hubbard said the law is clear that Amazon must collect and pay the tax and that “no one, including the Revenue Commissioner, has the right to waive that requirement.” Hubbard doubted Amazon’s claim that an exemption would stand up in court. Hubbard told senators that a change in law is not needed and that Amazon is already required to pay.

In fact, Amazon claims that its planned distribution centers in Tennessee do not constitute a physical presence are contradicted by its chief executive officer who recently said “[h]is company and others should only be required to collect sales tax in states where they have a physical presence or ‘nexus.’” Furthermore, other retailers such as Newegg and Fry’s — both with distribution centers in Tennessee but no storefronts — do indeed live up to their legal obligations to collect and remit sales taxes.

At the conclusion of Wednesday’s committee meetings, both chairmen made it clear they believe Amazon — just as Newegg and Fry’s — should be required to collect sales taxes under existing law. They called on Amazon to either provide the legislature with details of the formal agreement exempting the online-only retailer from the obligation, or to obtain and provide a legal ruling from the courts in Tennessee proving the validity of the claimed exemption from the current statute. If Amazon does not abide, then the amendment the Chairmen have crafted will be looming over it next January, when the legislature returns.

In the meantime, both chairmen issued a stern warning to Amazon.com and told the online-only retailer they would be held accountable if they don’t abide by current law.

“We are grateful to Sen. McNally and Rep. Sargent for their continued, strong stance on this issue,” said ABA CEO Oren Teicher. “The law is clear: If a retailer has a store, office, warehouse, or sales agent in the state, then they are required to collect and remit sales tax. Amazon.com already has nexus in the state through its broad network of online affiliates that act as sales agents on its behalf. We urge the state’s Attorney General to do the right thing and require Amazon.com to collect and remit sales tax to the state, just like every other retailer with a physical presence in the state.”

Both McNally and Sargent said they were looking forward to an Attorney General’s opinion on the Amazon question.

“If the Attorney General says they have to collect and remit sales taxes, we trust they will follow the law just like every other Main Street business in Tennessee does,” said Mike Cohen, spokesperson for the Alliance for Main Street Fairness (AMSF) in Tennessee. “If the Attorney General’s opinion says otherwise, then the legislature will know what needs to be clarified under current law and they will legally fix it.”

Texas

In Texas, there was better news for proponents of sales tax fairness, as the Senate overwhelmingly passed HB 2403, legislation that would require Amazon.com and online retailers like it to collect and remit sales tax for orders made by Texas residents. HB 2403 amends the state tax code to clarify that a seller or retailer is required to collect and remit sales tax if the business has — either directly or through a subsidiary — a temporary or permanent office, distribution center, sales place, warehouse, storage place, or any other physical location in the state. The bill also clarifies that a person or business is considered to be a retailer if either holds a “substantial ownership interest” in any entity that conducts business in Texas.

This week, ABA and the Mountains & Plains Independent Booksellers Association (MPIBA) reached out to their bookseller members in Texas, urging them to write the Gov. Rick Perry in support of HB 2403.

“While this bill doesn’t address affiliate nexus (there are currently bills under consideration in the legislature that do), we firmly believe it is important that this bill be signed by the governor to send a clear message to Amazon.com and online retailers like it that they cannot bully legislators into providing them special sales tax exemptions,” wrote Laura Ayrey, executive director, MPIBA, and David Grogan, ABA Senior Public Policy Analyst in their e-mail to Texas booksellers.

If Amazon.com’s facility remains open in Texas and the governor signs HB 2403 into law, then Amazon.com will be required to collect and remit sales tax.

The bill now goes to Gov. Perry, who can either sign the bill or veto it.

Texas booksellers are strongly encouraged to e-mail [2] or fax Governor Perry at (512) 463-1849 and urge him to sign HB 2403 into law. To make it easier for booksellers, ABA and MPIBA have prepared a template letter [3] that can be adapted and faxed or used as talking points for their phone call.