Sales Tax Fairness Issue Heats Up in Tennessee

Debate regarding the equitable collection of sales tax continues in Tennessee. Earlier this month, Sen. Randy McNally (R-Oak Ridge) and Rep. Charles Sargent (R-Franklin), the chairs of the state’s Senate and House Finance Committees, respectively, wrote to Tennessee Attorney General Robert Cooper Jr. seeking his legal opinion as to whether companies that maintain warehouse or distribution facilities in the state are already required to collect and remit sales tax under current sales tax laws.

In addition, while Gov. Bill Haslam recently stated his support for a federal sales tax fairness solution, he also said that he backs his predecessor’s promise to Amazon.com that it would be provided with a sales tax exemption in exchange for opening two distribution centers in the state. Haslam said that, while he wants Amazon.com to collect and remit sales tax to the state, the online retailer should not be forced to do so, as reported by the Knoxville News Sentinel [1]. 

“We are grateful to Sen. McNally and Rep. Sargent for standing up for Main Street by seeking to enforce existing sales tax laws,” said ABA CEO Oren Teicher. “And while we are pleased to know that Gov. Haslam supports sales tax fairness, the idea that any retailer should be able to decide for itself whether or not to follow existing laws is simply outrageous. We believe that Amazon.com already has nexus in the state via its countless online affiliates acting as sales agents, and that nexus will only be further established should Amazon.com open distribution centers in the state. We hope that the Attorney General provides the legal guidance necessary for the state to enforce existing sales tax laws.”

In June, Amazon threatened to cancel plans to build two new distribution centers in Tennessee if it was not provided with a sales tax exemption. Following the ultimatum, Rep. Sargent tabled HB 136 (SB 529), sales tax fairness legislation that he had introduced. HB 136 would have required any remote retailer that maintains or owns a facility, office, distributing house, sales “room,” warehouse, or other place of business — directly or through a subsidiary, agent, or affiliate — to collect and remit sales tax in the state.

Though the proposed legislation was tabled, Sen. McNally and Rep. Sargent asked Attorney General Cooper to weigh in on whether Amazon’s proposed warehouses would constitute nexus in the state.

In early July, prior to the letter from Sen. McNally and Rep. Sargent, the Attorney General’s office had issued an opinion [2] stating that it was “constitutionally defensible” for a state to require a remote retailer with a distribution facility or subsidiary in the state to collect and remit sales tax to the state. Moreover, while the Attorney General would not specifically comment on Amazon’s tax status per se, the opinion argued that a remote retailer’s nexus can be established by the actions of other parties, such as in-state sales affiliates.

Following up the Attorney General’s opinion, Sen. McNally and Rep. Sargent wrote in their August 1 letter: “The Retailers’ Sales Tax Act … and other statutes appear to be clear and unambiguous in terms of an out-of-state retailer’s responsibility to collect and remit state sales tax if the retailer is engaged in making retail sales sourced to Tennessee residents.” The letter noted that state law “broadly imposes a sales and use tax on all persons for the privilege of engaging in the business of selling tangible personal property at retail.” McNally and Sargent sought the Attorney General’s “guidance” as to whether under existing sales tax laws a distribution facility or warehouse constitutes nexus.

In the meantime, Gov. Bill Haslam made news with comments that appear to support e-fairness while still “backing” his predecessor Gov. Phil Bredesen’s reported promise to Amazon of a sales tax exemption in exchange for two new distribution centers. It has been widely reported that Haslam’s office is in discussions with Amazon.com regarding an agreement to allow the sales tax exemption to expire after a set number of years, similar to the deal between Amazon and the state of South Carolina.

“We’d like to work out some arrangement that works for [Amazon] to stay and grow in Tennessee and yet for us to collect the sales tax that we need,” Haslam stated as reported by The Hill [3]. Furthermore, House Majority Leader Gerald McCormick told the Nashville Post [4] that he believes Amazon will come to terms with the state before the start of the next legislative session in January.