trying to avoid charging Tennessee sales tax - | Chattanooga News, Weather & Sports trying to avoid charging Tennessee sales tax

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SEATTLE (Seattle Times) - To persuade to build a distribution hub in Tennessee, state and local officials offered a package of economic incentives that included free land, job-training assistance and more than $12 million in property-tax breaks.

It was a run-of-the-mill package for an out-of-state company promising to create some 1,400 jobs at two new warehouses by the end of 2011.

But Amazon sought more from the Volunteer State. Amazon policy chief Fred Kiga made a case for why the Seattle-based company should not have to collect sales tax from Tennessee customers once the warehouses are up and running.

At stake was Amazon's ability to continue offering Tennessee customers everything from books to bikes without making them pay sales tax — a significant price advantage over the local brick-and-mortar stores.

Whether Amazon should be able to give customers a sales-tax break has been a hot-button issue since the early days of online shopping and is especially contentious now that states are struggling to close big budget holes after the Great Recession.

Under a 1992 Supreme Court ruling, a state cannot require Internet retailers to charge sales tax on its behalf unless they have a physical presence in that state. What constitutes a physical presence is more complex than you might believe.

Amazon so far has avoided collecting sales tax in six states where it operates distribution centers. The company argues that, because the facilities are separate legal entities, they do not give the e-tailer a physical presence.

"We are having discussions right now with the state on this," Kiga, a former head of Washington's revenue department, told the Times Free Press in Chattanooga last month. "The distribution centers here are not retailers, but rather drop-shippers."

Officials for Tennessee's revenue and economic-development departments declined to comment, citing a long-standing policy of not divulging tax information about a particular business. Amazon, which rarely talks about behind-the-scenes business practices, did not answer questions about its sales-tax plan for Tennessee. The state's newly elected Republican governor, Bill Haslam, who once ran the e-commerce business of Saks Fifth Avenue, seemed to agree with Kiga.

While acknowledging that untaxed online sales are a growing problem for cash-strapped states, Haslam said tax collectors should not "interfere with our recruiting of Amazon to Tennessee. That's a huge priority for us," he told the Times Free Press.

Amazon charges sales tax in a handful of states where it does business: Kansas, Kentucky, New York, North Dakota and Washington. The six states where it distributes products but does not charge sales tax are Arizona, Indiana, Nevada, Pennsylvania, Texas and Virginia.

Click here to read more from the Seattle Times.

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