Tennessee's retailers employ hundreds of thousands of Tennesseansand pay billions in salaries and benefits each year. Retailbusinesses, small and large, are mainstays of our local, state andnational economy. Year after year, retail businesses collect andsend to the state billions of dollars in sales taxes - revenue thatthe state uses to build roads, provide health care and pay publicemployees.
The Internet retail giant Amazon has announced plans to build twodistribution centers, in Hamilton and Bradley counties. That's thegood news: New businesses and jobs in Tennessee are always welcome.The bad news for existing businesses and the state's treasury isthat as part of the company's agreement with the state, Amazon willnot be required to collect state sales tax on the products it sellsto Tennessee residents.
Why? It's a good question.
Thousands of Tennesseans buy products online every day. Thousandsmore shop in "brick-and-mortar" retail stores. Sales taxes apply toall these sales. For retailers with stores in Tennessee, it is theirjob to send these taxes to the state whether the sale is made onlineor in the store. Businesses with no stores or physical presence inthe state aren't required to collect sales taxes, but Tennesseeconsumers are still required to pay a "use tax" on these purchasesfrom out-of-state retailers. Once a business sets up shop here, ithas to collect state sales tax - unless it can make a special dealto avoid the tax.
Businesses that don't charge the Tennessee consumer sales taxappear to offer lower prices. What they're really doing is shiftingthe burden of paying use taxes to the consumer. If the businessdoesn't charge the tax up front, it's the consumer who is requiredto pay use tax to the Tennessee Department of Revenue. That item yourecently bought online? If you didn't pay the sales taxes, you oweuse tax.
In reality, use tax is nearly impossible to collect from theconsumer, given the millions of transactions that occur each yearand the fact that reporting use tax is based on the honor system.What seems like a great win for the consumer is the state's loss - aloss that adds up to hundreds of millions each year in forgonetaxes.
Every day, brick-and-mortar stores compete among themselves andwith online-only retailers such as Amazon. However, competition onlyworks as it should when the state's tax policy ensures fairness bykeeping the playing field level. Tennessee's retailers want thetaxes they collect to stay here and be used for bridges, parks andschools. Amazon shouldn't be allowed to take so much money fromTennesseans without making an equal investment in Tennessee.
"We understand they want to recruit new jobs to the state, but ifthey do it in a way that hurts the chances for small businesses togrow, then what have we gained?" asks Erika Smith, owner of CrazyBeautiful, a Memphis women's boutique clothing store. "In the end,small-business owners like me will be asked to subsidize our owncompetition because Amazon will not have to pay into the system thatsupports us all. There has to be a better way."
Retailers agree. Requiring every retailer with a physicalpresence in Tennessee - whether it is a store, warehouse or anAmazon distribution center - to collect sales taxes is the rightstep for consumers, commerce and the state. It's only fair.
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Competition only works as it should when the state's tax policyensures fairness by keeping the playing field level, says RolandMyers.
Roland Myers is president and CEO of the Tennessee RetailAssociation.
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