Tennessee drops Amazon Tax Legislation … For Now

Tennessee lawmakers have decided to honor a deal made with the previous administration and consent to online retailer, Amazon, receiving a commitment from the state to not attempt to force the retailer to charge sales tax, even though it has an in-state distribution center. In return, Amazon announced plans to construct additional distribution centers in the state, investing $180 million or more, and creating somewhere in the neighborhood of 2,000 new jobs.

The issue was Tennessee’s definition of sales tax nexus, and whether or not Amazon’s activities in state were enough to convert the retailer into a local business, responsible for collecting TN sales tax.

Amazon has a distribution center in the state, but has no storefront locations. In addition, its distribution center is owned and operated by a different entity than Amazon’s online sales operation. These two elements combine, under current law, to make the online retailer exempt from collecting sales tax in Tennessee.

Amazon had wanted a long-term commitment to ensure the status quo, but faced heavy opposition from other buisnesses, like Wal-Mart, who have both a physical presence and an onlineo peration, and who are collecting the tax. Legislation was introduced in the TN House and the Senate to create a nexus obligation, but both sides have agreed to suspend the legislation for at least a one-year period.

Tennessee is not the only state where Amazon is facing the same issue. Texas just passed legislation merging the retailer’s online operations with its distribution center for nexus and sales tax purposes, after issuing the retailer a $269 million tax bill earlier. The company responded by announcing plans to close its distribution center and either move existing workers or lay them off. And in South Carolina, where a similar deal was on the table, Amazon cancelled its building plans and walked away from construction after the state government decided not to honor the commitments made by the preceding administration. The online retailer could also face similar decisions in other cash-strapped states looking for additional revenue.