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Can Amazon Avoid TN Tax? Critics Gear Up for Battle

March 7, 2011

KNOXVILLE, Tenn. - Amazon has successfully fended off state tax collectors for 16 years. The question now is, will Tennessee allow the company a tax advantage in order to build jobs in the state? The battle has entered a new stage as Amazon is building a distribution center in southeast Tennessee's Hamilton and Bradley counties.

State regulations require an in-state distribution center to collect tax on shipments to in-state customers, but the Department of Revenue has proposed changing the rule to exempt a distribution center if at least half of its sales come from shipments out of state. This has prompted a large protest from local merchants and the group Tennesseans for Fair Taxation as they wait for a public hearing on the matter.

Bill Howell of Tennesseans for Fair Taxation says Amazon's projected annual payroll for the new employees is $52 million. The exemption of sales tax is $35 million, which will put the state in a deficit.

"One way to look at that is to say the state is essentially subsidizing 70 percent of the cost of Amazon's work force. They almost might as well hire all those people themselves to work for the state."

Amazon plans to create more than 3,000 full-time and temporary jobs. Howell says Amazon can afford to collect the tax, and without it, other taxpayers will have to shoulder the burden.

"And whenever you forgo collecting taxes from one group, that means you have to collect more taxes from another group, if you going to maintain the same level of government functionality."

The exemption was put on hold when Governor Bill Haslam put a 45-day freeze on pending rules and regulations.

Supporters of Amazon say the distribution center will boost the local economy, and new employees will pay taxes on other items they buy locally, such as cars and homes. But Howell says the investment doesn't justify the tax break and would hurt local retailers who do have to collect taxes.

Laura Thornquist, Public News Service - TN