Lawmakers are still waiting on an opinion from the Tennessee Attorney General regarding online-only retailers and when they should be required to collect sales tax. Interpretation of so-called “nexus” laws vary from state to state.
Tennessee’s debate revolves around Amazon.com, which is locating multiple distribution centers in the state. Other states have decided similar warehouses are enough to require the collection of sales tax, something Amazon has been trying to avoid.
Tax law professor Annette Nellon of San Jose State University says some states have taken nexus laws to the extreme.
“Some might say, ‘oh gee, you had an employee here 12 days over three years. That’s enough to have a physical presence.’ Another state might say, ‘no that’s not enough.’”
Nellon says her own state of California considers a company to have nexus if it has sales people in the state. But there can always be exceptions. And California has created an exemption for trade shows so it can continue attracting sales conventions.
If consumers didn’t ignore Tennessee’s so-called “use tax,” the dispute with Amazon would become irrelevant.
“Use tax” is something Tennesseans are supposed to pay when they make a purchase online from a company like Amazon that doesn’t collect sales tax. But only 3,000 paid in 2010, according to the Tennessee Department of Revenue. The use tax has very low compliance across the country, says Nellon.
“If everybody knew about a use tax and was adamant about self-complying, the final invoice that comes, in California, you’ll say, I have to add roughly 10 percent to that, so does it still look like a good deal compared to the bookstore down the street?”
Nellon says states don’t vigorously enforce the “use tax,” which is why many are targeting the largest online retailers to collect sales tax for them. Estimates of what Amazon could owe Tennessee are over $8 million annually.
A proposed state law would force Amazon to collect sales tax after it locates multiple distribution centers in the state, but it’s been differed for at least a year. The Internet superstore has faced similar pressure in a growing number of states, and in some cases the company has threatened to go elsewhere.