According to minutes from the meeting, Chervin made the statement in response to a question from TACIR Vice Chair and Cleveland Mayor Tom Rowland during the March meeting.
In presenting his answer, he described the use of “entity isolation” by corporations to minimize or totally avoid certain tax liabilities or tax collection responsibilities. Corporations sometimes operate in a state through a subsidiary that is treated as a separate legal entity.
He said the strategy is used in other states and insulates the remote seller from collection obligations. He was not sure if Amazon.com had received some formal determination from the Department of Revenue.
Recently, the Alliance for Main Street Fairness, a Virginia-based organization, began a public education campaign about what it says are common-sense updates that can be made to the tax system to level the playing field for small businesses and online-only retailers. It has been running ads in the state’s three largest newspapers.
According to the organization’s website, the state of Illinois passed a so-called “Amazon Tax,” earlier in March. Many states require a physical presence in the state to compel a retailer to collect sales tax from customers in that state. However, Illinois’ law was changed to expand the definition of physical presence to include affiliates that contract with a retailer. The move in Illinois follows a similar law passed in New York.
Amazon has been in the news because of its refusal to collect sales tax in Texas as well as Illinois. Questions are now rising in Tennessee as the online retailer prepares to open its two centers in Cleveland and Chattanooga before the end of the year.
According to Associated Press reports, Tennessee officials used taxpayer confidentiality laws to refuse to acknowledge whether Amazon was given an exemption from a state law that requires any retailer with a physical presence in the state to collect sales taxes.
If there is a sales tax break for Amazon, it could amount to millions in lost revenue for Tennessee, which depends on the sales tax for two out of every three tax dollars flowing into the general fund. Amazon reported net sales of more than $34 billion in 2010.
The Amazon deal was struck under former Gov. Phil Bredesen. The Democrat left office in January, but not before seeking a rule change to exempt retailers from sales taxes if they sell at least 50 percent of their goods outside of Tennessee.
Bredesen’s Republican successor, Gov. Bill Haslam, has spoken in favor of granting sales tax exemptions to companies like Amazon, but his revenue commissioner on Feb. 17 abruptly canceled a hearing on the rule change because of a freeze on new rules and regulations imposed by the new administration.