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VOL. 36 | NO. 18 | Friday, May 4, 2012

Is that Amazon tax bill legit? Yes, but . . .

By Hollie Deese

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The blink-and-you-miss it email came as a surprise to many local Amazon customers.

“I had not heard anything at all about this,” says Carrie Wilkins, a Franklin resident who works on Music Row who got a notice from Amazon recently stating she owes the State of Tennessee sales tax for purchases made from the online retail giant.

She plans on paying the tax. But that doesn’t mean she likes it.

“I understand the logic in taxing online sales to protect local merchants, who must collect the sales tax, from unfair competition from out-of-state sellers who do not collect Tennessee’s sales tax,” she says. “But as I do a lot of online shopping to save money, I can’t say I’m happy about this.”

Scott McIntosh, a senior account supervisor and Web strategist at Lovell Communications, also was surprised. He plans to forward it to his accountant.

“I am going to do what Amazon did and forward it to the right person and let them make a recommended strategy based on what is the most ethical thing to do,” he says of the email.

So why are we being asked to pay up now when it was never required before?

And, perhaps more importantly, what happens if we simply treat the email as spam?

When Tennessee was angling to get Seattle-based Amazon to set up shop in the state back in 2010, several incentives were offered, including city property tax abatements where the facilities would be located. Former Gov. Phil Bredesen agreed to let Amazon continue not collecting sales tax on items bought by Tennessee residents.

However, that didn’t sit well with many small business owners. They saw the deal as giving Amazon an unfair advantage for luring local customers and persuaded newly elected Gov. Bill Haslam. Legislation was passed to ensure Amazon will begin collecting and paying Tennessee sales tax in 2014, if a federal solution is not passed before then.

As for Amazon, it is investing an additional $350 million and creating 3,500 more full-time jobs, with new locations in Murfreesboro and Lebanon. Amazon had previously committed to 1,500 jobs in Hamilton and Bradley counties, and between 300 and 500 jobs in Wilson County.

Amazon also agreed to notify its customers of their ongoing tax liability.

“This is not anything new, but people are getting their notices from Amazon and are just becoming aware of it,” says Mark Loftis, CPA, a state and local tax specialist with Lattimore Black Morgan and Cain. “They are not required to collect sales tax from Tennessee customers for the next two years, but they were required to notify their customers that they were liable for paying this tax.”

Tennessee customers are not the only ones to get notices. Out-of-state shoppers who had items shipped to Tennessee, even as gifts, also were notified of tax liability to the State of Tennessee.

“In Tennessee, sales and use tax regulation, when a customer orders product from a supplier that has a physical presence in Tennessee and the customer directs the supplier to ship or deliver the product to a location in Tennessee, the transaction is subject to Tennessee sales and use tax,” says John Harvey, who works in taxpayer education with the Tennessee Department of Revenue.

“Normally, in this type of situation, the seller must add Tennessee sales tax to the customer’s bill, and the customer becomes obligated to pay the sales tax to the supplier. In the situation with Amazon, the seller has established a presence in Tennessee, making sales made by the seller and shipped to a Tennessee location subject to Tennessee tax.”

It’s been the law since 1947. And while the return was technically due January 20, 2012, the Department of Revenue will not assess penalty since notices just went out.

The use tax rate is the Tennessee 7 percent state general sales tax plus an additional 2.5 percent local tax on purchases of digital books, digital videos or digital audio products. If the purchases are made and delivered in a tangible form, the use tax rate is the 7 percent general sales tax rate plus a local sales tax rate of 2.25 percent.

While there has been confusion and concern among people getting their tax notices from Amazon, not every consumer is happy about the break the online retail giant has been getting.

“I have been concerned for some time about Amazon’s refusal to collect and remit sales tax in Tennessee and other states until forced to do so, as well as other marketing practices that shade the ethical line,” says Karen Weeks, who is retired.

“Refusing to collect the sales tax has the practical effect of creating an unfair 10 percent price advantage for Amazon over merchants who do, as well as depriving Tennessee and Nashville of much needed revenue. Consequently, I have shifted my online book purchases to Barnes and Noble, which does collect sales tax and has physical bookstores in our community.”

What if you simply refuse to pay the tax on purchases made through Amazon until 2014?

“There is potential penalty and interest,” Loftis says, adding there is little need to worry.

“Unless you are buying huge amounts of goods from them, there just aren’t the resources to audit consumers. And, eventually, this will all be changed on the federal level.”

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