Gov. Bill Haslam didn't mince words in July when he testified before Congress about the revenue Tennessee was losing from consumers who didn't pay taxes for online purchases.
"That money could fund critical programs that vulnerable citizens rely on," Haslam said. "It could help cover federal mandates that states face, or it could go back to the taxpayers in the form of further tax relief."
To demonstrate just how widespread unpaid Internet sales taxes are, the governor could have used his own gubernatorial campaign as an example.
As he testified before the House Judiciary Committee, his campaign had hundreds of dollars in unpaid taxes for purchases with Amazon.com stretching back to the summer of 2009, according to campaign disclosure reports.
And the governor isn't alone.
Since 2006, candidates for state and congressional offices have spent nearly $30,000 on purchases with Amazon on items ranging from office supplies to video cameras. Several of those candidates acknowledged in interviews that they did not pay taxes on the purchases.
"I'm not surprised, simply because if you called 10 random people regardless of whether or not they were an elected official, most people wouldn't have voluntarily paid use tax," said Don Bruce, an economist at the University of Tennessee.
State laws require Tennessee residents to keep track of how much they spend online for untaxed items, calculate their tax bill, and pay that amount to the state at least annually.
But experts say many consumers are unaware of the law and enforcement is hard. Economists at the university have estimated the state will lose about $400 million this year in unpaid taxes for purchases from online retailers.
For Haslam, whose campaign quietly paid $434 in taxes two weeks ago after The Tennessean asked about the $4,242 in its Amazon purchases, the Internet tax has been a contentious issue during his tenure as governor.
Pledge to Amazon
Online retailers long have argued that they were exempt from collecting state sales tax if they didn't maintain a physical presence in the state. Meanwhile, retail groups across the country have lobbied lawmakers to require online retailers to charge sales tax in a bid to level the playing field.
When Seattle-based Amazon.com Inc. expressed interest in building three distribution centers near Chattanooga, Cleveland and Lebanon, Haslam's predecessor, Gov. Phil Bredesen, assured the retailer that it would not have to collect sales taxes if it went forward with the plans. Haslam stood by that promise after taking office.
But the debate was quickly renewed when the retailer announced plans for two more distribution centers in the state. After months of mounting pressure, the governor announced a deal with Amazon last October that would allow the retailer to put off collecting sales tax from Tennessee residents until 2014.
The deal included an agreement for Amazon to send notices to customers alerting them of their tax obligation. Haslam signed the deal into law in March, clearing the way for the retailer to open two more warehouses in Lebanon and Murfreesboro that would employ as many as 1,500 workers.
During a news conference at the time, the governor reiterated that the deal did not amount to a new tax for consumers.
"Tennessee law requires consumers to pay use tax to the Department of Revenue when they're making an online purchase from any retailer that does not collect sales tax, including Amazon," Haslam said.
During his 2010 race for governor, Haslam's campaign turned to Amazon to purchase items such as office supplies and software.
After fielding questions from The Tennessean about the purchases two weeks ago, the campaign promptly paid the taxes, spokesman Dave Smith said.
"Since this issue came to our attention, the taxes have been paid," Smith said in an email. "It was inadvertently overlooked."
Smith declined to elaborate further.
During its most recent fiscal year that ended in June, the Department of Revenue collected about $4.7 million in revenue from "consumer use tax" - which is levied on all online, catalog and purchases of untaxed items from outside the state, said department spokesman Billy Trout.
Voluntary filings - 8,766 to be exact - accounted for just more than $3 million of that revenue. Those filings last year jumped nearly fivefold from the 1,795 returns received in the previous fiscal year.
"Quite honestly, it's a continual issue for us," Trout said. "We know there's a lot of people out there who don't understand it and don't realize it."
Trout said he suspected the Amazon email notices contributed to the increase. The company began sending notices in April to Tennessee residents for purchases made in 2011.
The department also occasionally gathers audit information from companies outside the state to help it collect taxes on untaxed items, typically focusing on pricier goods, Trout said.
But the money already collected pales when compared to the estimated $400 million being lost, said Bruce, one of the economists who authored the report.
"It's not hard to imagine a project that isn't being funded" but could be with the additional money, he said. From Bruce's perspective, the problem stems from a lack of understanding of the laws on online purchases and not enough enforcement.
The governor was testifying before Congress in July on behalf of the National Governors Association in support of a measure still in a House committee that would allow states to require retailers to collect tax for purchases whether made online, through a catalog or a television commercial.
Process is a hassle
State lawmakers, including those who neglected their tax bills, called the current process of paying use tax a hassle and easy to forget because consumers are accustomed to stores collecting the tax. They welcomed the change in 2014 that will switch the burden back to Amazon.
In the past year, Rep. JoAnne Favors' campaign spent more than $3,100 with Amazon, but the Chattanooga Democrat acknowledged that her campaign hadn't paid taxes on the items.
"No, I have not paid tax on anything separately and didn't even think about any tax," she said. "Whatever I owe I will certainly pay it. I believe in paying taxes."
Favors said she's shopped online for years, for both personal items and for her campaign. But she called the current system of filing consumer use tax returns too onerous.
"I'm so busy I don't even go shopping any more," she said. "I guess I'll just stop ordering (online). I don't mind paying it, but I don't need anything else to have to deal with right now."
Rep. Joshua Evans, R-Greenbrier, also called the process convoluted.
"There is no enforcement mechanism," he said. "Even for people who want to do the right thing, it's not a real clear process."
Evans acknowledged that his campaign has yet to pay the tax on an Amazon purchase of $215.99 from August 2010.
When former Democratic Rep. Harold Ford Jr. ran for the U.S. Senate in 2006, his campaign spent more than $9,500 with the online retailer, according to federal campaign records.
It wasn't apparent from those records whether the campaign paid the state tax on those purchases, and the Department of Revenue doesn't disclose who has paid. The congressman, who now works for a financial firm in New York, did not respond to a call and emails.
Herron has paid tax
As it turns out, at least one Tennessee lawmaker did pay the tax.
"I don't remember when we didn't pay it," said state Sen. Roy Herron, D-Dresden. "I'm not trying to be self-righteous. That's just what we do."
Since 2006, Herron's campaigns have spent a little more than $9,000 at Amazon - the second most of any lawmaker during that same time period, according to campaign expenditure reports. The reports also show hundreds of dollars in tax payments to the Department of Revenue.
Herron said he was not too surprised that many of his fellow lawmakers have not paid those taxes.
"I suspect it's pretty much the same percent as the general population," he said. "The fact that some people may not be paying the tax really says something about how messed up our tax system is."
He agreed that part of the problem is awareness.
"I think people don't think about it," he said. "The responsibility for collecting sales tax and use tax has always been on the vendor."
But he holds lawmakers to a higher standard.
"I figured if you write the laws you ought to follow them as best you can," Herron said.