Tennessee Governor Bill Haslam recently announced that Amazon has agreed to begin collecting sales taxes in Tennessee starting in 2014. The former Governor had told Amazon during backroom negotiations that it would not have to collect sales tax at all, despite the company’s plans to establish a “physical presence” in the state through the opening of multiple distribution centers. This is Amazon’s third such agreement with a state. Here’s our quick take.

Governor Haslam is absolutely right in saying that “this isn’t a new tax; this tax was already due. This was just a question of Amazon collecting it themselves.” Tennessee residents have always been required to pay tax on purchases made over the Internet, but that law is essentially unenforceable without the cooperation of retailers.

Traditional “brick and mortar” retailers in the Volunteer State have a legitimate complaint when it comes to the two-plus year lag-time before Amazon must begin collecting sales taxes. Amazon’s exemption from Tennessee’s sales tax laws is extremely poor policy and really should end the moment the company begins operating the distribution centers it plans to build.

This is by no means a comprehensive solution to online sales tax evasion in Tennessee. According to Governor Haslam, Amazon accounts for about ten percent of retail sales currently escaping taxation. Other online and catalog vendors that make up the other 90 percent will continue to dodge their sales tax collection responsibilities for the time being.

This development in Tennessee should hasten a national solution in the form of federal legislation. A state’s ability to enforce its sales tax laws cannot come down to its particular negotiating skills and leverage.

Until that federal solution is reached, states do have options. Tennessee’s ability to force Amazon to collect sales tax hinged on the company’s decision to build distribution facilities in the state – therefore giving the company sufficient presence to fall within reach of Tennessee’s tax collectors. But states, where Amazon lacks a distribution center, can also take steps to require tax collection by enacting what’s known as an “Amazon law” – a provision requiring companies partnering with existing in-state businesses to collect sales tax.