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Report: Tennessee can collect more online sales taxes

January 31, 2019

NASHVILLE, Tenn. (AP) — Tennessee is unlikely to face a legal challenge should it begin collecting more sales taxes from internet purchases, according to a new state report encouraging the state to take advantage of the possible revenue bump.

“If Tennessee were to require out-of-state (internet) sellers to collect state and local sales and use tax, this tax advantage would be diminished, leveling the playing field for in-state sellers competing with out-of-state sellers,” stated the report compiled by the Tennessee Advisory Commission on Intergovernmental Relations, (TACIR) a group tasked with finding solutions for state and local governments.

The report’s analysis follows a 2018 U.S. Supreme Court ruling allowing states to require out-of-state retailers to collect what could be millions of dollars of new tax revenue from online sales.

However, TACIR’s 39-page brief explains that the high court stopped short of dictating exactly how to remit the online sales taxes. This omission would allow Tennessee to create its own system based on its own interests.

Tennessee already requires out-of-state companies that sell online products in the state to remit taxes for those sales, which it has kept on the books for several years. Yet the General Assembly has held off from allowing the state to enforce it because of multiple legal challenges.

Although consumers ordering from any out-of-state retailer are legally required to pay the tax to the Tennessee Revenue Department, few do so.

“The Department of Revenue estimates that enforcing the rule would result in the state receiving an additional $160.5 million in state sales tax and local governments receiving $59.4 million,” the report reads.

Across the nation, state and local governments stand to gain $8 billion to $13 billion annually by collecting taxes from all remote sellers, according to a report issued by the Government Accountability Office. Other estimates have been even higher.

This week’s report encourages lawmakers to enforce the rule because it doesn’t apply retroactively and exempts sellers with no physical presence in Tennessee who have less than $500,000 in sales during a 12-month period — only Massachusetts and Ohio would have similar thresholds.

Separately, legislation has been introduced this year to lower that threshold to $100,000 or at least 200 online sales transactions.

It’s unknown how far the issue will advance in the Tennessee Statehouse this year despite the encouragement of the report.

“I haven’t seen the specifics of that bill yet and so we haven’t made a definitive plan about when that collection will start,” said Gov. Bill Lee when asked about his thoughts on internet sales tax.

Meanwhile, House Speaker Glen Casada said the issue still needs to be resolved in lower court, adding that he doesn’t plan on pushing the issue until a court specifically clears Tennessee to collect online sales tax.

If and when the state does start collecting more online sales taxes, Tennessee’s Republican leaders have also started discussing ways to offset the anticipated surge in revenue with a new tax reduction.

“My preference would be that it wouldn’t be a windfall for the state, but we use that money to offset taxes, burdens on individuals,” said Senate Speaker Randy McNally.

In the past two years, 15 states have enacted laws attempting to require out-of-state companies to collect sales taxes as of June, according to the National Conference of State Legislatures.

Many other states decided to wait until their legislatures convened this year to set specific requirements for out-of-state sellers.

Amazon began collecting sales tax on items purchased in Tennessee in 2014. That move came as a compromise after state lawmakers questioned a deal struck by a former Tennessee governor to grant Amazon an indefinite waiver on collecting state sales taxes when the company decided to build its first major distribution centers in Tennessee.

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Jonathan Mattise, in Nashville, Tennessee, contributed to this report.

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