Haslam wins first round in effort to require out-of-state companies to collect TN sales taxes

Gov. Bill Haslam’s administration won a first-round victory Thursday in efforts to require – via a state Department of Revenue rule – that major out-of-state retailers start collecting state and local sales taxes from their Tennessee customers.

Members of the House and Senate Government Operations Committees, meeting jointly, spurned a motion to reject the proposed rule – formally made by House Democratic Caucus Chairman Mike Stewart of Nashville, though supported by some Republicans.

Failure of the motion for a “negative recommendation” means that the committee has, in effect, made no recommendation.

Under the legal procedures involved, that means the department’s rule is automatically approved – barring separate action by the General Assembly to reject it during the 2017 session. Comments by some committee members indicated it’s quite likely that such an effort will be launched, though – by tradition – actions (or inaction) by the Government Operations are generally followed by the full legislatue.

The vote followed about two and a half hours of debate and discussion, much of that devoted to questioning of Revenue Commissioner David Gerregano, Finance Commissioner Larry Martin and Attorney General Herbert Slaterly – Rep. John Ray Clemmons, D-Nashville, called them “heavyweights” of the Haslam administration.

The trio, backed by University of Tennessee economics professor Bill Fox, appeared to promote the rule as providing fairness to Tennessee retailers who must collect the sales taxes now while out-of-state companies avoid collections.

The rule requires retailers without a “physical presence” in Tennessee to collect sales taxes from Tennessee purchasers if they have more than $500,000 in such sales per year. It flies in the face of a 1992 U.S. Supreme Court decision declaring that such a physical presence is necessary. But the administration notes that a Supreme Court justice has basically called for reconsidering that decision — after 25 years of inaction by Congress and improved technology that would make it easier for businesses to comply. Gerregano and other proponents acknowledge the rule will almost certainly lead to a court challenge with the goal of overturning the 1992 decision.

Further from the Times-Free Press

A one-time small business owner and Senate Government Operations Committee member, Sen. Kerry Roberts, R-Springfield, described his disadvantage when operating a bicycle shop in having to compete against out-of-state companies that didn’t have to collect Tennessee sales tax.

It gave them a nearly 10 percent price advantage and often killed his ability to turn a 5 percent profit, he said. Roberts eventually closed his business.

Several lawmakers questioned the proposal, saying that instead of trying to move the issue through a rules change, Haslam should have simply had a bill introduced. It’s a major policy change, they argued.

Senate Government Operations Committee Chairman Mike Bell, R-Riceville, said “it seems to me that policy should be handled by the Legislature.”


…The negative recommendation motion… failed among House members on the joint panel on a voice vote. It failed among senators with two voting no and four others, including Bell, abstaining

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