NASHVILLE - The head of a key Senate panel isn't so sure Gov. Bill Haslam's administration made the "wisest" decision by implementing a rule requiring out-of-state internet retailers to collect Tennessee sales taxes before lawmakers finalized it.
Senate Government Operations Committee Chairman Mike Bell, R-Riceville, said he wasn't surprised the revenue department proceeded with the rule, which was included by Bell's committee and its House counterpart with a "neutral" recommendation as part of the omnibus rules package that covers agencies across state government.
Republican Gov. Bill Haslam speaks to reporter about his budget priorities at the state Capitol in Nashville, Tenn., on Monday, Jan. 30, 2017. Haslam was scheduled to address a joint convention of the Tennessee General Assembly later in the day. (AP Photo/Erik Schelzig)But noting the Senate and House have yet to act on the omnibus bill, Bell said he can't say with certainty the sales tax provision will survive.
"I don't know if it was maybe the wisest thing to [implement], because I think there's a very real possibility that this issue will be debated," Bell said.
And, he noted, "whether it survives that debate or not on both the House and Senate floor, I don't know."
Bell said it would require an amendment to strip the Revenue rule from the omnibus bill.
"I've had some assurances from some members that an amendment will be filed," Bell said. "I think the administration probably realizes that's a possibility as well, and they've chosen to go ahead and implement it."
Asked if implementing the rule now would spur more intense efforts to gut it in the Legislature, Bell said, "I don't know. I don't want to speculate on that."
During a Monday address to a Nashville Republicans' group, Haslam revealed that the rule, opposed by many internet retailers and industry groups, had been approved by the revenue department, implemented and already faces a legal challenge in a departmental procedural process.
While the rule took effect Jan. 1, out-of-state vendors would not actually be required until July 1 to collect Tennessee's 7 percent state sales tax and local sales taxes of up to 2.75 percent.
It is estimated the rule would generate another $160 million in revenue for the state and about $59 million for local governments.
But Haslam and other officials expect legal challenges and actually welcomed them. Tennessee and several other states are passing similar rules or laws in an effort to push the issue of remote sellers back into federal courts. And, ultimately, they want to get a case before the U.S. Supreme Court in hopes justices revisit two earlier decisions.
In separate rulings in the 1960s and 1990s, the nation's highest court barred states from requiring out-of-state retailers with no physical presence in a state to collect sales taxes on items sold to its residents.
Those cases involved catalogue sales. Since the second case, known as Quill, was decided in 1992, the internet was developed and ecommerce has exploded, putting many brick-and-mortar retailers on their heels.
"[The] Supreme Court wants to look at that again," Haslam told reporters on Monday, alluding to Justice Anthony Kennedy's statements essentially inviting states to push the case back up to the court. "So we figured when we passed it that we would be sued. We have been sued. My own guess is that, eventually, sooner or later, that will work its way up to the Supreme Court. There are several states in that situation."
Haslam press secretary Jennifer Donnals later clarified that the state actually has not been "sued" in court, and the petition challenge is part of a revenue department administrative proceeding.
Those proceedings are secret because of what Donnals said are state confidentiality laws about taxpayer information. As a result, it's not clear who is challenging the rule.
But after the rule become part of the package in December, an official with NetChoice, an ecommerce industry advocacy and lobby group, told the Times Free Press that group would seek to strip the rule out of the omnibus package during the legislative process.
NetChoice and the American Catalog Mailers Association are already involved in a lawsuit against South Dakota, which has passed a law seeking to compel remote sellers with no physical presence to collect sales taxes on items sold to South Dakotans.
Contact Andy Sher at asher@timesfreepress.com or 615-255-0550. Follow him on Twitter @AndySher1.