Gov. Haslam determined to create rule forcing internet retailers to collect state sales tax

Tennessee revenue officials are working on a rule that would force internet retailers to collect state sales taxes.

NASHVILLE - Gov. Bill Haslam says he's determined to set up a process requiring out-of-state retailers to collect Tennessee sales taxes, declaring he has little confidence Congress will agree on a near-term solution.

"They [Congress] keep saying that they're going to take it up, but I am not holding my breath they'll take it up any time soon," Haslam said in an interview Friday.

"For me, it's just this: The economy is shifting so much that way [to the internet]," Haslam said. "It's literally not a fair playing field for our in-state retailers. And those are folks who are not only having to collect the tax, but they're paying property tax. They're sponsoring the local Little League team, and these are folks who are contributing in a full way to our economy."

photo Tennessee Gov. Bill Haslam speaks to media at at Rotary luncheon at the Chattanooga Convention Center on Thursday, June 16, 2016, in Chattanooga.
photo U.S. Senator Lamar Alexander speaks in Charleston, Tenn., at Wacker's grand opening ceremony for their new $2.5 billion plant in April 2016.
photo Mike Bell
photo State Revenue Commissioner Richard Roberts attends a Senate Finance Committee hearing in Nashville on Tuesday, March 31, 2015. Roberts said in a legal filing in an open records case that state law gives him the power to deny the release of documents if he deems it "in the best interests of the state."

He said the present situation gives internet retailers up to a 9.75 percent advantage over their brick-and-mortar competitors in Tennessee, which must collect the state's 7 percent sales tax and local government taxes of up to 2.75 percent.

"It's not fair to say, well, we're going to let your competitors not collect that tax we make you collect," Haslam added.

Haslam's Revenue Department recently held a rule-making hearing on the proposal. It would require internet, catalog and other out-of-state companies with no physical presence in Tennessee but with annual in-state sales of at least $500,000 to collect state and local sales taxes starting in 2017.

At issue is the inability of states like Tennessee to compel out-of-state companies with no physical presence in their states to collect sales taxes.

That's because of two U.S. Supreme Court decisions, the most recent from 1992. In Quill v. North Dakota, the court said Tennessee and 45 other states with sales tax laws don't have authority to force out-of-state sellers to collect and remit owed taxes on goods.

The ruling dealt with catalog sales and came long before the explosion of internet commerce. Even so, the ruling said Congress should address interstate commerce issues regarding sales taxes.

Twenty-four years later, Congress still hasn't acted.

The U.S. Senate in 2013 passed the "Marketplace Fairness Act" to address the issue, but the U.S. House never took it up. House Judiciary Committee Chairman Bob Goodlatte, R-Va., has his own ideas about how the issue should be handled, which are at odds with the Senate's approach.

In a somewhat related interstate tax ruling in 2015, Supreme Court Justice Anthony Kennedy cited the rise of interstate commerce and openly invited states to push a new challenge.

Emboldened by Kennedy's words, about a dozen states, including Tennessee, have passed or are considering rules or laws they know will land them in court as a way to force action.

But during last week's Revenue Department hearing several Tennessee-based company heads with substantial out-of-state sales worried that other states could pass their own sales tax laws in retaliation. Also objecting were various national interests, including internet giant eBay.

They urged Tennessee to wait action on Goodlatte's bill, which at this point is merely a "working draft" with a "statement of principles."

States prefer the 2013 Senate bill that the House didn't act on. That bill was supported by U.S. Sen. Lamar Alexander, R-Tenn., among others.

Haslam said then-House Speaker John Boehner, R-Ohio, "had kind of made a pledge to bring it up - what would have been this past spring - but he left. So I'm not holding my breath."

Any rule developed by the Haslam administration would have to go before the state House and Senate Government Operations Committees, where members could either approve or at the very least not turn it down.

The Tennessee Retail Federation, among other groups, backs Haslam's proposed rule. It's not known whether lawmakers actually would go ahead with what some critics may charge amounts to a tax increase.

But several years ago Tennessee lawmakers had no qualms about forcing the state to renege on a deal with Amazon, which put two massive warehouses in Hamilton and Bradley counties on the condition it not be required to collect sales taxes.

Critics charged the rule was unfair because Amazon would have a physical presence in the state.

Amazon finally agreed to the change after Haslam and other officials promised to press Congress for a comprehensive solution. Senate Government Operations Committee Chairman Mike Bell, R-Riceville, represents a good portion of Bradley County.

Tennessee officials estimate the state is losing $350 million to $500 million a year because remote sellers don't collect sales tax. Revenue Commissioner Richard Roberts emphasized that's only an estimate.

In a U.S. Senate floor speech earlier this year, Majority Leader Mitch McConnell, R-Ky., said the Senate's Marketplace Fairness Act will come up for a vote again sometime this year. In 2013, it passed with 69 votes in the 100-member Senate.

Alexander, in a statement to the Times Free Press, said: "I trust Tennesseans to determine our tax structure more than I do people in Washington. No state should have to play 'Mother, may I?' with the federal government when deciding whether to collect, or not collect, a state tax that is already owed."

Alexander, a former governor, said Congress "should provide Tennessee - and every other state that wants to collect state sales taxes that are already owed - with a legislative solution that will make collection efficient and simple for small businesses to comply with."

Meanwhile, a House Judiciary Committee aide said Goodlatte's proposal is intended to "help level the playing field for traditional retailers while protecting innovation and preventing 'regulation without representation.'"

Internet retailers argue that with up to 13,000 state and local taxing jurisdictions, it's difficult for them to sort out who owes what.

Proponents argue computer software can deal with that fairly handily, while internet retailers and catalog companies argue such software is expensive.

But Roberts argues that won't be an issue here. He said Tennessee law provides that remote sellers will deal with just one rate statewide.

Contact Andy Sher at or 615-255-0550. Follow on twitter at AndySher1.