NASHVILLE, Tenn. (AP) - Gov. Bill Haslam said Monday that the state's move to require all major online vendors to collect sales taxes on purchases made in Tennessee has drawn a legal challenge.
Under current federal law, online retailers can only be required to collect sales taxes if they have a physical presence in the state such as a store or office there. Consumers ordering from out-of-state retailers are technically required to pay the tax to the state Revenue Department, but few do.
Haslam's tax rule seeks to extend the requirement to collect the tax to any retailer with sales of more than $500,000 per year in Tennessee. The rule is similar to efforts that have fallen short in Congress.
Supporters say the proposed change is about fairness for brick-and-mortar businesses and lost revenue for states. Opponents say it would impose complicated regulations on retailers and doesn't have enough protections for small businesses.
The Republican governor says the legal challenge was filed late last week after the state sent out notices to companies about the change.
"We figured when we passed that that we would be sued ," Haslam told a Republican gathering in Nashville. "We have been sued."
Haslam spokeswoman Jennifer Donnals later clarified that the challenge was filed in the form of an administrative proceeding before the state Revenue Department. The identity of the petitioner and the petition itself are covered by state confidentiality laws, she said.
Haslam said he hopes the U.S. Supreme Court ultimately gets an opportunity to revisit the out-of-state sales tax rules for the first time since 1992, which came before online commerce was as prevalent as it is today.
"We think the world's changed," Haslam said.
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 Haslam's predecessor to grant Amazon an indefinite waiver on collecting state sales taxes when the company decided to build its first major distribution centers in Tennessee.
The state rule on out-of-state sales tax collections is scheduled to go into effect on July 1. The state has set a March 1 deadline for covered companies to register with the Revenue Department. State lawmakers will also have the option of removing the new collection rule before this year's legislative session adjourns.
Haslam said the state will not spend any of the sales tax revenue collected under the new rule until the legal challenge is exhausted.
The governor argued that it's unfair to treat companies that do business in Tennessee differently than those based out of state. And states that rely on sales taxes suffer when they aren't collected, he said.
"My issue was this: Sales tax is how we live in Tennessee," Haslam said. "We don't have an income tax, we're not going to."