The Retail Accountability Program, approved by state lawmakers in 2012, requires beer and tobacco wholesalers to report sales, which are then compared to retailers' tax returns.
That's helped uncover both deliberate tax cheats and honest mistakes, say officials who call the RAP a great success.
But plans by the Department of Revenue to extend the RAP compliance effort to a broad array of other items is generating a, well, flap. And a powerful coalition of statewide business associations is pushing a scrap-the-RAP-expansion bill that also imposes a formal rule-making process on the original program.
"We are for rolling back the expansion that got passed in 2015," said Bob Ikard, president of the Tennessee Grocers & Convenience Store Association. "It was sold by the Department of Revenue as an opportunity to take a closer look at items that are sold in convenience stores or beer and tobacco stores."
But, Ikard added, "It ended up applying to wholesalers and suppliers of just about every item that's in a grocery store, most big-box retailers, most chain pharmacies. and it became a really burdensome reporting requirement for the wholesalers and suppliers. And it's an unfair way to look at the tax situation for the retailers."
Others in the coalition are the Tennessee Chamber of Commerce and Industry, the Tennessee Hospitality and Tourism Association, the Tennessee Retail Association, the Beverage Association of Tennessee (soft drinks) and the National Federation of Independent Business.
Bradley Jackson, vice president for government affairs at the Tennessee Chamber, said the organization's research "indicates that the 2015 expansion goes well beyond what any other state has done in this regard."
The Tennessee Journal has reported that when lawmakers last year agreed to expand the compliance program, it appears the only products mentioned were "candy and soft drinks."
But the Revenue Department added 21 new areas — critics say they included anything from paper towels to possibly even furniture.
Now Sen. Mike Bell, R-Riceville, and House GOP Caucus Chairman Glen Casada of Franklin, have a bill to block the expansion and require the Revenue Department to propose formal rules for the existing program. Those rules would have to be approved by the Senate and House Government Operations Committees, which Bell chairs.
Bell now believes the changes passed last year were too broad.
"I know I did not expect the commissioner to implement such a broad program and require so much reporting by our businesses in the state," he said. "I didn't get that from the language in the bill nor in the explanation the commissioner [Richard Roberts] gave on more than one occasion before committees."
He became aware of problems when the owner of a tiny meat wholesale operation in Bradley County, who'd been in business for decades and still does bookkeeping on paper, came to him, worried about having to buy a computer to send information to the state.
Revenue officials strongly defend the existing program and the expansion and say they're bending over backward to address critics' concerns. And they stress that the whole point is for retailers to send in the sales taxes they collect in a state where the levy accounts for 55 cents out of every state revenue dollar.
Fifty-seven percent of sales taxes go to K-12 education, Revenue officials like to say, as well as paying for programs from housing felons to the TennCare program for low-income women and their children.
Tennessee cities and counties also rely on them. The state rate is 7 percent (5 percent on food) while local option taxes can tag on up to 2.75 percent more.
Remember the goal
As Revenue officials see it, RAP is getting a bad rap.
"It's worked very well," Deputy Commissioner David Gerregano said last week. "It's allowed us to collect at least $60 million in sales tax that is paid by the consumer to retailers but would not have been otherwise paid over to the state."
It also "makes things fair" for retailers who are turning over all the taxes they collect, Gerregano said.
"We know there's a population that hasn't been complying."
Gerregano pointed out that wholesalers have been required to report on their sales to retailers since Tennessee created the sales tax in 1947. Now new technology lets them upload their data files to the Revenue Department and makes it easier for the state to check compliance.
And, he said, the state has responded to feedback and criticisms by collapsing the proposed 21 categories into just one, to make wholesalers' reporting easier. And it threw out the category on "non-edible grocery" items like paper towels.
"We've removed that and limited it to food and additional non-alcoholic beverages," Gerregano said. "That's a result of feedback that we've been receiving."
The department has raised the reporting threshold for wholesalers to $500,000 in annual sales so as to exclude smaller operations.
Gerregano stressed that retailers don't have to file any new reports — all they have to do is properly file the same returns demanded all along.
Ikard had said retailers were irked by the state's enforcement process.
If a retailer came up short on sales tax remittance, he said, the Revenue department would send an "assessment" letter demanding payment of the missing sum plus penalty and interest.
Now, instead of hitting retailers with an assessment right off the bat, the department will allow businesses first to review and discuss the department's findings.
In a news release last week, NFIB Tennessee Director Jim Brown said those moves underscore the need to promulgate a permanent set of rules for the original program.
"As the Department has adjusted the program's parameters to minimize business opposition, it has become clear that the rules for RAP are whatever the Department's website says they are on any given day," Brown said. "If RAP Phase I is to continue, it must be under rules promulgated through the accepted administrative process."
Contact Andy Sher at email@example.com, 615-255-0550 or follow via twitter at AndySher1.