Legislator proposes to stop $30M in fees paid by local governments to state Dept. of Revenue

State Rep. Jason Zachary, working with Knox County Commissioner  John Schoonmaker, is making plans to eliminate a fee charged local governments by the state Department of Revenue for collecting local sales taxes and distributing the money to counties and cities, reports the News Sentinel.

Zachary, R-Knoxville, introduced a caption bill on the subject (HB1317) with Sen. Richard Briggs, R-Knoxville, as Senate sponsor during the 2017 session but never moved it forward. Zachary says the plan then was to file an amendment for repeal of the collection fee only in Knox County. In 2018, he says the measure would apply statewide.

Local municipalities have paid the 1.125 percent processing fee for decades. It doesn’t seem like a lot of money until you add it up, Schoonmaker said.

The Department of Revenue collected $30 million statewide in this administrative fee in fiscal year 2016-17, he said. For Knox County the fee was $525,000. For the city of Knoxville it was $1.7 million, for Farragut, $140,000.

In a bygone era the fee made sense, Schoonmaker said, but now the state just has to “push a button.”

“This is money just to get your own money back,” he said. “I could certainly appreciate if we still had that three-story building with all of these employees running around trying to handle this paperwork, but it’s not that anymore. It’s just one of those things that needs to go away.”

Zachary said he will work to propose legislation that will likely look at reducing the fee by 1/3 for each of the next three years before completely eliminating it.

The approximately $30 million a year won’t be missed by the Department of Revenue, Schoonmaker said, because the department has regularly turned in $50-100 million in excess funds back into the state’s general fund each year.

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