Legislators poised to reject Dept. of Revenue’s online sales tax rule?

A proposed Department of Revenue rule requiring large out-of-state retailers to collect state and local sales taxes on purchases made by Tennessee residents faces a legislative hearing soon and appears at a high risk of being rejected.

“All it does is get us into a lawsuit that we’ll lose,” said Rep. Jeremy Faison, R-Cosby, chairman of the House Government Operations Committee.

The rule is scheduled for review at a joint meeting of the House and Senate Government Operations Committees on Dec. 14-15. Faison and Sen. Mike Bell, R-Riceville, chairman of the Senate panel, said they anticipate the matter to come up on the second day since other proposed rules are on the agenda ahead of the sales tax proposal and they want to allow plenty of time for testimony from both sides of the issue.

Under procedures for proposed state rules, a rejection by the Government Operations Committees would throw a final decision on approval or rejection to a vote by the full House and Senate during the 2017 legislative session. If the committees fail to act, then the rule is deemed approved – though a bill could be filed to reject it during the regular legislative session.

Faison said he is personally inclined to oppose the rule and predicted during an interview that most other members of the joint committee share his sentiments. Bell declined to predict an outcome, but did say he anticipates members – including himself – will “have a lot of questions on the constitutionality” of the proposal.

There is also general distaste among many members of the Legislature’s GOP supermajority – “anti-tax Republicans,” as Faison calls them – for anything that could be construed as a tax increase.

Advocates of the proposal, including Gov. Bill Haslam and Revenue Commissioner Richard Roberts, note that consumers who buy goods online from out-of-state retailers are already legally required to pay state and local taxes, though enforcement of that law is impractical because of a 1992 U.S. Supreme Court ruling that says retailers cannot be required to collect taxes from purchasers unless they have a physical presence in the purchaser’s state.

Roberts, who will leave office before the hearing with Deputy Commissioner David Gerregano designed as his successor by Haslam, says the rule is, indeed, intended to trigger a lawsuit with the goal of overturning the 1992 U.S. Supreme Court “Quill” decision. The proposed rule straightforwardly challenges the ruling and declares that, even without a state presence, businesses selling more than $500,000 in products per year to customers within Tennessee must collect taxes.

That’s virtually the same as the “Marketplace Fairness Act,” which passed the U.S. Senate five years ago with Sen. Lamar Alexander as a sponsor, then failed in the House. Alexander has been hoping for a new effort at passage in Congress during this year’s lame duck session, but Politico reported last week that now appears unlikely.

UPDATE/Note: The Tennessean has some commentary from the governor:

When asked about potential resistance from lawmakers, Haslam compared out-of-state retailers to drivers of electric cars, which some lawmakers argue should pay a tax for Tennessee roads even though they don’t buy gas.

“I’d say, well, is that a new tax?” Haslam said. “No – people have a new way of transportation they didn’t have before, and so they should be a part of paying for the system the way everybody else does. It’s the exact same thing.”

Full story at the News Sentinel, HERE.

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