Dean, Lee agree on need for internet sales tax to 'level playing field'

Zach Vance • Oct 10, 2018 at 11:46 PM

Whether it’s Democrat Karl Dean or Republican Bill Lee, Tennessee’s next governor will be an advocate for implementing a sales tax on internet sales.

In a roundtable with the Johnson City Chamber of Commerce Wednesday morning, Dean was asked how he would address the evolving landscape of sales tax revenue, as online sales continue to impact traditional brick-and-mortar sales.

“One of the things we have to do, and I think it will happen sooner or later, is have this discussion around an internet sales tax,” Dean, a former Nashville mayor, said.

“I think (an online sales tax) is the only fair way to do it. You’ve got to tax things being sold, and you can't give out-of-state business or business that is done on the computer precedence over your local (stores).”

Lee has also said he would also support the implementation of an online sales tax, most recently at a June candidate forum.

“It's important that we look at protecting the businesses in this state, making certain that the tax structure is fair all across the board,” Lee said before being chosen as the Republican gubernatorial nominee.

“When we have businesses in Tennessee that are brick-and-mortar, they're selling products to the citizens of this state and having to compete with a company from out of state doing online sales that isn't having to compete on same level, it's not fair to our businesses. We must have a fair taxation schedule for all businesses.”

In June, the U.S. Supreme Court ultimately ruled that states could collect sales tax from all online retailers, regardless of whether the retailer had a physical presence in the state.

That ruling was monumental for Tennessee, a state that relies heavily on sales tax revenue because it doesn’t have an income tax. In 2015, 72.5 percent of Tennessee’s total tax revenues came from sales tax.

As far as local governments, the same applies. At a March Johnson City Commission meeting, Finance Director Janet Jennings said local option sales tax revenue makes up 24 percent of the city’s general fund. City Manager Pete Peterson has said online sales have grown two or three times the rate of brick-and-mortar sales.

"One of the issues you feel (in Northeast Tennessee) as much as anywhere in the state, is local governments have a tough time with revenue. There's been a lot of cuts and most of them have affected local governments, and local governments are asked to do a lot. Then you have these concerns about population and everything else. It makes local leadership pretty difficult at times,” Dean said.

Walmart and Amazon are among the online retailers already collecting sales tax from online sales, since both have a physical presence in the state.

Technically, Tennesseans are obligated to pay sales tax on all online purchases.

“If Tennessee sales tax is added to the purchase price, use tax is not owed. However, if merchandise is bought through the internet, over the telephone, from mail-order catalogs, etc., and sales tax is not added to the price, the purchaser is responsible for paying use tax directly to the Department of Revenue,” the Tennessee Department of Revenue’s website states.

“Also, Tennessee residents who travel outside the state and purchase untaxed merchandise that is shipped to their homes in Tennessee are liable for use tax.”

With that additional revenue, projected to be anywhere from $237 million to $363 million a year, according to the United States Government Accountability Office, Dean said he would funnel it toward education, as well as use it to continue building up the state’s rainy day fund.

At the June candidate forum, elaborating on the online sales tax question, Lee said that Tennessee, compared to other states, is not a “low business tax” state.

“Franchise and excise taxes in Tennessee are not competitive with adjacent states,” Lee said, hinting that those taxes might be reduced with the additional revenue generated from an online sales tax.