Trade groups sue to block Tennessee large retailer online sales tax rule
NASHVILLE - Tennessee is being sued by two trade groups seeking to block a requirement for large retailers to collect state sales taxes for online purchases, regardless of whether the sellers have a physical presence in the state.
The lawsuit was filed in chancery court in Nashville by the American Catalog Mailers Association of America and NetChoice, a trade association of online retailers that includes eBay, Overstock .com and PayPal. The plaintiffs cite current federal law that says 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.
Under a new tax rule in Tennessee, Republican Gov. Bill Haslam’s administration has extended the requirement to collect the tax to any retailer with sales of more than $500,000 per year in the state. Legislation to create similar requirements nationwide has fallen short in Congress in recent years.
Although consumers ordering from any out-of-state retailer are legally required to pay the tax to the Tennessee Revenue Department, few do so.
Haslam has 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 was before online commerce became as prevalent as it is today.
“We think the world’s changed,” Haslam told reporters in February.
The plaintiffs note in the lawsuit that the state doesn’t dispute that the physical presence requirement is the “law of the land.”
“An anticipated change in law cannot be the basis for an administrative regulation that contravenes existing Supreme Court precedent,” the trade groups said in the complaint.
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 set a March 1 deadline for covered companies to register with the Revenue Department but wasn’t planning to begin collecting sales taxes until July 1. Haslam has said the state will not spend any of the sales tax revenue collected under the new rule until all legal challenges are exhausted.
The state attorney general’s office had expected the lawsuit and is “prepared to defend the rule,” spokesman Harlow B. Sumerford said.
“Our hope is that the courts will level the playing field for the brick-and-mortar businesses in Tennessee,” he said.