Lt. Gov. Ron Ramsey said last week that if a so-called “national solution” isn’t found for collecting sales taxes from online retailers it threatens to push Tennessee toward an income tax, which he strongly opposes.
Amazon has avoided collecting sales taxes in Tennessee until a recent agreement was announced calling for collections beginning in 2014. Ramsey said online businesses would prefer a standardized system for collecting state sales taxes.
“Let me assure you, if it keeps going in that direction, the trend that we’ve been on the last several years, it really is heading toward a state income tax,” Ramsey said.
“That’s what you come down to, suddenly the sales tax base erodes, and I am adamantly — adamantly — opposed to that.”
Ramsey made the comments in Clarksville at the first of his “Red Tape Road Trips” to discuss regulations in Tennessee. He fielded questions on all topics from a group of about 35 people, and one was about Amazon.
Ramsey also emphasized that the collection of the tax by the online retail giant, which is scheduled to begin in 2014, is not a new tax.
“There is something wrong when the mom-and-pop bookstore — an example, Moody Bible Bookstore, a little bookstore in downtown Kingsport — you go in there and buy a Bible or other religious book, and they support the Little League, they support the United Way, you have to charge a sales tax,” he said. “You can walk over here to your computer and click a button and you don’t have to pay sales tax. Something is inherently wrong with that.
“This is not a new tax. There ought to be a level playing field for everything.”
Gov. Bill Haslam made the same point about whether the Amazon agreement represents a new tax when he formally announced the deal last week.
The Amazon arrangement has been presented as a fairness issue on tax collections, but Ramsey may be the first state official to publicly say the sales tax predicament could result in an income tax if not addressed.
Tennessee does not have a personal income tax, although it does have the Hall income tax on interest and dividends. Haslam has said there is absolutely no chance the state will adopt an income tax. An income tax appeared to be killed after a major protest at the Capitol in 2001. Few members of the Legislature openly advocate an income tax.
Nevertheless, interest groups such as Tennesseans for Fair Taxation continue to promote an income tax.
The state’s current sales tax rate is 7 percent, with a local option of up to 2.75 percent. Thus, an increase of even one-quarter of a percentage point would put counties currently at the maximum rate at a double-digit rate, which would be politically difficult to approve.
Tennessee is on board with a proposed Streamlined Sales Tax initiative that would bring states together on the issue. While state officials routinely call for Congress to step in and settle the issue for the states, many believe Congress will not act because it might be perceived as a tax increase, and the federal government would not see the revenue.
State Sen. Randy McNally, R-Oak Ridge, chairman of the Senate finance committee, recently said the matter should be settled in the courts because he believes Congress will not act on the matter.