Lincoln County is among a growing contingency of rural Tennessee counties urging the General Assembly to adopt legislation that would more equitably distribute sales tax revenues from out-of-state sellers, including those selling goods via the internet.
In its March meeting, the Lincoln County Commission unanimously adopted a resolution encouraging action by state legislators on the issue. The resolution comes on the heels of a 56-page interim report, titled “Leveling the Playing Field: Internet Sales Tax in Tennessee”, returned by the Tennessee Advisory Commission on Intergovernmental Relations (TACIR) in February, said Lincoln County Mayor Bill Newman as he prepared for March meeting of the local legislative body.
Among recommendations made in the report are two generally considered more pivotal – one, that the General Assembly enable the Department of Revenue’s Rule 129, and two, that legislators replace the state’s current distribution formula of those revenues received from out-of-state sellers from one that is seller location based to one that is destination based.
Rule 129 simply ensures that all out-of-state retailers who make sales in Tennessee, above the $500,000 threshold, properly collect and remit state and local sales and use tax due under current law. Enabling it, the report states, would level the playing field for in-state sellers competing with out-of-state sellers.
To ensure a more acceptable distribution of local option sales tax revenue from out-of-state sellers with no physical presence in Tennessee, the state could continue to offer sellers the option of paying a destination rate or the uniform rate of 2.25 percent, but in either case, distribution of the revenue should be based on the destination of the sales, recommends TACIR in the report.
That shift from in the distribution of revenue could have a big impact on Lincoln County, Newman said, explaining that those revenues are currently divided based on a percentage of where sales tax is typically collected – “Here, about 80 percent of the total sales tax collected in Lincoln County comes from within Fayetteville’s incorporated area and about 20 percent from outside,” he said, adding that distribution of the local option sales tax revenues to the city and county by the state approximately follows that same percentage, including the revenues generated by internet sales by out-of-state sellers.
“The Tennessee Association of County Mayors has gotten on board with doing something about it,” he continued, noting that the topic was the big issue during a recent conference of his association and the Tennessee County Commissioners Association in Nashville.
“Here’s the problem though ... It sort of pits cities against counties,” Newman said. “Not in the areas where cities have the higher proportion of the population, like Chattanooga and Memphis, or even in Nashville which is metro, but in rural areas, it makes for a big deal because most of the people live in the unincorporated areas.”
According to the U.S. Census, Lincoln County’s population stood at 33,751 in 2017, and Fayetteville’s population stood at 6,993 – that would mean that 26,758 or about 80 percent of residents here reside outside of the city’s corporate limits.
“Cities have been getting this money for a while, and they don’t want to give it up. With TACIR recommending that the money should follow the people or the purchasers, based on their zip code plus four, it’ll make for a difficult issue for state legislators to resolve.”
Prior to introducing the resolution, which county commissioners here approved, Newman said he wrote to State Sen. Shane Reeves and State Reps. Pat Marsh and Rick Tillis, encouraging them to “do what’s right.”
“I think something will come out of this where the counties are treated a little better, but I don’t think they’re going to go all the way with it,” he said. “They could just kick it down the road.”
According to estimates included in the TACIR report, the City of Fayetteville could lose between $125,141 and $175,986 in local sales tax revenues per year, depending on the recommendations enacted by state legislators, while Lincoln County could gain between $465,402 and $589,583.