Tennessee Gov. Bill Haslam is urging the state’s Department of Revenue to adopt a rule that would let the state collect sales tax from online companies that sell more than $500,000 annually in the state, as reported by the Nashville Post. The revenue department will be holding a rulemaking hearing on August 8.
If the rule is adopted, it is expected to prompt a lawsuit, which is exactly what Haslam wants, according to the Chattanooga Times Free Press. If the sales tax rule is changed, Tennessee would join Alabama and South Dakota, states that passed sales tax laws in hopes of prompting a legal challenge that would go to the U.S. Supreme Court.
While it may seem counterintuitive for a governor or other state official to put forth a law so that it might be contested, there is a reason Alabama and South Dakota, and now possibly Tennessee, would like to see this issue go to the Supreme Court.
In March 2015, without issuing a decision on the statute, the U.S. Supreme Court sent a challenge by the Direct Marketing Association back to the 10th Circuit, saying that an injunction could stand while the litigation continued. However, it was a concurring decision in that ruling by Justice Anthony Kennedy that became the headline.
In his opinion, Justice Kennedy wrote that it was time to reconsider the 1992 Quill vs. North Dakota Supreme Court decision, which opponents of e-fairness usually cite when arguing that states have no right to require remote sellers to collect and remit sales tax unless those sellers have a physical presence in the state. “Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill,” Kennedy wrote. “A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier.”
Tennessee revenue officials estimate that the state loses $300 million to $450 million in online sales tax collections annually. The National Conference of State Legislatures estimates states collectively lost out on $23.3 billion in 2012, the Free Press noted.