Equitable vendor compensation should consider the relative costs of sales tax collection [electronic resource] / Tennessee Advisory Commission on Intergovernmental Relations.

Abstract: When Tennessee’s sales tax was first enacted in 1947, it was met with resistance. Using rhetoric indicative of the passions raised, one business owner posted a sign comparing the requirement that he collect sales tax to enslavement and saying he would refuse to “do service against my will.” At the time, there was no automation, and collecting sales tax involved manually calculating the tax for each transaction. To compensate businesses for the effort they expended collecting the tax, the state initially allowed them to keep 2% of the amount they collected. Today, Tennessee, with very limited exceptions, no longer offers vendor compensation for sales tax collection. Some businesses say that as a result, they are required to be uncompensated tax collectors, though other stakeholders characterize collecting sales tax simply as a cost of doing business. Moreover, some businesses say it is unfair that credit and debit card transaction fees are charged on the sales tax portion of transactions, given that they see sales tax as the state’s money, not theirs. In response to these concerns, Public Chapter 1013, Acts of 2024 (see appendix A), directed the Tennessee Advisory Commission on Intergovernmental Relations to study the cost to businesses of collecting and remitting state and local taxes; the cost to the state for reasonable remuneration for sales tax collection, including vendor compensation, to businesses as compared to other states; and the cost to businesses of payment card interchange fees on the tax portion of transactions. The commission’s recommendations encourage the state to consider that the costs of sales tax compliance vary depending on the size of the business and encourage restraint on the issue of card transaction fees.