In a recent government meeting, Tennessee officials discussed the pressing issue of sales tax collection and the associated costs borne by businesses. The meeting was prompted by a bill directing the commission to study the collection and remittance of state and local sales taxes, with a focus on vendor compensation for businesses tasked with this responsibility.

Panelists included experts from various sectors, including Dr. Bill Fox from the University of Tennessee and representatives from the Tennessee Bankers Association and the Tennessee Grocers and Convenience Store Association. They highlighted the significant financial burden that sales tax collection imposes on businesses, particularly small vendors. Currently, Tennessee does not provide vendor compensation for sales tax collection, a practice that was briefly reinstated in fiscal year 2022-2023, allowing businesses to retain $14 million in compensation.

Dr. Fox emphasized that while collecting sales tax incurs costs for all businesses, the financial impact varies significantly between large and small firms. He noted that large businesses often incur lower relative costs compared to smaller ones, which could lead to inequitable compensation if not carefully structured. He suggested that any compensation model should consider these disparities to avoid benefiting larger corporations disproportionately.

Glenn Grossman, representing the banking sector, elaborated on the complexities of payment processing fees, particularly the interchange fees charged by credit card companies. He argued that these fees, which can include sales tax as part of the transaction amount, further exacerbate the financial strain on businesses. He proposed that the state could explore options to prevent credit card companies from charging fees on sales tax collections, a move that could alleviate some of the financial pressure on merchants.

Tommy Hunt, from the Tennessee Fuel and Convenience Store Association, echoed these concerns, stating that small merchants often bear the brunt of credit card fees, which can reach up to 2.1% per transaction. He called for legislative action to protect small businesses from these costs, particularly as they collect taxes on behalf of the state.

Rob Eichard, representing the Tennessee Grocers and Convenience Store Association, highlighted that merchants collectively collected over $18 billion in state and local taxes in the previous fiscal year. He pointed out that the absence of vendor compensation has led to a situation where businesses are effectively subsidizing state tax collection, with estimates suggesting that merchants pay over $300 million annually in credit card fees related to tax collections.

The discussions underscored the need for a comprehensive review of Tennessee's sales tax collection system, particularly regarding vendor compensation and the financial implications for small businesses. A draft report on these issues is expected to be presented at the commission's next meeting, signaling a potential shift in policy that could impact the state's approach to sales tax collection and vendor support.