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TACIR panel weighs vendor compensation and technical hurdles for sales-tax collection
Summary
Panelists and commission members discussed whether Tennessee should compensate businesses for collecting sales taxes, technical challenges in parsing tax by product at point of sale, and policy options including capped vendor compensation, universal carding and enforcement/registry models.
A TACIR panel convened to examine the costs to businesses of collecting state and local sales taxes and to discuss models for vendor compensation.
Dr. Bill Fox, University of Tennessee professor emeritus, said many states compensate vendors in some form and cautioned about size and distribution of any compensation. He noted that “if you give vendors comp … you may actually end up making money for big businesses” and emphasized tradeoffs between supporting small businesses and reducing state revenues.
Glenn Grossman, speaking for more than 300 banks and credit unions, outlined the merchant discount rate — interchange, network assessment and acquirer markup — and explained how interchange fees (paid to card issuers) have grown as card usage rose. He used a grocery example showing small per-transaction savings if only interchange were rebated and underscored the technical and standards work needed for a point-of-sale solution.
Tommy Hunt and Rob Ikard, representing convenience-store and grocer associations, described how a shift to more card payments has raised costs for small merchants; they advocated either restoring a capped vendor compensation model or pursuing legislative steps such as prohibiting interchange on sales-tax components or requiring merchant registries and universal carding.
Commission members asked for more data to inform any legislative action, including the share of sales taxes collected by out-of-state internet sellers and the breakdown of taxes collected at the point of sale (fuel, liquor, sales tax). Staff said these data are being compiled for a draft report planned for the next meeting.
Panelists and members agreed that technical feasibility, unintended distributional effects (large chains vs. small shops), and constitutional/administrative limits on favoring in-state firms must be considered before recommending a compensation scheme.
