By The Associated Press
CHATTANOOGA, Tenn. - Tennessee revenue officials say residents who make purchases in other states rarely pay Tennessee's use tax, which also applies to purchases of groceries.
Tennessee Revenue Commissioner Reagan Farr said Tennessee has had the use tax on the books for a long time and it is largely ignored. He said the department's focus is not on grocery purchases across state borders but the use tax is supposed to be paid on such transactions.
Residents who buy goods out of state are required to pay the difference between the tax rates of Tennessee and the other state.
Farr said the tax is a corollary to the sales tax and applies to purchases of all goods. He said it was put in place "to make sure our in-state retailers were on the same level playing field as out-of-state retailers."
Department spokeswoman Sophie Moery said records show the department collected $4.6 million in use tax last year and $2.6 million so far in this fiscal year. She said the tax is also supposed to be paid on Internet purchases.
Tennessee's state sales tax rate on food changed Jan. 1 to 5.5 percent, down from 6 percent. The tax rate on all other tangible personal property, unless specifically exempted, is 7 percent. On the first $1,600 spent, the purchase is also subject to the local sales tax rate in the community where the purchaser lives. If more than $1,600 is spent, that amount up to $3,200 is subject to a rate of 9.75 percent. If more than $3,200, that amount of the purchase is subject only to the 7 percent state rate.
As an example, Farr said a Tennessee resident purchasing a $10,000 car in another state is required to pay the 7 percent state tax, or $744, and if you live in a community where the local option rate is 2.75 percent, the highest in the state, another $44 is also due.
Joe Huddleston, executive director of the Multistate Tax Commission, told the Chattanooga newspaper that unpaid use taxes total "tens of millions, if not hundreds of millions of dollars in lost tax revenue for Tennessee."
Huddleston said he was not aware of Tennessee ever charging anyone for evading the use tax.
Moery said that if consumers don't pay the tax at the point of sale, the state relies on their honesty to record the purchases and send the tax through the mail or over the Internet.
Farr said the tax can be paid with forms that can be obtained online or at department offices.
"You can file it as regularly as you would like, but at least once annually," he said.
He said "people are surprised" when they are told that out-of-state purchases require a tax filing.
"We do perform use tax assessments and investigations," he said. "Most people's defense is 'I didn't know."'
He said that although grocery purchases "may not be an area of focus" for the department but failing to pay it becomes a tax liability and "should they ever be audited that could be something that is looked at."
The Revenue Department has programs in place to share information with other states about the sale of aircraft, boats, ATVs and jewelry, according to Joan Cagle, tax audit supervisor for Tennessee. The department also has worked with several furniture and carpet dealers in other states to help track out-of-state sales.
Parrish Walker, owner of Walker's Oak and More in Fort Oglethorpe, Ga., said quite a few of his customers are from Tennessee and they certainly don't mind saving the 2.5 percent on tax.
"They're usually happy about the lower sales tax," he said.
Carter Fowler, general manager at the Furniture Shoppe in Chattanooga, said she collects Georgia sales tax for orders that are delivered into the Peach State. He said he and other Tennessee stores probably lose dollars to their southern neighbors because of the higher tax rate.
"I'm sure that definitely affects Tennessee people who think they can go to Georgia to save a few bucks," he said.
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