New taxes on internet sales shouldn’t replace shopping local, Johnson City leaders say

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JOHNSON CITY, Tenn. (WJHL) – For Johnson City Mayor Jenny Brock, the vacant Toys R Us building on North Roan Street is a harsh reminder of the changing retail environment.

“I look at Toys R Us as kind of the poster child for what’s happening,” she said. “The more we do shop online, the more our local stores are going to be impacted.”

When local businesses close, sales tax revenue can suffer.

Johnson City Manager Pete Peterson said sales tax makes up about 25 percent of the total revenue stream in the city’s budget. He said it sustains the operations of the school system and other public services.

Finance Director Janet Jennings said, in 2015, Johnson City was experiencing a 5 percent growth in sales tax. In 2018, she said growth dipped to 1.75 percent.

“That was very concerning because the internet sales are obviously impacting that. To what degree, we don’t know,” Jennings said.

To offset the impact of online shopping, Tennessee has long collected internet sales tax from businesses based in the state.

After a key Supreme Court decision in 2018, a new Tennessee law now requires all online businesses with more than $500 thousand in sales to register with the Department of Revenue and remit sales tax, even if they don’t have a presence in the state.

Out-of-state dealers must register before October 1, 2019.

Sen. Rusty Crowe said this change is projected to bring in additional sales tax revenue.

“The dollars coming in are going to be around $44 million but it could be more,” said Crowe. “We’re not sure because some of the big players like Amazon were already paying internet sales tax.”

Crowe said those dollars will be distributed to cities and counties once collected by the state. “Therein lies the problem, how do we disperse those dollars properly?”

Jennings said the new law distributes internet sales tax revenue based on where the shopper lives.

She said this may leave retail destinations, like Johnson City, with a lower percentage of revenue than usual.

“Normally a county resident might come into the city to buy something at the store. That sales tax would’ve come to the city,” said Jennings. “Now for those who live outside the city and are purchasing goods online, we won’t necessarily get those sales tax dollars.”

Crowe said feedback from cities and counties could influence changes in the future. “I think it’s going to take a couple of months to see how it’s working,” he said.

For now, Brock said shopping local is the best solution.

“We’re a part of the formula in keeping our retail healthy in Johnson City,” she said.

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