Northeast TN counties see huge sales tax growth in wake of Internet tax law

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Tennessee’s taxing of Internet sales helped boost rural Northeast Tennessee counties’ collections by an average of more than 25% in the last fiscal year.

JOHNSON CITY, Tenn. (WJHL) – Northeast Tennessee’s local sales tax revenues grew by 20% in the latest fiscal year and are up 15% in the first five months of fiscal 2022, with the biggest gains coming in the more rural counties.

State Rep. David Hawk (R-Greeneville) said the strong rural growth is likely due to Tennessee’s becoming one of the last states to tax Internet sales when it passed the “Marketplace Facilitator Bill” in March 2020.

“We’ve heard for years that sales tax leaks from our smaller communities,” Hawk said Friday. “Ever since the sales tax system has been in place there’s always been hubs of shopping that have gone to the bigger cities, the Nashvilles, the Atlantas, the Charlottes of the world.”

Northeast Tennessee’s most rural conties saw the strongest sales tax growth last fiscal year.

Any online company doing over $100,000 in annual Tennessee sales must remit sales tax, including from third-party payment platforms. If a Mountain City resident buys a $500 piece of furniture online, sales tax now flows to Johnson County.

“Seeing the sales tax figures sustain over the last couple years is exactly what the state legislature intended when we passed online sales taxing legislation,” Hawk said. “Now we’re seeing folks being able to keep those sales tax dollars that they’ve spent in their region.”

In Northeast Tennessee’s seven counties local option sales taxes — which primarily fund schools — increased by $33.2 million from the fiscal year ending June 2020 to the one ending last June.

In more rural counties like Greene, Carter and Hawkins that meant an additional $4.6 million, $3.6 million and $3.3 million compared to the previous year.

Hawk said numerous county budget directors and town managers have told him about the legislation’s impact.

“They are very pleased with what they’re seeing so far,” Hawk said.

“Ultimately these sales tax dollars are going to improve our school systems in Northeast Tennessee,” Hawk said. “As a rural region of Tennessee we have needed this for so long and this finally is equalizing the sales tax delineation across our region.”

The biggest percentage gains from FY ’20 to FY ’21 came in Johnson, Hawkins, Unicoi and Carter counties with Johnson topping the list at 35% growth. That brought nearly $600,000 additional dollars for education compared to the previous year.

Davidson County saw growth of just 5%, though some of that was related to a slowdown in tourism during the early months of the pandemic.

Hawk said the change helps local governments maintain lower property tax rates.

The region’s overall local sales tax revenues are up 15% from last year five months into the current fiscal year.

“That’s always a concern with local governments is they’re going to have to raise property taxes five cents or 10 cents in order to fund some of these educational endeavors that really are mandated by the state,” Hawk said.

Through the first five months of the current fiscal year the trends are mostly holding. Compared to July through November 2020, revenues the same months of 2021 are up 15% regionwide. The growth is more balanced, with Greene County the highest at 19% and six of the seven counties above 13% growth.

For the region’s two most populous counties, that equates to $4.2 million more over five months for Washington County and $3.5 million for Sullivan County.

“However many zeroes you put on the end of it this has been a boon for education in Northeast Tennessee,” Hawk said.

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