Tennessee lawmakers may change decades-old sales tax laws

State Sen. Bo Watson is interviewed by editors during a meeting at the Times Free Press.
State Sen. Bo Watson is interviewed by editors during a meeting at the Times Free Press.
photo State Sen. Bo Watson is interviewed by editors during a meeting at the Times Free Press.

Some state legislators and county officials are looking into changing decades-old sales tax laws in an effort to help counties cover the costs of running schools and jails.

But the sales tax pie is only so big, and slicing it differently could be a big hit to cities such as Chattanooga, which derives more than $50 million of its $217 million annual budget from sales tax revenue.

Currently, a minute portion of the 7 percent statewide sales tax -- 4.6 percent of 5.5 percent to be exact -- gets split and returned to municipalities based on their populations. Larger cities get larger allotments. For Chattanooga, that was $11.9 million in 2014.

And cities and counties split evenly the 2.25 percent local option sales tax. Chattanooga and the county each pulled in $39.7 million in 2014 from the local tax. By law, the county's share goes to local education.

But local state delegates meeting with Times Free Press reporters and editors Tuesday said they were at the drawing board for a plan to give county governments a larger slice of the sales tax pie in counties where municipalities don't maintain school systems.

State Sen. Bo Watson, R-Hixson, said Thursday there is nothing in writing, and he didn't want to set off any alarms with cities or municipal organizations. But lawmakers are looking for a way to make sales tax distribution more equitable for counties.

"That's the general tenor -- is that fair? If you get out of the school business, if you get out of other types of services and leave those to the county, should there be some reallocation of resources to pay for that instead of just property taxes?" said Watson, who serves on the Senate Finance Committee.

photo Mike Carter

Reps. Mike Carter, R-Ooltewah, and Patsy Hazlewood, R-Signal Mountain, who serve on the House Finance Committee, could not be reached for comment Thursday.

Watson cautioned that many questions remain. Some municipalities still have school systems.

"If you are Maryville, and you are still in the school business, then that makes sense. But if you are Chattanooga and you are not in the school business, do you need those resources?" Watson said.

Chattanooga spokeswoman Lacie Stone said Thursday the delegation hasn't mentioned anything to the city administration about a change in sales tax revenue.

"We would be happy to provide input when and if a bill like this is put forward and after we are able to review it," Stone said.

Hamilton County Mayor Jim Coppinger said Thursday he had asked lawmakers to look into the issue, because there are 106,000 people in unincorporated areas who he says aren't being treated fairly.

The county general government doesn't share in the state sales tax, and it only gets to use local sales tax money collected at stores in the unincorporated county. That amounted to about $3 million last year, Coppinger said.

"Basically, we want to be counted as an entity -- just like the cities," Coppinger said. "It's money spent in Hamilton County, no matter where [in the county] it's spent."

Coppinger says the sales tax laws are just outdated.

"The only thing we are saying is, [the allocations were set] before you had these urban growth boundaries, and everybody started annexing. What it did was put county governments at a huge disadvantage," he said.

He added that, along with schools and jails, counties are mandated to run emergency management and public health agencies.

And Coppinger's not alone.

Fred Congdon, executive director of the state Association of County Mayors, said sales taxes have been a source of frustration for counties for years.

"Just having legislators with the fortitude to try to run a bill like that, it's pretty exciting. Because it's something that should have been done many years ago," Congdon said.

Contact staff writer Louie Brogdon at lbrogdon@timesfreepress.com, @glbrogdoniv on Twitter or at 423-757-6481.

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