What Tennessee Small Business Owners Should Know About Rap

Date: February 02, 2016

Pilot program geared toward tax dodgers may affect more businesses in 2016.

What Tennessee Small Business Owners Should Know About Rap

Tennessee’s flawed Revenue Accountability Program is expanding this year, and will impact many small business owners negatively across the state in the years ahead unless it’s fixed this session.

Here’s what you need to know to make your voice heard. Look for a critical member action alert soon from NFIB/Tennessee.

RAP is designed to ensure that retailers are accurately reporting their sales and taxes. Under the pilot program implemented under a 2012 law, the Department of Revenue has required beer and tobacco wholesalers to provide on a monthly basis their product shipment information to retailers. The Department then matches that list with retailers’ sales reports to make sure all sales taxes due have been paid to the state. So far, in 30 months of the first phase of RAP, $60 million of tax cheating and honest mistakes have been discovered and paid to state and local governments, reports the Chattanooga Times Free Press.

RAP, as explained to the legislature, business groups and fiscal review last year, was expanded in 2015 to include products like “candy and cold drinks.” However, on June 30, 2015, the department added 21 other categories under “Phase II,” requiring wholesalers to report on thousands of products they ship to grocery and convenience stores, big box retailers and some pharmacies.

Most alarming is the amount of authority that the commissioner has not just for these categories, but all industries. Restaurants and other industries are very concerned they’re next in Phase III and beyond.

Jim Brown, NFIB’s Tennessee state director, told the Knoxville News Sentinel last month that RAP is the “wrong vehicle” for catching retailers who cheat on their taxes, as well as that it grants far too much authority to governmental bureaucrats. NFIB and other groups believe RAP, as currently structured, places a costly undue burden on wholesalers across the state, essentially making them unpaid tax auditors, and adopts a “guilty until proven innocent” approach by issuing proposed assessment to retailers.

“Purchases and sales are not the same, and every retailer knows that,” Brown said. “RAP assumes good actors are bad actors, and that’s bad news for the business climate in Tennessee. RAP must be fixed before the legislature adjourns.”

Brown told the Sentinel these new state requirements “increase the cost of doing business, raise the risk of proprietary information being disclosed and involves unnecessary secrecy since the algorithm used in meshing data is undisclosed.”

The Tennessee Grocers & Convenience Store Association has filed legislation strongly supported by NFIB, the Tennessee Chamber of Commerce and Industry, the Tennessee Hospitality and Tourism Association, the Tennessee Retail Association, and the Beverage Association of Tennessee. Americans for Prosperity and the Beacon Center of Tennessee also support rolling back RAP and fixing the imbalance of authority between the executive and legislative branches. The coalition’s legislation specifically would eliminate Phase II, require the Department of Revenue to propose formal rules for Phase I, and require further audit functions before issuing any assessment to a retailer.

The Chattanooga Times Free Press reports the Department of Revenue has responded to feedback. They’ve simplified 21 product categories into one for easier reporting and eliminated the category for nonedible grocery items like paper towels. They’ve also raised the reporting threshold to $500,000 for wholesalers to remove the burden from some smaller operations, and the enforcement process will allow a 30-day period to address any inconsistencies.

However, Brown noted these frequent unchecked changes actually show the need for a permanent set of rules and more direct involvement from the legislature.

“As the Department has adjusted the program’s parameters to minimize business opposition, it has become clear that the rules for RAP are whatever the Department’s website says they are on any given day,” Brown says. “If RAP Phase I is to continue, it must be under rules promulgated through the accepted administrative process.”


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