A performance review of the Tennessee Department of Revenue recently was released by the Comptroller of the Treasury for the State of Tennessee. The review period covered June 1, 2008, through August 1, 2013, and focused on the execution of the tax laws during the administration of former Governor Phil Bredesen and the current administration of Governor Bill Haslam. There were two issues of significance to taxpayers raised in the report.
First, the comptroller concluded that the Department of Revenue did not adequately document tax audits related to jobs tax credits and ultimately could not provide evidence that companies audited complied with state law. While the department’s jobs tax credit audit program properly verified the filing of a business plan, the jobs tax credit claimed, and the carryover of jobs tax credits, the comptroller found that the department’s audits did not include specific steps to ensure (1) verification that the business made the minimum investment required and (2) verification that the business created at least 25 full-time jobs with access to health insurance.
It is unclear whether the report will result in further scrutiny of the jobs tax credit audit program or whether the legislature will focus on the issue during the current legislative session, but this is an issue that bears monitoring for businesses that are claiming jobs tax credits on Tennessee franchise and excise tax filings.
Second, the comptroller concluded that the department had not devised procedures, in conjunction with the chief procurement officer, to ensure that the state contracts only with vendors that are registered with the Department of Revenue under the Tennessee Retailers’ Sales Tax Act.
By statute governing the procurement of public contracts, Tenn. Code Ann. § 12-4-120 (now codified at Tenn. Code Ann. § 12-3-306) states in part:
a) The state or other state entities shall not contract to acquire goods or services, and no person may contract to supply goods or services to the state or other state entities, unless, prior to or contemporaneous with entering into the contract, the person contracting to supply goods or services and its affiliates register with the department of revenue to collect and remit the sales and use tax levied by the Retailers’ Sales Tax Act, compiled in title 67, chapter 6; provided, nothing in this section shall require a person or affiliate to register if the person or affiliate does not make sales to customers in Tennessee of tangible personal property or services, which if the sales occurred wholly within Tennessee would be taxable under this chapter.
b) The commissioner of revenue and the commissioner of finance and administration shall devise procedures to ensure compliance with the provisions of this section.
Accordingly, vendors that contract with the state to provide goods or services must register with the Department of Revenue to collect and remit sales and use taxes. The Department of Revenue’s chief financial officer reports that it is the responsibility of the commissioner of finance and administration to ensure vendor compliance by requiring proof of sales tax registration to be submitted to the commissioner of finance and administration through its contract oversight procedures. Therefore, the Department of Revenue does not need to provide sales tax registration documentation.
The commissioner of finance and administration currently is working on a standard template for solicitations and contracts that will require vendors to certify compliance. Vendors contracting with the state should be aware of this requirement to ensure that they are in compliance.