Last October, a car wash operator with 10+ express washes was assessed by the Tennessee Department of Revenue (TDOR) for retroactive tax liability with an impact of more than $3.5 million dollars, which could have potentially put him out of business.
The issue focused around the sudden interpretation of Tennessee Code 67-6-205(c). The statute, written almost 50 years ago, did not address the modern express car wash. In today's express wash environment, operators ensure safety and quality by providing assistance to vehicles entering a building, such as guiding on to conveyors, protecting wiper arms, hydrating bugs, or removing dangerous objects from open bed pickups. These safety and courtesy measures had been interpreted by TDOR as the trigger by which sales tax was applicable. Consequently, current or previous operators who were providing one or more of the above complimentary services would be subject to prior sales tax liabilities, penalty and interest and would be responsible for collecting sales tax in the future.
The operator asked International Carwash Association for assistance, which rallied a group of Tennessee operators on Nov. 1, 2018 to meet to discuss the issue. For the meeting, ICA brought in a lobbyist who had experience in dealing with like issues to help guide their future strategy.
Coming out of that initial meeting there was strong agreement that the operators needed to work together to engage a lobbyist to help clarify the language in the legislation and ensure that they would not face a future tax liability. The Tennessee Chapter of ICA was formed at the meeting, comprised of nine operators. The chapter began a fundraising campaign in December for the lobbying effort.
ICA committed the first $10,000 to the campaign and provided all administrative support for the fundraising effort, coordination of the chapter and the executive committee. In the end, the chapter exceeded its goal by raising nearly $200,000 and engaged the firm Waller Lansden Dortch & Davis.
“We couldn’t have done this without the support of ICA,” said Executive Committee Member David Wild of Ultimate Shine Car Wash. “They were there when we needed them, and they eagerly engaged to make a real difference in the outcome. On behalf of all operators in Tennessee, we want to thank them for their support.”
The effort led to the passing of a new bill that clarifies the language for express car wash models to not collect sales tax. Provided that the customer remains in custody, control and care of the vehicle, the car wash does not need to charge sales tax. This would NOT, however, apply to full-service or flex-service car wash models where the customer exits the vehicle. These models, though, have been charging sales tax.
