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Legal Updates

Tennessee Takes Out-of-State Sales Tax into Its Own Hands

Department of Revenue Hearing Set for August 8, 2016

Are you an out-of-state retailer doing business in Tennessee? If so, take note.
The Tennessee Department of Revenue is proposing a new rule mandating certain
out-of-state dealers to collect and remit sales and uses taxes to the department.  


What's Happening with TN Out-of-State Sales Tax?  

Currently, only out-of-state retailers with a physical presence, including personnel, in Tennessee are considered to have a "nexus" with the state. This means they are required to collect and remit sales or uses tax on all sales, whether orders are taken in person, by phone, or by mail. But now, the department is presenting its own "bright-line test" and is looking to expand the standard for an economic nexus.

The department has proposed a new rule that declares a "substantial nexus to the state" for all out-of-state dealers with sales, through any means, exceeding $500,000 to Tennessee customers during a calendar year. Under the proposed new rule, dealers must register with the department by January 1, 2017 and "affirmatively acknowledge" they will be begin collecting and remitting these taxes to the department by July 1, 2017. 

NOTE: Some online businesses are already voluntarily collecting and remitting sales taxes,
regardless of the new economic nexus monetary threshold in the proposed rule-making. 

How Are Other States Handling Out-of-State Sales Tax?

The U.S. Supreme Court decided in Quill Corporation v. North Dakota in 1992, under the guise of the Commerce Clause, a state cannot impose a sales and uses tax obligation on a nonresident with no physical presence in the state. And, the Court subtly deferred on the issue by stating, "Congress has the ultimate power to resolve" this matter.

Fast forward two decades. Congress has taken no action. Numerous bills have been introduced to solve the issue, but none have been passed. In 2013, Tennessee Sen. Lamar Alexander took action by co-sponsoring the Marketplace Fairness Act, which he called a "12-page bill about two words: states' rights." The act would have given states the authority to require remote sellers of $1 million or more in goods to collect sales taxes. Ultimately, the Senate approved the bill, but the House took no action. 

Ohio, Washington, Alabama, California, and South Dakota have already adopted their own economic nexus standards for out-of-state retailers with no physical presence in the state:


How Can You Get Involved?  

The Department of Revenue has set a hearing for August 8, 2016. Any interested parties are welcome to submit comments to the department and/or attend the hearing. Following the hearing, the department will take into consideration public comments and submit its final recommendations to the Tennessee Secretary of State. The rule must also be approved by the General Assembly's Joint Committee on Government Operations and the entire General Assembly.