Tennessee Enacts Economic Nexus Regulation

Effective Date: October 1, 2019; October 1, 2020 for $100,000 threshold

Threshold: $500,000; $100,000, effective October 1, 2020

Measurement Date: Previous 12-month period

Includable Transactions: Retail sales; Marketplace sales excluded from the threshold for individual sellers effective October 1, 2020

When You Need to Register Once You Exceed the Threshold: The first day of the third month following the month in which the dealer met the threshold

Tennessee has enacted new economic nexus regulations that establishes sales tax registration and collection requirements for certain out-of-state sellers. The newly enacted rule provides that out-of-state sellers who engage in the regular or systematic solicitation of consumers in Tennessee through any means and make sales to Tennessee consumers exceeding $500,000 during the previous 12-month period have substantial nexus with Tennessee. Sellers meeting this requirement are required to register with the state by March 1, 2017 and affirmatively acknowledge that they will collect and remit sales and use tax to the state beginning July 1, 2017. Unless a later date is established by the department, affected sellers must report and remit tax on sales of tangible personal property and other taxable items delivered to Tennessee consumers, beginning July 1, 2017. Sellers who meet the $500,000 threshold after March 1, 2017 are required to register with the department and begin to collect and remit Tennessee sales and use tax by the first day of the third calendar month following the month in which the dealer met the threshold. In no case will affected sellers be required to collect and remit sales and use taxes to the department for periods before July 1, 2017. Unless otherwise exempt, persons purchasing tangible personal property or other taxable items from any seller that is registered with the department must pay Tennessee sales and use tax on the purchase. Unless otherwise exempt, persons who import tangible personal property or other taxable items into Tennessee and have not paid sales and use tax to the seller must report and pay use tax directly to the department. Tennessee joins Alabama and South Dakota in establishing economic nexus positions. (Rules 1320-05-01-.63 and 1320-05-01-.129, Tennessee Department of Revenue, effective January 1, 2017)

UPDATE: Tennessee has created a new online sales and use tax registration application for out-of-state sellers with no physical presence in Tennessee. Out-of-state sellers with no physical presence in Tennessee that have made sales exceeding $500,000 to Tennessee consumers during the previous 12-month period are required to register by March 1, 2017. By registering, sellers acknowledge that they will collect and remit sales and use taxes to the Department beginning July 1, 2017. Out-of-state sellers with no physical presence in Tennessee that meet the $500,000 threshold after March 1, 2017 are required to register and begin to collect and remit sales and use taxes beginning the first day of the third month following the month in which the dealer met the threshold, but no earlier than July 1, 2017. Out-of-state sellers that have a physical presence in Tennessee are required to register even if their sales to Tennessee consumers are less than $500,000 during a twelve-month period. These sellers are required to register through the Department’s standard registration page. All three types of out-of-state sellers can register online at the Tennessee Department of Revenue website. (Hot Topics, Tennessee Department of Revenue, January 13, 2017)

UPDATE: On April 10, 2017, a Tennessee judge granted a request to bar enforcement of the state’s economic nexus legislation until final judgement has been granted on a legal challenge to the Administrative Rule from the American Catalog Mailers Association and NetChoice. Until then, the economic nexus legislation will not be enforced by Tennessee.

UPDATE: On March 2, 2018, a Tennessee chancery court granted the Tennessee Department of Revenue’s motion to put on hold the case regarding the validity of the state’s economic nexus legislation pending the outcome of the U.S. Supreme Court case involving South Dakota v. Wayfair. (Case No. 17-307-IV, Tenn. Ch. Ct. (motion to hold in abeyance granted 3/2/18))

UPDATE: On November 5, 2018, the Tennessee chancery court of Davidson County voluntarily dismissed Case No. 17-0307-IV, American Catalog Mailers Association et. al. vs. Tennessee Department of Revenue et. al. following the South Datoka v. Wayfair decision.

UPDATE: Tennessee has proposed remote seller legislation, S.B. 0082 / H.B. 0733, that would change the threshold for remote seller tax collection to $100,000 or 200 or more separate transactions. If passed, the legislation would have a January 1, 2020 effective date. (This legislation is no longer being considered)

UPDATE: Tennessee enacted legislation on May 21, 2019 that authorizes the DOR to enforce its economic nexus rule (Rule 129) and collect sales and use tax from out-of-state sellers with more than $500,000 in sales into the state during the previous 12-month period, effective July 1, 2019. (H.B. 667, Laws 2019, Effective July 1, 2019) Read our news item for more information: Tennessee Enacts Legislation to Enforce Economic Nexus Rules

UPDATE: Tennessee released Notice #19-04 which states that out-of-state dealers with no physical presence in Tennessee who meet the state’s economic nexus threshold as of July 31, 2019 must register and begin collecting Tennessee sales and use tax by October 1, 2019.

UPDATE: Tennessee has enacted legislation that has new information reporting requirements for out-of-state dealers, eliminates the state’s 2.25% flat rate local tax option for out-of-state sellers, and adds a Streamlined Sales and Use Tax sourcing provision, effective October 1, 2019. For more information, read our news item.

UPDATE: Tennessee has enacted legislation that decreases the state’s economic nexus threshold for remote seller and marketplace tax collection from $500,000 to $100,000, effective October 1, 2020 (Ch. 759 (S.B. 2932), Laws 2020)

Posted on July 2, 2020