The Tennessee Department of Revenue (DOR) has issued a letter ruling stating that an online forum (taxpayer) that connects customers to Tennessee food sellers qualifies as a delivery network company that is not required to collect Tennessee sales and use tax on sales made through the online forum. The taxpayer collects the customer’s payment, including any applicable taxes, then transmits the order to the relevant seller for fulfillment. If the customer chooses to have the product delivered, either an employee of the seller delivers it or the taxpayer effects delivery from the seller’s location via a third-party contractor. The taxpayer processes payment and transmits the funds and any sales tax paid to the seller, minus a commission. The sellers contractually agree with the taxpayer that they will remit the Tennessee sales tax.
Tennessee enacted marketplace nexus legislation, effective October 1, 2020. However, the state’s definition of marketplace facilitator contains several exclusions, one of which is delivery network companies. The applicable tax law defines delivery network company as a “business entity that maintains an internet website or mobile application used to facilitate delivery services for the sale of local products.” Delivery services include the pickup of local products from a local merchant and delivery to a customer but do not include “any delivery requiring over fifty (50) miles of travel from the local merchant to the customer.” A local merchant includes a business such as a restaurant, kitchen, or grocery store “that is not under common ownership or control with the delivery network company.”
The taxpayer in this ruling would be considered a delivery network company not required to collect and remit sales and use tax on sales made through its forum so long as the deliveries it facilitates are within 50 miles of the sellers and the sellers are not under common ownership or control of the taxpayer.
The DOR states that if the taxpayer is a marketplace facilitator but is not considered a delivery network company because it has common ownership or control of the sellers or facilitates deliveries to customers more than 50 miles away from the sellers and desires to seek a waiver on collecting and remitting sales tax on sales made through its forum, it can request the waiver by demonstrating that substantially all of the marketplace sellers for whom it facilitates sales are registered dealers. To do so, the taxpayer should contact the DOR and request an application for “Request for Sales and Use Tax Collection Waiver Marketplace Facilitator or Marketplace Seller.” (Revenue Ruling 20-13, Tennessee Dept of Revenue, December 7, 2020)