Tennessee Enacts Marketplace Nexus Legislation

Effective October 1, 2020, Tennessee has enacted marketplace nexus legislation. When a marketplace seller uses a marketplace facilitator to facilitate sales of taxable tangible personal property or services, the marketplace facilitator is liable for the taxes imposed on the sales regardless of whether the marketplace seller has a sales tax certificate of registration or would have been required to collect sales or use taxes had the sale not been facilitated by the marketplace facilitator, unless:

• The marketplace facilitator made or facilitated total sales to consumers in Tennessee of $100,000 or less during the previous twelve-month period;
• The marketplace facilitator demonstrates, to the satisfaction of the commissioner, that substantially all of the marketplace sellers for whom the marketplace facilitator facilitates sales are registered dealers, in which case the commissioner is authorized to waive the requirements. If a waiver is granted to the marketplace facilitator, the marketplace sellers will be required to collect and remit tax on the sales; or
• The marketplace facilitator and the marketplace seller contractually agree that the marketplace seller will collect and remit the tax and the marketplace seller:
  • Has annual gross sales in the U.S. of over $1 billion, including the gross sales of any related entities, and in the case of franchised entities, including the combined sales of all franchisees of a single franchisor;
  • Provides evidence to the marketplace facilitator that it is registered to collect and remit tax in Tennessee; and
  • Notifies the commissioner in a manner prescribed by the commissioner that the marketplace seller will collect and remit all applicable taxes on its sales through the marketplace facilitator and is liable for failure to collect or remit applicable taxes on its sales.

A marketplace seller shall not be obligated to collect and remit or be liable for the taxes on any retail sale for which a marketplace facilitator has collected and remitted such tax.

A marketplace facilitator that collects and remits Tennessee sales and use tax shall collect taxes on sales through its marketplace based upon the address to which the tangible personal property is shipped. A marketplace facilitator shall report the tax on sales through its marketplace separately from any tax collected on sales made directly by the marketplace facilitator or affiliates of the marketplace facilitator.

A marketplace facilitator shall be relieved of liability for failure to collect and remit the correct amount of taxes to the extent that the error was due to incorrect or insufficient information given to the marketplace facilitator by the marketplace seller if the marketplace facilitator demonstrates that it made a reasonable effort to obtain correct and sufficient information from the marketplace seller.

No class action lawsuit may be brought against a marketplace facilitator in Tennessee on behalf of purchasers relating to overcollection of sale or use taxes by the marketplace facilitator, regardless of whether that claim is characterized as a tax refund claim.

A “marketplace facilitator” is defined as a person, including any affiliate of the person, that:

• For consideration, regardless of whether characterized as fees from the transaction, contracts, or otherwise, agrees with a marketplace seller to facilitate the sale of the marketplace seller’s taxable tangible personal property or services through a physical or electronic marketplace operated, owned, or otherwise controlled by the person or the person’s affiliate; and
• Either directly or indirectly through contracts, agreements, or other arrangements with third parties, collects the payment from the purchaser of the marketplace seller’s taxable property or services and transmits payment to the marketplace seller.

The term “marketplace facilitator” does not include:

• A person who exclusively provides advertising services, including listing products for sale, as long as the person does not also engage directly or indirectly through one or more affiliated persons in certain activities that are unrelated to advertising services;
• A person whose activity with respect to marketplace sales is limited to providing payment processing services between two or more parties; or
• A derivatives clearing organization, designated contract market, or foreign board of trade or swap execution facility that is registered with the Commodity Futures Trading Commission (CFTC registered platforms), or any clearing members, futures commission merchants, or brokers using the services of CFTC registered platforms; or
• A person that is a delivery network company, except that a delivery network company may elect to be deemed a marketplace facilitator.

(Ch. 646 (S.B. 2182), Laws 2020, effective October 1, 2020)

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)