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The Tennessee Department of Revenue Authorized to Enforce Sales Tax Economic Nexus Rule

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Effective July 1, 2019, any out-of-state dealer that exceeds $500,000 in sales during the prior 12 months and engages in regular or systematic solicitation of consumers in the state will be required to register, collect and remit Tennessee sales tax.

Background

On June 21, 2018, the United States Supreme Court in a 5-4 decision ruled in favor of South Dakota and its economic nexus provisions for sales tax collection, as part of the historic Wayfair decision (South Dakota v. Wayfair, Inc.). In so doing, the Court overturned its prior decision in Quill (Quill Corp. v. North Dakota), which required that a retailer have a physical presence in a state in order to be required to collect sales tax for sales into that state.

The South Dakota statute requires remote retailers with in-state sales exceeding $100,000 annually, or 200 separate transactions, to collect and remit sales tax. Other states enacted similar statutes establishing their own standards for sales thresholds triggering nexus.

The Tennessee Statute

Prior to Wayfair, the Tennessee Department of Revenue published a Revenue Ruling that expanded the sales tax collection requirements on retailers to include those engaged in “the regular or systematic solicitation” of Tennessee consumers; the ruling covered any solicitation through any means and established as its threshold sales exceeding $500,000 during the previous 12-month period. The initial enforcement date was July 1, 2017.

In response to the Revenue Ruling and legal challenges from taxpayers, the Tennessee Legislature enacted House Bill 261, which prohibited the Department of Revenue from enforcing the sales tax economic nexus rule until approved by the courts and legislative action.

On May 21, 2019, Tennessee Governor, Bill Lee, signed HB 667, authorizing the Department of Revenue to enforce the economic nexus law. Effective July 1, 2019, any out-of-state dealer that exceeds $500,000 in sales during the prior 12 months and engages in regular or systematic solicitation of consumers in the state will be required to register and collect Tennessee sales tax.

Marcum Observation

While many companies have consulted with their tax advisors with regard to the new sales tax economic nexus laws, not all companies may be keeping up-to-date with the continuing changes in the remaining states without an effective Wayfair rule. Tennessee is a unique case where a rule existed but was not enforceable. Taxpayers should evaluate their Tennessee sales to understand if they now have a collection responsibility in the state.

Please contact your Marcum State and Local Tax professional to address any questions regarding this case or any other tax matter.

 
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John Bonk, Senior Manager, Tax & Business

Senior Manager
Tax & Business
Miami, FL
 
 
 
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