United States

Tennessee: New Rule Adopts Economic Nexus Standard for Out-of-State Dealers

Oct 17, 2016
From KPMG TaxWatch

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The Tennessee Department of Revenue recently approved a new rule that adopts an economic nexus standard for sales and use tax purposes. The rule applies to out-of-state dealers that engage in regular or systematic solicitation of Tennessee consumers by any means. Under the rule, if such dealers make sales exceeding $500,000 to Tennessee consumers during the calendar year, they are considered to have substantial nexus with the state. By March, 1, 2017, out-of-state dealers meeting these tests are required register with the Department of Revenue. They must begin collecting and remitting sales and use taxes by July 1, 2017. Dealers that meet the $500,000 threshold after March 1, 2017 are required to register and begin collecting and remitting by the first day of the third calendar month following the month in which the dealer met the threshold.

The rule is subject to review by committees in both houses of the Tennessee legislature, and legislative approval is required before the rule can become permanent. Given the potential for controversy over the rule, the ultimate outcome is a bit uncertain. Interestingly, in its response to the comments submitted on the rule, the Department stated it believes the rule is “permissible under the Commerce Clause” and that there is a “strong possibility” that the U.S. Supreme Court will distinguish or reconsider Quill. The Department also reminds taxpayers that, in lieu of collecting the local rate applicable to each jurisdiction, remote sellers have the option of collecting a single local rate of 2.25 percent, in addition to the 7.0 percent state rate, on all sales made to in-state customers. Please stay tuned to TWIST for future updates on the Tennessee rule and the efforts to overturn Quill.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.