Tennessee Expands Sales Tax Nexus Net to Capture more Companies
Effective March 1, 2017, Tennessee will require out-of-state companies who engage in the regular or systematic solicitation of Tennessee consumers in any way and make sales of over $500,000 to Tennessee consumers during the previous twelve (12) months to register for Tennessee sales and use tax purposes (see Rule 1320-05-01-.129).
This standard, which is similar to Ohio’s commercial activity tax “bright-line presence” nexus standard, provides that a business only needs to have an economic presence in Tennessee to be required to collect Tennessee sales and use tax. Such a standard specifically contradicts the finding in Quill Corporation v. North Dakota, 504 US 298, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992), which requires a substantial nexus or “physical presence” to create a collection responsibilty for sales tax purposes. It will be interesting to see if the new nexus rule will be challenged in light of Quill. Based on the Department of Revenue’s (Department) responses to public comments, the Department believes the rule is permissible under the Commerce Clause.
Businesses are required to be registered in Tennessee by March 1, 2017 and then begin collecting and remitting sales and use taxes by July 1, 2017, unless a later date is established by the Department.
Tennessee is joining other states that are attempting to work around Quill, whether by statute or regulation, to expand the nexus net to require out-of-state businesses to collect sales or use tax from purchasers. For example, Ohio amended its Nexus Information Release ST 2001-01 in August clarifying which activities require a filing requirement for out-of-state businesses selling into Ohio (see SALT Buzz: Guidance Issued on Broader Seller Nexus Presumptions, October 15, 2016).
A business should be aware of all of the activities it performs in the states in which it makes sales, including activities performed on behalf of the business by third parties (sales solicitation, warranty service, etc.). As states become more aggressive in attempting to capture businesses not collecting sales taxes, businesses can protect themselves from huge sales or use tax assessments by analyzing these activities. Our professionals have extensive experience in performing nexus reviews and conducting voluntary disclosures to help businesses avoid or minimize any potential liability.