On May 21, 2019, Tennessee Governor Bill Lee signed into law H.B. 667 (bill),¹ which allows the state's economic nexus regulation for remote dealers to become effective.

Following enactment of the bill, the Tennessee Department of Revenue (Department) announced that remote dealers that have no physical presence in Tennessee, but make sales exceeding $500,000 to Tennessee consumers during the previous 12 months, must register and begin collecting Tennessee sales and use tax.² In general, a remote dealer must register and begin collecting tax on the first day of the third month following the month in which it meets the threshold. The initial measurement date for the sales threshold is July 1, 2019, and remote seller's that have sales as of that date that exceed the threshold amount for the prior 12-month period must begin collecting on October 1, 2019.

The Department noted that remote dealers that do not meet the threshold can voluntarily register and collect sales and use tax. In determining whether the threshold has been met, remote dealers should include all retail sales (including exempt retail sales) but exclude sales for resale.

The Department also provided guidance on reporting requirements for Tennessee local sales tax. The state's local sales tax reporting requirements also will change beginning October 1, 2019, at which time remote dealers will be required to report their sales tax based on the shipped to (or delivered to) address of the customer.³ While remote dealers may continue to have one location ID for reporting all sales into Tennessee, remote dealers will need to report sales by the shipped to or delivery destination in the local tax schedule on their Tennessee sales tax return.

Further, remote dealers will no longer be able to use the uniform local rate option and instead will have to apply the specific rate in effect for the city or county to which the sale was shipped/delivered. EY has become aware that the Department has contacted some remote dealers about this change. Reporting provisions for in-state dealers have not changed.

Implications

Any business that makes remote sales to Tennessee customers but lacks an in-state physical presence should review its sales data to determine whether it has made the requisite dollar volume of sales and thus, will have a registration, collection, and filing obligation in the state beginning October 1. When appropriate, both for current and prospective registrant/filers, internal systems and processes should be evaluated and updated to account for the new Tennessee state and local level tax collections and rate determinations, as use of the uniform local rate will no longer be an option after that date.

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ENDNOTES

¹ Tenn. Laws 2019, Pub. Ch. 429 (H.B. 667), signed by the governor on May 21, 2019.

² Tenn. Dept. of Rev., Notice #19-04 (June 2019).

³ Tenn. Dept. of Rev., Notice #19-05 (June 2019).