Threshold Criteria
Out-of-state dealers, despite lacking a physical presence in Tennessee, will now have tax obligations if their retail sales to Tennessee customers exceed $500,000 over the past year. This financial threshold is pivotal in determining the tax collection responsibilities for businesses.
Changing Landscape Post Wayfair
The post-Wayfair landscape has seen states adapting their own economic nexus policies in response to the monumental Supreme Court case’s decision. The Wayfair ruling eliminated the previous physical presence requirement and opened the door for states to implement their own criteria for tax collection.
Notice #19-04 and Notice #19-05
Tennessee’s recent issuance of Notice #19-04 and Notice #19-05 has marked the removal of the temporary hold on enforcing economic nexus thresholds. These notices have set the stage for the implementation of Rule 1320-05-01-.129 (Rule 129), a pivotal regulation in the tax framework.
The Implications of Rule 129
Rule 129 mandates that out-of-state dealers meeting the $500,000 retail sales threshold to Tennessee customers register and commence the collection of sales tax. However, certain exemptions and considerations come into play, such as the treatment of sales for resale and specific local tax rates.
Registration and Collection Process
As per Rule 129, affected companies must complete the registration process and initiate sales tax collection on the first day of the third month following their surpassing of the threshold. Notably, the rule will not be applied retroactively, ensuring that past periods are exempt from assessment.
Evolution Beyond Quill Corp. v. North Dakota
The legacy of the 1992 Supreme Court case Quill Corp. v. North Dakota, which limited states’ tax collection authority to entities with physical presence, has been reshaped by evolving e-commerce dynamics. The Wayfair v. South Dakota case marked a turning point, ushering in the era of economic nexus rules.
State Responses to Wayfair
States have been quick to respond to the Wayfair ruling by formulating their own economic nexus standards. Tennessee’s adoption of economic nexus regulations occurred in 2016, but legal proceedings delayed its implementation. The landscape shifted after the Wayfair decision solidified the authority of economic nexus rules.
The enforcement of economic nexus standards for sales and use tax in Tennessee represents a landmark transformation in the state’s tax landscape. The post-Wayfair environment has seen states assert their authority in tax collection, reshaping the dynamics of inter-state commerce and taxation. It is essential for businesses to stay informed and consult legal and tax advisors to navigate these changing regulations effectively.
If you have any questions or concerns regarding the upcoming changes in Tennessee’s economic nexus rules for sales and use tax, don’t hesitate to reach out. Jay Hancock, our seasoned tax expert, is here to provide you with insightful guidance and answers to your inquiries. Feel free to contact Jay Hancock at jay.hancock@lbmc.com to gain a better understanding of how these changes might impact your business and to ensure that you’re well-prepared for the evolving tax landscape. Your proactive approach today can save you time and resources tomorrow.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.
