Tennessee Proposed Regulation Takes Aim at Quill

Add Tennessee to the list of states that have attacked the nexus requirement under Quill¹. In mid-June, the Tennessee Department of Revenue (the Department) submitted a new sales and use tax regulation for publication, Rule 1320-06-01-.129, which adopts an economic nexus for sales tax reporting. 

As discussed in recent posts, South Dakota and Alabama are in litigation with taxpayers to determine whether their economic nexus standards are sufficient to satisfy the commerce clause, substantial nexus requirement, as established under Quill. It is likely that if this Tennessee regulation is adopted, then litigation will follow as a result. 

Under Tennessee’s new regulation, out of state sellers or remote sellers who engage in regular or systematic solicitation of consumers in Tennessee through any means, and make sales exceeding $500,000 to Tennessee consumers have substantial nexus with the state. 

If an out of state seller or remote seller meets the requirements under the Tennessee regulation, the seller must register with the Department by January 1, 2017.  Furthermore, the seller must start collecting and remitting Tennessee sales tax from Tennessee consumers beginning July 1, 2017, unless a later date is established by the Department. 

What is next? A public hearing on the proposed regulation has been scheduled for August 8, 2016. After the hearing, the Department may, pursuant to Tennessee law, promulgate a regulation based on the hearing. Such regulation would become effective 90 days after it is filed with the Tennessee Secretary of State. The Department expects the regulation to be effective no later than January 1, 2017. 

If the regulation goes through, taxpayers will need to review whether or not they meet the requirements outlined. Weaver will continue to monitor this development.

For questions about this regulation or other state and local tax matters, please contact us.

1. Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992).