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Tennessee Economic Nexus: Department of Revenue Rule Clears Hurdle

12/19/2016  |  By: Brian McCuller, JD, CPA, Shareholder, Practice Leader Tax


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Earlier this year, the Tennessee Department of Revenue proposed a new rule that would require out-of-state businesses to collect and remit sales tax even when the business lacks a “physical presence” in the state. The so-called “economic nexus” standard would impose sales tax collection requirements on businesses whose sales in Tennessee exceed $500,000 in a given year.

The proposed rule is one step closer to becoming a reality following a joint meeting of the Tennessee House and Senate Operations Committees on December 15th. A committee motion to reject the rule failed, which has paved the way for the rule’s automatic approval. The General Assembly could still decide to formally reject the rule during the 2017 session.

Tennessee’s proposed economic nexus rule directly contradicts the United States Supreme Court’s decision in the 1992 case Quill v. North Dakota. There, the Court upheld the physical presence nexus requirement for the imposition of sales tax collection on out-of-state sellers. However, dicta from a concurring opinion in a recent Supreme Court case may have signaled the Court’s potential willingness to revisit the Quill decision.

Tennessee appears ready to face the inevitable legal challenge to the proposed rule, with the ultimate goal of overturning the Quill decision. With the rule’s enactment, Tennessee would join Alabama and South Dakota in adopting similar economic nexus standards.

Tagged with: State and Local Tax