Tennessee Economic Presence Rule on Hold

Tennessee: New Law Prohibits Enforcement of “Economic Presence” Administrative Rule For Sales and Use Tax Until Legislative Approval Received

H.B. 261, signed by gov. May 25, 2017 New law prohibits the Tennessee Department of Revenue from collecting any sales or use taxes authorized under Tenn. Comp. R. & Regs. 1320-05-01-.129(2) and permitted under a ruling of any court, until such court’s ruling has been fully reviewed and the rule has been approved by legislative action.

Under Tennessee's recently passed ruling (Tenn. Comp. R. & Regs. 1320-05-01-.129(2)), out-of-state businesses who have not satisfied the physical presence requirement (that do not have a physical presence in the State) in Tennessee and that engage in regular and systematic solicitation of consumers (end users) in Tennessee and that make sales exceeding $500,000 to consumers (end users) in Tennessee during the previous twelve-month period are generally deemed to have a “substantial nexus” with Tennessee, and as such are required to collect sales tax connected with those sales. 

Additionally, the Tennessee Department of Revenue recently issued a notice [Notice 17-12; see State Tax Matters, Issue 2017-23 for more details on this notice] explaining that pursuant to the April 10, 2017 agreed-upon order issued by a Tennessee chancery court which requires suspension of the enforcement of Tenn. Comp. R. & Regs. 1320-05-01-.129(2), out-of-state dealers are no longer required to collect and remit state sales and use tax as a result of Tenn. Comp. R. & Regs. 1320-05-01-.129(2) – highlighting that this agreed-upon order does not affect any requirement that might apply to collect state sales and use tax under any other provision of Tennessee law.