June 7, 2019
Atlanta based online businesses and remote sellers may soon be required to register, collect and remit sales tax to the Tennessee Department of Revenue. The need for companies to collect sales tax for these transactions was ushered in by the 2018 Supreme Court ruling in the South Dakota v Wayfair ruling. The Court changed the long-held guidance that a company needed to have a physical presence in a state before nexus (trigger for sales tax collection) was established. After the ruling, many states have implemented regulations similar to the one upheld in the case, including Texas, Alabama and North Carolina to name a few. On July 1, 2019, Tennessee will join the long list of states requiring out of state online retailers, meeting certain criteria, to collect sales tax on qualifying transactions with in-state customers. This new reporting obligation may impact many online Atlanta and Georgia companies with Tennessee customers. To help clients, prospects, and others, Wilson Lewis has provided a summary of key details below.
Background
Similar to most states, Tennessee had passed legislation requiring out of state sellers to collect sales tax on in-state sales where the amount exceeded $500,000 in transactions. Known as Rule 129, it was originally scheduled to go into effect on July 1, 2017, but since it involved remote sellers it was challenged and placed on hold. In fact, the regulations were so controversial that the state legislature got involved and expressly prohibited the Department of Revenue from enforcing the rules until a thorough review had been completed.
Sales Tax Collection Requirements
Earlier this year, the state passed legislation requiring the DOR to collect sales tax from out-of-state remote sellers beginning on July 1, 2019. The rule requires out-of-state sellers, who engage in the regular or systematic solicitation of Tennessee consumers, and make qualifying sales exceeding $500,000 during the previous 12-month period, to register and collect state sales tax. Qualifying transactions include the sale of tangible personal property or importation of such property into the state where sales or use tax has not been paid. It’s important to note that a company needs to be registered by the first day of the third month, following the month in which the company met the threshold. This means companies have a three-month window, once the minimum has been met to comply.
Frequently Asked Questions
To help businesses comply with the new regulations, the DOR has provided a list of FAQs to dispel any confusion, including:
Is registration necessary if sales are made wholesale and exceed the $500,000 threshold?
No. To determine whether the threshold has been met, a company must include all retail sales made to individuals, businesses, organizations and other purchasers (whether tax exempt or not) only. The regulation does not apply to wholesale transactions.
What happens if initially, my sales exceed the threshold but later, they drop below the minimum. Is the collection of sales tax still required?
No. Although encouraged to continue to collect sales tax as a convenience to customers, the business would no longer be required to collect the tax.
If my sales exceed the threshold in August or September, do I have to begin collecting tax on October 1, 2019?
No. The law states that a qualifying company has to begin collection on the first day of the third month after the threshold has been reached. This means if it was exceeded in August you would not be required to start collecting tax until November (or December respectively).
If my company satisfies the collection criteria, how do I register with the state?
Qualifying company may register online through the Tennessee Taxpayer Access Point (TNTAP) under Register a New Business. Registration is also possible through the Streamlined Sales Tax Registration System.
Contact Us
The sales tax collection requirements for online and remote sellers continue to increase in complexity. The lack of conformity between state laws makes it all the more difficult. If you have questions about the new Tennessee rules or need assistance with a tax planning or compliance issue, Wilson Lewis can help. For additional information please call us at 770-5476-1004 or click here to contact us. We look forward to speaking with you soon.