News and Insights

Tennessee Adopts New Rule and Arizona Issues General Guidance on Nexus

Tax Development Oct 19, 2016

In recent legislation and an advisory ruling, the Arizona and Tennessee Departments of Revenue each addressed the topic of nexus. Please see below for further details.


A new economic nexus rule has been implemented by the state of Tennessee and is scheduled to go into effect on March 1, 2017. This new rule establishes that out-of-state dealers are required to register and collect and remit Tennessee sales and use taxes if they have substantial nexus with the state. Under this new rule, substantial nexus is established through the regular and systematic solicitation of sales from Tennessee customers that result in more than $500,000 during the previous 12-month period in sales to Tennessee residents. Such dealers must register by March 1, 2017 and begin collecting and remitting sales and use taxes beginning July 1, 2017. If a dealer meets the $500,000 threshold after March 1, 2017, they must register and begin collecting and remitting tax within 90 days of meeting the threshold. However, such dealers will not need to collect for tax periods prior to July 1, 2017. Further details can be found in Tennessee Rule 1320-05-01.129.


The Department issued an advisory ruling on nexus for out-of-state businesses. Absent the existence of physical presence, an out-of-state business may still have nexus for purposes of Arizona Transaction Privilege Tax if their activity in the state falls within one of Arizona’s taxable business classifications, and they have substantial nexus. Substantial nexus is determined based on the following factors: 1) type of activities performed in the state, and 2) how often or how long the activity occurs. Activities that may establish nexus include, but are not limited to:

  • Having an employee present in Arizona for more than two days per year
  • Maintaining an office or other place of business in Arizona
  • Maintaining an inventory of products in Arizona
  • Having an independent contractor or other non-employee representative/agent present in Arizona for more than two days a year, who acts on the business’s behalf to promote the business’s commercial interests.

Additional examples of substantial nexus creating activities can be found in Arizona Transaction Privilege Tax Ruling TPR 16-1.