Unlike our reports on Hawaii and California, Tennessee will not use economic presence criteria to impose its franchise and excise taxes. In the wake of the Supreme Court decision in South Dakota v. Wayfair Inc.,1 Tennessee adopted marketplace facilitator legislation, requiring the collection and remission of sales and use tax on behalf of third-party sellers, if facilitators met certain sales thresholds. The original sales threshold was $500,000, which was later lowered to $100,000.
Since the wave of similar Wayfair legislation upended the sales tax arena, several states have taken liberties in extending those sales tax nexus rules to other business and income and franchise taxes as well. Some states have been shifting to factor presence rules in business taxes to eliminate the physical presence requirement for nexus.
To clarify the state’s position on this topic, the Tennessee Department of Revenue recently posted on its website that the marketplace facilitator legislation does not affect the nexus requirements for business tax or franchise and excise tax. The requirements for marketplace facilitators and sellers, including the filing and threshold requirements established in Public Chapter 759 (2020) effective October 1, 2020, are applicable solely for sales and use tax purposes.
Although P.L. 86-272 still provides protection to businesses only soliciting sales of tangible personal property in a state, regardless of factor presence thresholds, the future status of this federal defense could be in jeopardy, following the path of Quill2 into extinction. Taxpayers should continue to monitor the changing nexus positions that states are creating in light of Wayfair. Ryan’s tax professionals will continue to monitor these events and advocate for our clients when the states’ positions conflict with either existing state tax laws or constitutional provisions.
1138 S. Ct. 2080 (2018).
2 Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
TECHNICAL INFORMATION CONTACTS:
Mark L. Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com
Mary Bernard
Director
Ryan
401.272.3363
mary.bernard@ryan.com
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