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Tennessee, Online Retailers, and Sales Tax Collection

  • Jan 16, 2014 | Gail Cole

 Tennessee Department of Revenue answers Internet sales tax questions.

The Tennessee Department of Revenue is being bombarded with questions. The media apparently wants to know “about certain online retailers and sales and use tax collection.” Hmm, does this have anything to do with the fact that Amazon.com began collecting sales tax in Tennessee on January 1 of this year?

Probably, but the Tennessee Department of Revenue won’t confirm. The department has issued a statement reminding that it is prohibited “from commenting on the activities of individual taxpayers” due to Tennessee state law.

However, Tennessee DOR can provide a list of common questions and answers about sales and use tax collections. While this information “may be useful to the media" (and taxpayers), it does “not address the application of the laws to any particular retailer or consumer.”

6 FAQS about Tennessee sales and use tax, out-of-state businesses, and what-not

The following questions and answers are taken from the Tennessee Department of Revenue’s Statement about Online Retailers and Sales Tax Collection:

  1. What is the general rule for when an out-of-state business, like an online retailer, has to collect sales or use tax from consumers in Tennessee? Businesses that have nexus in Tennessee are required to collect sales tax. Nexus “may be established by having employees or agents in the state, owning or leasing tangible personal property in the state,… [or] if an affiliated company conducts certain activities in the state for the out-of-state retailer.”
  2. Are purchases made from Internet retailers tax-free, if the Internet retailer does not collect sales tax? No, use tax is owed on purchases when sales tax is not collected at the time of sale.
  3. How does a law Tennessee legislators approved in 2012 provide an exception to the general rule for sales and use tax collection? Under the 2012 law, taxpayers meeting certain job-creating or capital investment criteria are not required to collect sales tax. However, they are required “to notify Tennessee customers each year that use tax may be owed on items they bought….” Provisions of the 2012 law were repealed on January 1, 2014, and now “qualifying taxpayers” are required to collect state and local sales tax.
  4. Does this mean that consumers didn’t have to pay any tax on items they bought from taxpayers who met the qualifications of the 2012 law? Nope. Remember that use tax!
  5. If the U.S. Congress does not pass the Marketplace Fairness Act or similar legislation prior to January 1, 2014, does this mean taxpayers who meet the qualifications of the 2012 law must start collecting sales tax January 1, 2014? “Yes, taxpayers who qualify under the 2012 law” were required to “start collecting Tennessee state and local sales tax beginning January 1, 2014.”
  6. How much money does the state expect to collect from qualifying taxpayers that should start collecting state sales tax on January 1, 2014? For the last six months of fiscal year 2013-2014, state and local sales tax is expected increase by $12,483,000. The state and local sales tax revenue increase for subsequent years is expected to be approximately $14,966,000.

Hats off to the Tennessee Department of Revenue! The Statement About Online Retailers and Sales Tax Collection is clear, concise, and informative.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.