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Tennessee delays implementation of sales and use tax provisions


 Tennessee still has work to do before it can become a full member of SSUTA.

The Streamlined Sales and Use Tax Agreement (SSUTA) was created in March 2000 to “simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance.” Tennessee has been an associate member of the SSUTA since October 1, 2005, and must fully conform to the SSUTA before it can become a full member. To date, it does not.

Yet Tennessee has petitioned for full membership, and in 2008 and 2009, the Tennessee Legislature enacted legislation to bring the state closer to fully conforming with SSUTA. Since then, however, the only movement regarding SSUTA has been to delay the implementation of any additional changes needed to fully comply with it.

Numerous changes that would bring Tennessee into compliance were initially scheduled to take effect July 1, 2015, but were pushed back to July 1, 2017. Now House Bill 318, enacted in early May, has further delayed the effective date of certain streamlined sales tax provisions. They will take effect July 1, 2019.

The changes that have been delayed include:

  • Changes to the single article limitation on local option sales taxes
  • Implementation of certain privilege taxes in lieu of sales tax
  • Requirements that sales delivered or shipped to the customer be sourced to the delivery or shipping destination
  • Use of a single sales and use tax return covering multiple dealer locations

See the Tennessee Department of Revenue for additional information.

Destination vs. origin sourcing

One of the most significant changes that must occur to enable Tennessee to be in compliance with the SSUTA is a switch from origin sourcing to destination sourcing.

Sales tax rates are determined by the location of the sale, which different states define differently. Many use destination-based sourcing, meaning the rate is based on the location of the buyer. If the buyer assumes ownership of a product at a brick-and-mortar store, the rate in effect at the location of the store applies. But if a package is delivered to a buyer’s house, the rate in effect at the house applies.

Other states, like Tennessee, use origin-based sourcing, meaning the rate in effect at the location of the retailer applies to all sales, no matter where ownership is transferred. To fully comply with the provisions of SSUTA, Tennessee must switch from origin-based sourcing to destination-based sourcing. The fact that the state is not yet prepared to make the change is a principle reason the change has been delayed.

Tennessee has reportedly taken steps toward acquiring destination sourcing software, bringing it one step closer to making the changes needed to comply with SSUTA. Is your business prepared?

Tax automation software facilitates sales and use tax compliance in all states. Learn more.

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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.