Tennessee Issues Update After Supreme Court’s Wayfair Decision

The Tennessee Department of Revenue recently issued a special notice that provides additional guidance regarding how Tennessee is reacting to the recent South Dakota vs. Wayfair U.S. Supreme Court decision.  Here is a brief summary of the notice:

  • There is no current change in Tennessee’s application of sales tax to sales made into Tennessee by out-of-state vendors with no physical presence in Tennessee.
  • Notification will be made regarding the effective date the change will take place.
  • Even though Tennessee has already passed a law establishing an “economic nexus” rule that aligns with the Supreme Court decision, the law has been prohibited from being enforced by the legislature until the Department fully reviews the Supreme Court Ruling and decides how to proceed.
  • At some point, this application will change to align with the Supreme Court ruling and Tennessee’s economic nexus law.
  • Taxpayers are encouraged to voluntary comply with the new decision and Tennessee’s law and for such taxpayers to begin charging and collection Tennessee sales tax.

The good news is the notice indicates that when the rule does eventually go into effect in Tennessee, there will be no retroactivity.  When the new date is announced, there will be no assessment by the Department of Revenue on that basis prior to that date.

To read the Department of Revenue’s Special Notice #18-11, please click here.

In the Notice #18-11, there is also an opportunity to sign up to receive notification when the Department does issue the effective date of the changes.

The State and Local Tax group at Crosslin stands ready to assist you in understanding the ramifications and putting into place a strategy to be in compliance with these potential changes for your business.     Please feel free SALT Director Mark Loftis at 615-320-5500 ext. 472 or mark.loftis@crosslinpc.com.  As always, we appreciate your business!

U.S. Supreme Court Opens Door for Online Sales Tax

In a 5-4 decision, the U.S. Supreme Court yesterday overturned decades of legal precedent and opened the door for states to require online retailers (even with no physical presence within a state) to collect sales tax on sales in a state.   The law of the land for many years has been that in order for a state to impose its tax on such sales, the retailer must have a substantial connection or physical presence in that state.  The last time the Supreme Court ruled and upheld that position was in the 1992 Quill Corporation vs. North Dakota decision, which regarded mail order sales. This was well before the advancement of technology and the explosion of sales over the internet that we have witnessed over the years. 
States have estimated that in recent years they have lost more than $30 billion annually in uncollected tax on such sales. Businesses have argued that having to comply with the complexity to keep up with the laws and compliance requirements of each state was an undue burden on business and could potentially negatively impact this growing part of our economy.  Some businesses also realized the competitive disadvantage “brick and mortar” taxpayers have compared to online retailers who, to date, were not required to collect sales tax.  This decision in many ways levels the playing field. 
The big concern has been for small to medium online retailers who may not have the resources necessary to comply with these tax collection requirements in multiple states.   While there will likely be some safe harbor rules exempting smaller online retailers from these requirements, it is possible that some businesses which do not fall within the safe harbor will have to make some tough decisions on whether to attempt to comply or simply not do business in the same way. 
There are more than 30 states that have already passed requirements taxing internet sales and they are eager to implement and realize this lost tax revenue.   With today’s ruling, these states will be making decisions on their specific laws and it will be interesting to see how they attempt to comply and impose these requirements.
The state and local tax group (SALT) here at Crosslin stands ready to assist you with complying to these new requirements as they become evident or any other state and local tax need you may have.   Please contact SALT Director Mark Loftis (mark.loftis@crosslinpc.com or 615-320-5500) with any questions you may have.  As always, we appreciate your business!

Online Retailing in the Hands of the U.S. Supreme Court -Small/Mid-Size Online Retailers May be Greatly Impacted

On April 17, the U.S. Supreme Court heard oral arguments in the South Dakota vs. Wayfair case.    The decision in this case, which is expected in June, could change online retailing as we know it.  The current law of the land, based on decades of various court decisions (primarily the 1992 Supreme Court decision in Quill vs. North Dakota), is generally that “physical presence” is required in a state before that state government can impose on a seller its requirement to collect and report state’s sales tax.

For decades, companies physically located outside of a state making sales by mail order or online into that state have not been required to collect that state’s sales tax.   States for years have objected due to the lost tax revenue to their states, which is estimated collectively over $30 billion annually, and have searched for ways to collect this tax.   Some “brick and mortar” in-state retailers have also objected that such sales by out-of-state online retailers have put them at a competitive disadvantage by not requiring them to charge the same sales tax.    On the contrary, if businesses are required to charge this tax by the out-of-state online retailer, this could put an undue compliance burden on businesses, especially the smaller to mid-size online retailers.  Additionally, consumers have also become accustomed to not paying sales tax on such purchases. Some would argue that this could be considered a “tax increase.”

Although the outcome is still unknown, many expect that the Supreme Court will reverse “Quill” and will allow states to impose its tax on online retailers, despite their physical presence.   One of the large concerns is the impact on small to mid-size online retailers who sell and ship products into states where they have no physical presence. Assuming they have enough sales above the minimum standard amount, this change would require them to abide by the current tax rates, charge, collect, and remit the correct sales tax in every state where it ships its product.  There are currently about 10,000 different state and local taxing jurisdictions with differing and changing rates, which makes it even more complex for these businesses to stay in compliance.  For these small to mid-size companies, these new requirements may cause significant burden and will likely force many businesses to make difficult decisions. While there is software available, at an additional cost, to help these companies comply, small to mid-size online retailers will have to decide to continue with their current business model or limit their sales into certain jurisdictions.

The State and Local Tax group at Crosslin stands ready to assist you in understanding the ramifications of this case. We will help you by putting into place a strategy to be in compliance with these potential changes for your business. Please contact State and Local Tax Director Mark Loftis (mark.loftis@crosslinpc.com or 615-320-5500) with any questions you may have.

New State and Local Tax Video

State and Local Tax Director Mark Loftis explains how SALT services can help you and your company, including areas such as credits and incentives, incoming franchise tax, sales and use tax, business tax, and property tax.  Check out the new video at this link.