On June 30, 2020, Tennessee Gov. Bill Lee signed Senate Bill 2932, lowering the state’s economic sales tax nexus sales threshold for remote sellers and marketplace facilitators from $500,000 to $100,000. The revised threshold is effective Oct. 1, 2020.
Tennessee was one of the earliest states to address economic sales tax nexus by promulgating a $500,000 sales threshold rule in 2016. However, that rule was stayed from enforcement due to litigation brought in Tennessee and then because of the South Dakota v. Wayfair case. The rule was finally enforced on Oct. 1, 2019. Marketplace facilitator nexus was also enacted this year and effective on Oct. 1, 2020.
The new $100,000 sales threshold is calculated by sales to consumers in Tennessee during the previous 12-month period. The law specifically states that the threshold applies only to the sales tax collection responsibilities of remote sellers and marketplace facilitators and does not change the substantial nexus criteria for business, excise or franchise taxes. In addition to physical presence, the Tennessee business tax and the corporate income tax also use various economic nexus standards.
Tennessee is one of a few states that have lowered an economic sales tax nexus threshold. Arizona lowered its single sales threshold in 2020 from $200,000 to $150,000 and is further scheduled to lower the threshold to $100,000 in 2021. Last year, Connecticut lowered its threshold from $250,000 to $100,000 in sales, but that law also requires remote vendors make 200 transactions into the state.
There are two important considerations for all businesses directly selling into, or acting as a facilitator for sales in, Tennessee. First, the lower sales tax threshold will require more remote vendors and facilitators to register, collect and remit sales taxes. All businesses should be aware of their total sales into Tennessee and their potential new collection responsibilities. Second, Tennessee enacted the new nexus standards to raise money as a result of the COVID-19 pandemic. The revenue estimators calculated that the new law will raise about $45 million in state and local sales tax revenue by 2022. This may be viewed by the half-dozen other states that have economic nexus sales thresholds greater than $100,000 as a relatively easy way to raise additional revenue.
A number of the 44 states enforcing economic sales tax nexus have revised thresholds over the past year. California, Colorado, Iowa, Massachusetts, North Dakota and Washington have eliminated the transaction component of the threshold. California and New York have raised the sales threshold. Other than Kansas, which issued an economic sales tax nexus policy without any thresholds, no state has lowered its sales threshold below $100,000.
For more information on the status of remote seller nexus, please read RSM’s article, Wayfair nexus settles in after two years, but questions remain. Additional multistate nexus information and developments are available on RSM’s nexus portal.