Tennessee Chancery Court Suspends Enforcement of “Economic Presence” Rule Pending Final Judgment in Ongoing Litigation Over its Constitutionality
On April 10, 2017, a Tennessee chancery court ordered Tennessee to suspend enforcement of Tenn. Comp. R. & Regs. 1320-05-01-.129, “pending the entry of a final judgment” in ongoing litigation over its constitutionality. Under Tenn. Comp. R. & Regs. 1320-05-01-.129(2), effective January 1, 2017, out-of-state dealers with no physical presence in Tennessee that engage in regular and systematic solicitation of consumers in Tennessee and that make sales exceeding $500,000 to consumers in Tennessee during the previous twelve-month period are generally deemed to have a “substantial nexus” with Tennessee.
Note that previous guidance issued by the Tennessee Department of Revenue (Department) had instructed out-of-state dealers with no physical presence in Tennessee but meeting these “economic presence” requirements under Tenn. Comp. R. & Regs. 1320-05-01-.129, to register with the Department for sales and use tax purposes by March 1, 2017, and begin collecting and remitting tax by July 1, 2017 [see State Tax Matters, February 3, 2017 for more details on this previously released guidance]. To this end, the Tennessee chancery court’s order does provide that out-of-state dealers subject to Tenn. Comp. R. & Regs. 1320-05-01-.129 are not precluded from voluntarily complying with the rule pending a final judgment in this ongoing litigation, and that while this action is pending, the Department may proceed with registration by and collection from sellers that voluntarily comply with the rule’s requirements.
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