Sales Tax Law Changes in Tennessee

June 25, 2019 | Chris van der Merwe

With the release of notices #17-06, & #19-04 to #19-08, several changes are set to be applied to the Tennessee sales and use tax regulations. The Streamlined Sales Tax changes enumerated in notice #17-06 were to come into effect on July 1, 2019 but have been pushed back to July 1, 2021. Despite the delay, business professionals will do well to keep all of these changes on their radar to ensure a smooth transition process.

Destination Sourcing vs. Origin Sourcing

Probably one of the most significant #17-06 changes is the termination of the origin sourcing method and the adoption of destination sourcing. Origin sourcing selects a local sales tax rate to apply to a transaction based on the location of the merchant. In contrast, destination sourcing selects the local sales tax rate based on the physical location where ownership transfers. For businesses that engage in substantial online commerce, the adoption of destination sourcing will represent a major change in calculating sales tax collections.

Single Sales and Use Tax Return

Notice #17-06, will also allow businesses with multiple locations to file a single sales and use tax return. Each entity will have an ID for each location in Tennessee with a single Tennessee sales and use tax account using the FEIN or SSN as the account identifier. The objective is to simplify the process for entities as they will no longer have to file a return for each permanent location.

The change allowing for a single sales and use tax return will also affect out of state businesses. These entities will use a single location ID with their out of state address. However, notice #19-05 will require these businesses to use the destination sourcing method as of October 1, 2019 despite the delay of notice #17-06. The good news for the out-of-state merchants is that notice #19-04 will only require the collection of sales tax after an annual sales threshold of $500,000 is met. Careful note should be taken that sales for resale are not to be included in the calculation of the threshold balance, but retail sales and exempt retail sales should be included in the balance. Also, the out-of-state dealer must register and begin collecting and remitting sales tax on the first day of the third month following the month in which it meets the threshold.

Sales Tax Rate Decrease

Other minor changes to the Tennessee sales and use tax include notice #19-06, announcing the decision of Smith County voters to decrease their local sales tax rate to 2.00% starting July 1, 2019. Notice #19-07 notifies that dumpsters and waste containers will no longer be considered taxable leases under Public Chapter 483 provided that the provider of the waste container in question is solely responsible for delivery and pickup of the dumpster. Notice #19-08 is simply a confirmation of the postponement of all changed in notice #17-06.

Tennessee residents will be seeing multiple changes to the sales and use tax code take effect in the future. Some changes are naturally more complicated than others. With adequate preparation, businesses and individuals can be ready for the changes.

If you have any questions regarding these changes, please see a member of HHM’s state tax team.