Do you need to collect and remit sales tax in Tennessee?
Sales tax in Tennessee applies to most retail sales, as well as leasing or renting tangible personal property and selling certain taxable services, amusements, software, and digital products. Tangible personal property is a tax term to refer to physical items that can be owned or moved, such as furniture, clothing, tools, or vehicles. Most businesses located in Tennessee or having employees in the state will be required to collect and remit sales tax. Out-of-state retailers or online sellers who exceed specific sales thresholds will also have this responsibility. There are exemptions, however, which Tennessee divides into three categories: entity-based, product-based, and use-based.
- Entity-based: these exemptions are based on who the purchaser is or the type of activities the purchaser is involved in. For example, qualified farmers and qualified manufacturers can make tax-exempt purchases on certain items. These exemptions typically require an exemption certificate.
- Product-based: product-based exemptions are based on the product purchased. In Tennessee, gasoline, textbooks, school meals, and many healthcare products are not taxable to any purchaser.
- Use-based: this type of exemption applies to certain types of tangible personal property or services when put to a specific exempt use. Concrete is typically subject to sales tax unless it is purchased for an exempt construction project such as a dam. Use-based exemptions often require a special exemption certificate.
Do you have sales tax nexus in Tennessee?
Nexus is a very important term in the world of sales tax. It defines the significant connection that a business or seller has with a state and must be present before that state has the right to impose tax collection. There are two main types of nexus: physical and economic.
Physical sales tax nexus in Tennessee
Business located in Tennessee automatically have nexus with the state and must collect and remit sales tax, (with the exception of certain business activities or structures). Being in the state can be as simple as having a storefront, but there might be other less obvious markers of physical nexus. Here are some examples:
- Having employees, agents, or independent contractors soliciting sales in Tennessee.
- Using third parties located in Tennessee to conduct substantial business activities.
- Maintaining inventory in the state and using in-state independent contractors to fulfill retail sales of said inventory.
- Promotional activity in-state by employees or other company personnel.
- Participation in trade shows.
- Providing telecommunication services to subscribers in Tennessee.
Economic sales tax nexus in Tennessee
Economic nexus is a recent concept that emerged in 2019 due to the Supreme Court case South Dakota v. Wayfair. In the past, states were only allowed to impose taxes on businesses that had physical nexus. However, as e-commerce and online sales have grown, the Supreme Court decided to change the rules, allowing states to require out-of-state retailers to collect sales tax if they have a significant economic connection with the state.
This economic connection, or nexus, varies by state and is typically based on factors such as gross sales or transactions.
In Tennessee, economic nexus comes into play when a retailer’s sales within the state exceed $100,000 in the previous year. This includes all sales whether they are taxable or not. However, if an out-of-state retailer uses a marketplace facilitator that collects and remits sales tax for them, they should not count those sales when determining if they’ve reached the economic nexus threshold.
Are marketplace facilitators required to collect and remit sales tax in Tennessee?
In Tennessee, if a marketplace facilitator’s total sales exceed $100,000 in the previous year, they are responsible for collecting sales tax on behalf of sellers using their platform. As a result, remote retailers, (or marketplace sellers), do not need to collect, remit or be liable for sales and use tax when making sales through a registered facilitator. The facilitator is considered the seller for all products and services sold via their platform.
Marketplace sellers solely using registered facilitators have no sales tax responsibility. However, if a seller makes additional sales through other methods—such as their own website—they should calculate those sales separately to determine if they have economic nexus.
What platforms are marketplace facilitators?
What is a marketplace facilitator?
A marketplace facilitator, sometimes referred to as a Multivendor Marketplace Platform (MMP), is an online platform that allows customers to purchase goods or services from various vendors in one convenient location. These platforms can benefit businesses by increasing product visibility and attracting a larger customer base. Additionally, marketplace facilitators often have the legal responsibility to collect and remit sales tax on behalf of sellers, which can help ease the sales tax burden for businesses.
Filing Tennessee Sales Tax
So, you’ve determined that your business has sales tax nexus with Tennessee. Now it’s time to tackle the crucial steps needed to be in compliance with Tennessee’s sales tax laws.
Register for a Sales Tax Certificate
First and foremost, you’ll need to register for a sales tax certificate. This will allow you to collect sales tax from your customers and remit it to the state legally. This must be done online through TNTAP, the Tennessee Taxpayer Access Point.
You will need to have some necessary business information on hand, such as:
- Social Security Numbers (SSNs) or Federal Employer Identification Numbers (FEIN)
- Contact information of owners, officers, or partners
- Business entity type
Once you’ve successfully registered, you’ll receive a certificate, and it’s time to start collecting sales tax.
Electronic Submission of Sales and Use Tax Returns
Most Tennessee taxpayers are required to file sales tax returns monthly (we will explain this in more detail below). All Tennessee sales and use tax returns and payments must be completed online with a TNTAP account. These accounts are free and keep all your business tax obligations in one place, including past filings and payments.
Best Practices to Keep in Mind
- Recordkeeping: Maintain accurate and comprehensive records of all sales, purchases, and transactions for at least three years. These should include invoices, receipts, cash register tapes, and any other relevant documentation.
- Exemption Certificates: Collect and maintain proper exemption certificates from customers, ensuring they are accurate, complete, and up-to-date.
- File Regularly: Even if you have no tax due or gross sales to report, make sure to file your sales tax returns for every assigned period in a timely manner.
Let us file for you!
If you’re looking for help with a myriad of sales tax obligations, that’s why we’re here! We are a one-stop-shop for comprehensive sales tax services! Our range of services includes nexus determination, business registration, compliance reviews, audit assistance, and—of course—filing sales and use tax returns. If you don’t see what you need, just let us know and we’ll create a customized solution just for you. Visit our services page to learn more!
When are sales tax returns due in Tennessee?
The deadlines for filing sales tax returns in Tennessee vary based on your assigned filing frequency. Generally, taxpayers are required to file monthly. However, there are some exceptions that allow for less frequent filing, such as owing less than $1,000 in tax per month for 12 consecutive months. Annual returns are also permitted in Tennessee, but primarily for manufacturers, wholesalers, and marketplace sellers that exclusively transact through a facilitator.
Below, you’ll find the due dates for each filing frequency in Tennessee:
|Monthly Returns||Due by the 20th day of the following month|
|Quarterly Returns||Due four times a year. The reporting periods are:|
Q1: January 1st – March 31st
Q2: April 1st – June 30th
Q3: July 1st – September 30th
Q4: October 1st – December 31st
Each return for each quarter is due on the 20th day of the following month. For example, Q1 returns are due April 20th, Q2 returns by July 20th, and so on.
|Annual Returns||Due once per year on January 20th and cover the entire preceding year’s sales data and tax collected.|