Tennessee joined Alabama and South Dakota in adopting a tax rule aimed in subjecting online retailers in Tennessee to the burden of collecting and paying over sales tax on sales to customers in the Volunteer State.
Some people call these new state revenue rules “Amazon rules,” since Amazon is the 500-lb gorilla in the online retail world.
Ever since the U.S. Supreme Court decided the Quill case in 1992, the law has been clear that an online retailer is only subject to a particular state’s sales tax regime if the online retailer has a physical presence in the state. Since 1992, then, the challenge has been whether one can find a physical presence to establish sales tax nexus. Physical presence has been found, for example, if an online retailer engages the services of independent affiliate marketers who promote the out-of-state retailer on the websites of the in-state affiliate marketers.
And, it is true that Amazon has a physical presences in a number of states (including Tennessee; so perhaps, the new Tennessee rule should not be called an Amazon rule in Tennessee), so that it is already subject to the requirement to collect and pay over sales tax in those states.
But what about other online retailers who operate a retail website and have ZERO physical presence in Tennessee?
Under the Quill decision, an online retailer who is totally out-of-state and has no physical presence in Tennessee could not be constitutionally required to collect and pay over Tennessee sales tax.
So, what’s up with the new Tennessee Department of Revenue Rule (it is Rule 1320-05-01-.129, and you can find a copy of it here.