Tennessee Economic Nexus Explained

By Tom WeissMarch 20, 2020

The Supreme Court case ruling of South Dakota v. Wayfair enabled states to start collecting sales tax from businesses who now qualify for significant presence in their state.

The former Nexus rule was defined through a physical presence in a state, which meant that you qualify for Nexus if you operate a brick and mortar store, employ staff, manage inventory in a fulfillment center, as well as certain other criteria for physical engagements in a state.

However, due to the South Dakota v. Wayfair ruling you are now required to legally obey to certain economic activities in a state as well. Those qualifying economic activities in a state are now referred to as Economic Nexus.

What are Economic Activities?

Simply put, if you pass a state’s economic threshold for total revenue and/or number of transactions in that state, you are now required to register, collect and remit sales tax for that state. It is important to understand that economic thresholds do vary by state, which can make things quite tricky if your business transacts across multiple states.

What are the Thresholds for Economic Nexus in Tennessee?

Revenue threshold: Gross sales exceeding $500,000 in the previous 12-month period

Of note, effective July 1, 2019, Tennessee enforces its economic nexus rules and collect sales and use tax from out-of-state sellers with more than $500,000 in sales into the state during the previous 12-month period. In addition, Tennessee imposes out-of-state dealers with no physical presence in Tennessee who meet the state’s economic nexus threshold as of July 31, 2019 to register and begin collecting Tennessee sales and use tax by October 1, 2019.

How do I Minimize my Exposure?

First, ensure you understand your Economic Nexus footprint.

EXEMPTAX offers a free Economic Nexus Test, which will provide you with quick and easy way to understand in which state you could potentially expose your business to sales tax.

Once you are aware of your Economic Nexus exposure, ensure to manage your tax exemption certificates correctly.

The best way to minimize your tax obligation is to ensure you collect and validate all of your tax exemption certificates accurately and renew them on time.

If your business qualifies for Economic Nexus in several states, you may want to consider partnering up with a tax service provider who provides you with an online platform to ensure you are prepared for your audit at all times.

Look out for the 5 essential features in a tax service provider:

  1. Preset validation rules ready for you to utilize
  2. Free archiving of your old paper certificates
  3. Restricted auditor access to speed up audits
  4. Real-time heat map exposure to gauge your risk
  5. Automated emails submission keep certificates up to date

Make sure you evaluate different providers and select a platform, which fits your business needs in terms of usability, cost and commitment. There is no need to spent tens of thousands of dollars per year or lock yourself into a multiyear contract.

EXEMPTAX provides you a full service platform offering all features to get you compliant with minimal effort. There is no training needed to get you started and no Account Manager to deal with and pay for.

Test drive a FREE PLAN without any obligation and start minimizing your audit risk immediately.

Sales tax rules and regulations change frequently. Although we hope you'll find this information helpful and informative, this blog is for informational purposes only and does not provide legal or tax advice.