Tennessee: Marketplace facilitator legislation signed into law

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Detailed Tennessee Development

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Tennessee Senate Bill 2182, which was signed into law on April 1, 2020, imposes a sales and use tax collection obligation on a marketplace facilitator that facilitates sales of tangible personal property or taxable services to customers in Tennessee. The marketplace facilitator law and collection obligation become effective October 1, 2020. A collection obligation does not apply to a marketplace facilitator that has $500,000 or less in total sales to customers in Tennessee during the previous twelve month period. A “marketplace facilitator” is defined as a person, including any affiliate of the person, that for consideration contracts, or otherwise agrees with a marketplace seller to facilitate the sale of the marketplace seller's tangible personal property or things or services taxable through a physical or electronic marketplace operated, owned, or otherwise controlled by the person or the person's affiliate.  A marketplace facilitator (or its affiliate) must also directly or indirectly through contracts, agreements, or other arrangements with third parties, collect the payment from the purchaser and transmit payment to the marketplace seller.  The definition of a “marketplace facilitator” excludes persons exclusively providing advertising services, persons providing payment processing services only, derivatives clearing organizations, and delivery network companies. Note, however, a delivery network company may elect to be deemed a marketplace facilitator if it otherwise meets the definition. The Department of Revenue may waive the collection and remittance obligation if a marketplace facilitator establishes to the satisfaction of the Commissioner that “substantially all of the marketplace sellers for whom [it] facilitates sales are registered dealers.” The bill also permits a marketplace facilitator and marketplace seller to enter into a contractual arrangement whereby the marketplace seller remains responsible for collecting and remitting the applicable taxes. However, this exception applies only if the marketplace seller (or its affiliates) has annual gross sales in the U.S. of more than $1 billion; the marketplace seller provides evidence to the facilitator that it is registered in Tennessee; and the marketplace facilitator informs the Commissioner that the marketplace seller will be collecting and remitting the applicable taxes and will be liable for any failure to collect. Finally, Senate Bill 2182 provides that for sole purposes of the sales tax chapter, including registering with the department, a marketplace facilitator shall be considered the seller and retailer for each sale facilitated through its marketplace. This provision seems to imply that for other tax purposes (e.g., franchise and excise tax), the marketplace facilitator will not be considered the seller.  Please contact Loren Chumley at 615-579-0289 with questions.

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US