AVALARA, INC. Starting January 10, 2022, the Tennessee Department of Revenue is accepting exemption and resale certificates issued by other states. This should streamline sales and use tax compliance for businesses that use Tennessee drop shippers to expedite sales to Tennessee consumers.
The policy change results from the repeal of Tennessee's Sales and Use Tax Rule 96, which required Tennessee suppliers to collect Tennessee sales tax on products sold to out-of-state dealers unless such dealers provided a Tennessee resale certificate (or a Streamlined Sales Tax Agreement Certificate of Exemption with a Tennessee sales tax ID number). In other words, to make exempt purchases from Tennessee suppliers, remote businesses had to register with the Tennessee Department of Revenue.
Out-of-state sellers registered for sales tax in another state can now provide Tennessee suppliers with a resale certificate issued by their home state. Alternatively, they can provide a Streamlined Sales and Use Tax Agreement Certificate of Exemption containing another state's sales tax ID number.
Out-of-state businesses not registered for sales tax in any state can provide Tennessee suppliers with a Streamlined Sales and Use Tax Agreement Certificate of Exemption containing a tax ID number for any other tax type issued by its home state. This is perhaps most useful for businesses based in a state with no state sales tax: Alaska, Delaware, Montana, New Hampshire, or Oregon.
Foreign sellers can also use the Streamlined Sales and Use Tax Agreement Certificate of Exemption to make exempt purchases in Tennessee. A foreign seller not registered for sales tax in any U.S. state may provide a tax ID number issued by its home country.
Additional information is available in Department of Revenue Notice #22-01 (January 2022).
The new exemption certificate policy affects marketplace sellers the same way it affects direct sellers.
When purchasing products to resell through a marketplace facilitator, an out-of-state marketplace seller now may provide Tennessee suppliers with a resale certificate issued by another state or a Streamlined Sales and Use Tax Agreement Certificate of Exemption containing another state's sales tax ID number. Marketplace sellers not registered for sales tax in any state may use a Streamlined Sales and Use Tax Agreement Certificate of Exemption that includes a tax ID number for another type of tax.
Accepting exemption certificates from other states brings Tennessee one step closer to full compliance with the Streamlined Sales and Use Tax Agreement (aka, Streamlined Sales Tax, or SST).
SST was created to reduce the burden and cost of sales tax compliance for all businesses, especially out-of-state businesses. Twenty-three states are full members of SST; Tennessee is an associate member.
To become a full member of SST, a state must have:
- A central, electronic registration system for sales and use tax
- Consumer privacy protection
- Simplified administration of exemptions
- Simplified state and local tax rates
- Simplified tax remittances and returns
- State administration of sales and use tax collections (no self-collecting local jurisdictions)
- Uniform state and local tax bases
- Uniform sourcing rules for all taxable transactions
- Uniform tax base definitions and rules
Requiring states to have a Tennessee exemption certificate (or a Tennessee tax ID number on an SST exemption certificate) doesn't comply with the requirement to "simplify administration of exemptions." Tennessee's new policy would therefore bring the state one step closer to obtaining full-member status.
Check out our sales tax exemption certificate survival guide for more tips on streamlining tax-exempt sales.
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Avalara Inc. published this content on 11 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 January 2022 22:17:05 UTC.
