Effective July 1, 2015 the state of Tennessee began imposing its new law that out-of-state retailers are presumed to have nexus in Tennessee and must collect tax, if the retailer pays a Tennessee based party a fee or commission to route customers to the retailer’s website. The law creates a presumption that nexus exists in Tennessee when:
- The dealer inters into an agreement with one or more Tennessee persons where the agreement requires the person to refer potential customers to the dealer by a web link or some other internet method, and
- The cumulative gross receipts received from Tennessee customers as a result of the referrals is more than $10,000 during the preceding 12 months.
If these two tests are met, the retailer is deemed to have nexus in Tennessee unless it can prove otherwise by providing “clear and convincing” evidence that the click through agreement did not contribute to the sales generated in Tennessee. In other words, you are presumed guilty until you can prove yourself innocent!
The Tennessee statute is similar to that of Connecticut. While the statute provides a ‘rebuttable presumption, the law does not provide any standard or guide as to what evidence will meet this test. Without a standard, the decision will be left to the courts to interpret which can lead to a wide range of decisions that may lead to inequitable treatment of taxpayers. With this sort of process, the “rebuttable” presumption can quickly become an “ir-rebuttable” presumption.
Because this is a signed piece of legislation, internet retailers that meet these tests and fail to comply with the law, could be at risk. If your company has a click through relationship with a Tennessee company, you would be well served to evaluate the value of that relationship and what impact the relationship will have on your obligation to collect tax on all of the Tennessee sales you make.