TaxJar TN

TaxJar goes to bat for customers in Tennessee

by Dan Brockley

As a product manager for TaxJar’s AutoFile service, Walid Qabaha’s job is to make customers’ lives easier — to sift through the complexities of ever-changing regulations and to simplify compliance and filing. Recently, in pursuit of this goal, Walid found himself not just interpreting the rules for customers, but helping to get them changed.

In Tennessee, it’s been common in the past to have sales tax rate changes enacted midway through the tax period. This has been challenging for merchants, as they have collected sales tax based on the rate at the beginning of the period — but at the end of that period the-to remit on the new rate, regardless if their sales occurred before or after the tax rate change. However, previously, these changes have been limited enough in scope that TaxJar and customers have dealt with them on an ad-hoc basis without too much trouble.

In the middle of the tax period in Q2 2020, though, Tennessee enacted some fairly significant changes. The state updated the rates of multiple jurisdictions from 2% and 2.25% to 2.75%. Walid could see that these rate changes, as well as others later in the year, would have a big impact on customers who were filing quarterly and annual returns for 2020.

Walid contacted the Tennessee Department of Revenue to see what could be done — and they were happy to collaborate. At first, they proposed to split each period up into multiple sub-periods to account for the changes, but Walid knew that this would add complexity to the already onerous challenges of being sales tax compliant. He worked with the Tennessee tax representative to find a solution that would work for merchants as well as the state. It enabled merchants to use legacy sales tax rates through the full tax period, remitting the extra sales tax collected after the new rate was enacted as excess tax. Then, merchants would begin using the new rates at the start of the next filing period. 

This change not only saved considerable time and energy for those looking to be sales tax compliant in Tennessee, it saved significant revenue over the course of the period. Had this change not been made, businesses would have been required to pay for the tax raise out of pocket, because they had not charged their customers for it.

“We’re always looking out for our customers — and in this case, it wasn’t just about our customers, but everyone paying sales tax in Tennessee,” said Walid. “How the state was operating wasn’t sustainable. I feel fortunate that I was able to connect with folks over there who were very helpful, and we were able to come up with a solution that made sense.”

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