Sales Tax Obligations of Sellers in Tennessee

April 13, 2006

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Tennessee imposes various requirements on sellers doing business in the state. We recommend that you go through the items below to help you with the most frequently asked questions concerning sellers and sales and use tax issues.

Procedure for accepting resale certificates. The Commissioner may revoke your registration certificate and assess the sales or use tax on you if you knew or should have known, that the merchandise obtained with the certificate was not the sort normally sold by the purchaser in the usual course of business and eligible for the resale exemption. In Tennessee, exemption certificates from your customers should include the following information:

the signature of the purchaser
the purchaser's name and address
the sales tax license number of the purchaser
a description of the types of tangible personal property and services being purchased for resale

Procedure for accepting blanket certificates. As a seller you may accept a blanket certificate if your customer repeatedly purchases the same type of property or service for processing or resale. The Tennessee Blanket Certificate of Resale that includes the information noted above for a resale certificate is used by purchasers to claim the resale exemption.

Sales and use tax liability for out-of-state mail order and catalogue retailers. You will be responsible for paying sales tax only if you have physical presence within Tennessee. To determine if you have physical presence, ask yourself the following:

Do I have retail facilities, a warehouse, or any office space in Tennessee? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
Do my employees or I enter Tennessee for purposes of taking and transmitting orders from Tennessee? If your employee or independent contractor goes into Tennessee to take or transmit orders, your business may have physical presence in Tennessee. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
Do my delivery vehicles frequently enter Tennessee for purposes of delivering property? Frequent deliveries in Tennessee by your trucks will give you physical presence in Tennessee.

Sales tax "bracket system." Sellers are required to collect the tax according to a bracket system. Under the system, no tax is collected on a sale of less than 11 cents. Contact the state of Tennessee for your appropriate bracket.

Absorbing the tax — using a "no sales tax" advertising strategy to drum up business. In Tennessee it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.

Claiming refund for excess tax payments. If your customer returns property after the sales or use tax has been paid, you may deduct the sale price from the gross proceeds shown on the report for the current month. If a mistake is made on the sales tax report The Commissioner of Revenue will refund a qualified claim up to three years from December 31 of the year in which the tax was paid.