Tennessee Enacts Sales Tax Collection Agreement With Amazon

On March 23, Tennessee Governor Bill Haslam signed legislation providing that Amazon will collect sales tax on purchases by Tennessee customers beginning on the earlier of January 1, 2014 or the effective date of federal legislation that authorizes states to require remote vendors to collect sales tax.1 This legislation codifies an agreement with Amazon that Governor Haslam announced on October 6, 2011.2 Under the agreement, Amazon receives a temporary exemption from collecting sales tax provided its affiliates make a significant capital investment and create 3,500 jobs in the state. The legislation requires that Amazon notify customers of their obligation to remit use tax to the state.

Temporary Exemption

Amazon and many other states have engaged in longstanding, contentious debate over whether the physical presence of Amazon's affiliates in states in which Amazon itself does not have a physical presence nonetheless causes Amazon to have sales tax nexus. As a temporary resolution to this question in Tennessee, the legislation adds a new statute providing a temporary sales tax exemption for a "person" that satisfies very specific requirements. Amazon is the only "person" that is likely to satisfy the requirements contained in the legislation.3 The activities of a person's affiliates in Tennessee, including, but not limited to, the sale of tangible personal property for resale to a person for delivery to the person's customers in Tennessee and outside the state, fulfillment services and any other non2retail activities will not be considered in determining whether the person has a physical presence in Tennessee sufficient to establish sales tax nexus.4

The temporary exemption does not apply to an affiliate that operates a retail store or kiosk in Tennessee on behalf of the person where customers make purchases, return or exchange items or place orders of tangible personal property.5 Also, the temporary exemption does not apply to an affiliate that uses, whether by direct employment or on a contract basis, personnel in Tennessee to solicit sales of tangible personal property for the person.6 Under this provision, the activities of the person's affiliates in Tennessee are limited. Thus, the affiliates cannot engage in retail activities such as operating retail stores or employing sales personnel in the state.

A sale for resale of tangible personal property by a person and its affiliates that is covered by the legislation is not subject to any...