A Guide to Tennessee’s Sales Tax on Online Purchases

Tennessee has implemented specific sales tax regulations that affect online purchases. As e-commerce continues to grow, it's essential for consumers and businesses to understand how these laws apply to online transactions. This guide provides an overview of Tennessee’s sales tax on online purchases, helping you navigate the complexities.

Understanding Sales Tax in Tennessee
In Tennessee, sales tax is levied on the sale of tangible personal property and certain services. The current state sales tax rate is 7%, but local jurisdictions can impose additional taxes. This means that the total sales tax rate can vary depending on the county or city where the purchase is made, often reaching up to 9.75% in some areas.

Remote Sellers and Nexus
The concept of "nexus" is crucial for determining whether an online seller must collect and remit sales tax. In Tennessee, a remote seller must collect sales tax if they have a physical presence in the state or meet specific economic thresholds. As of July 2021, remote sellers are required to collect sales tax if they make more than $100,000 in gross sales or conduct more than 200 transactions in the state during the previous 12 months. This legislation aims to level the playing field between local businesses and online retailers.

Tax-Exempt Purchases
Certain items are exempt from sales tax in Tennessee. These include food and food ingredients, certain prescription medications, and specific medical devices. Additionally, some purchases made by qualifying non-profits or government entities may also be tax-exempt. However, it's essential to verify the specific exemptions to avoid potential tax liabilities.

How Online Sellers Collect Sales Tax
For online sellers who are required to collect sales tax, the process typically involves adding the appropriate tax rate at checkout. Online platforms such as Shopify and WooCommerce provide built-in tools to automatically calculate and apply sales tax based on the buyer’s shipping address. Sellers should ensure that their systems are regularly updated to reflect any changes in tax rates or laws.

Filing and Remitting Sales Tax
Once sales tax is collected, sellers must remit it to the Tennessee Department of Revenue. This process typically involves filing sales tax returns, which can be done electronically. The frequency of the filings – whether monthly, quarterly, or annually – depends on the volume of taxable sales the seller conducts. It's crucial for businesses to keep accurate records of all transactions and sales tax collected to remain compliant with Tennessee's tax laws.

Consumer Responsibilities
Consumers purchasing goods online should be aware of their responsibility regarding use tax. If a seller does not collect sales tax on a purchase, the buyer is legally responsible for reporting and paying use tax, which is equivalent to the sales tax rate. This applies particularly to individuals buying online from out-of-state sellers who do not have a nexus in Tennessee. Failure to pay use tax can result in penalties, so consumers should stay informed about their obligations.

Conclusion
Tennessee’s sales tax on online purchases is shaped by both state and local regulations. Understanding the details of sales tax, including nexus, exemptions, and tax remittance, is essential for both sellers and consumers. By staying informed, you can ensure compliance and make more informed purchasing decisions in the expanding world of e-commerce.