A Tennessee Ruling Puts a Spotlight on the Sales Taxability of Marketplace Facilitators

July 29, 2021

Tennessee State Capitol Building

By: Tina Chunn, SALT Senior Manager

At a glance:

  • The main takeaway: Though they haven’t received as much press as economic nexus rules, many states have recently enacted sales tax collection rules for marketplace facilitators like Amazon.
  • Impact on your business: A recent ruling out of Tennessee sheds additional light on how to determine if your online sales platform makes you a marketplace facilitator.
  • Next steps: If you have questions about your own sales taxability, get in touch with Aprio’s State and Local Tax (SALT) team.

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The full story:

Over the past three years (following the Wayfair decision), as states were enacting rules establishing economic nexus for sales tax, they were also enacting marketplace facilitator sales tax collection rules — though perhaps with a little less fanfare.

Generally aimed at companies like Amazon and Walmart — which offer “marketplaces” where consumers can purchase goods sold by those companies, as well as goods sold by others — these rules require the marketplace facilitator (i.e., Amazon and Walmart) to collect and remit sales tax for all transactions occurring on its marketplace, regardless of the actual marketplace seller of the goods.[1]

As a result of these marketplace facilitator rules, any business that offers consumers the ability to purchase goods sold by others could be required to collect and remit sales tax on those sales if the marketplace meets the state’s requirements.

Recently, Tennessee issued a private letter ruling addressing a taxpayer’s request, which explored whether its online marketplace platform would cause it to be considered a marketplace facilitator, and therefore obligated to collect and remit sales tax for transactions occurring in its marketplace.[2]

Understanding the case

The taxpayer in this ruling is affiliated with other companies that manufacture and distribute certain products to a network of independent dealers located across the country. The taxpayer created an online platform which enabled participating dealers to create an inventory listing and make business-to-business sales to certain customers of products purchased from other companies affiliated with the taxpayer. Dealers maintain their inventory listings and pricing electronically via a dealer management system that communicates with the platform. All inventory is identified as belonging to a particular dealer and not the taxpayer.

The taxpayer owns and administers the platform to include providing the software and support for its dealer users. The taxpayer required the participating dealers to enter a contract and potentially remit an initial fee for use of its platform and a percentage of dealers’ sales made through the platform.

Purchasers pay for their selected inventory in one of two ways: dealer accounts (i.e., pre-established lines of credit with the dealer) or by credit card. The platform’s role with both types of payments is just communicating the dealer’s preliminary order approval or rejection with the purchaser. When the dealer account is selected, the platform alerts the dealer, who replies with an order approval or rejection that is relayed to the purchaser. The steps for payment follow the dealer’s process for sales made outside of the marketplace. The dealer sends an invoice, and the purchaser makes a payment directly to the dealer.

For credit card payments, the platform directs the purchaser to the credit card processing gateway by opening a new window in the purchaser’s browser. An initial payment authorization is requested, and if approved, the platform will send the order to the dealer and a confirmation message to the purchaser.  At that time, the platform performs no further role. The dealer then sends an invoice to the purchaser, and final payment is processed via the credit card processer. Once approved, the processor deposits the payment amount directly with the dealer.

Under Tennessee law, a “marketplace facilitator” is a person who, for consideration, facilitates sales subject to sales and use tax through a physical or electronic marketplace, and “either directly or indirectly through contracts, agreements, or other arrangements with third parties, collects the payment from the purchaser . . . and transmits payment to the marketplace seller.”[1] A “marketplace” includes an “electronic place, platform, or forum, including, but not limited to . . . [an] internet website . . . or dedicated sales software application, where tangible personal property . . . taxable under this chapter [is] offered for sale.”[2]

Based on these definitions, the ruling concluded that while the taxpayer was providing an electronic marketplace for the dealers, it was not a marketplace facilitator, because the taxpayer only provides the electronic display of the dealers’ inventory and communicates the preliminary order approval or rejection, but it is not involved in collecting or transmitting the payments.

The bottom line

Aprio’s SALT team is experienced with navigating the various economic nexus and marketplace facilitator rules in each state. We can assist you with determining if your activity creates an obligation to collect and remit sales tax. If so, we will create a plan with recommendations for addressing any prior exposure and handle your sales tax compliance going forward so that your business does not incur any unexpected tax liabilities or penalties.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn, SALT Senior Manager, at tina.chunn@aprio.com or  Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

[1] Tenn. Code Ann. § 67-6-102(56)(A).

[2] Tenn. Code Ann. § 67-6-102(55).

[1] For more information about marketplace facilitator rules and definitions, please see the articles from our April 2019 SALT Newsletter, November/December 2019 SALT Newsletter and January 2020 SALT Newsletter.

[2] Tennessee Department of Revenue, Letter Ruling 21-05 (April 28, 2021).


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Tina Chunn

Tina is a senior manager with Aprio’s State & Local Tax group. She has over 24 years of experience assisting companies and their owners to minimize their tax liability and maximize their profitability. Some of the industries Tina serves include professional services, manufacturing, warehousing and distribution, telecommunications, real estate, retailers and wholesalers. Tina has extensive experience dealing with corporate tax issues, including state and local tax returns; state and federal tax credits; state and local sales; and use, income, escheat, business licenses and property tax issues.