Can the Tennessee Department of Revenue write a rule requiring online marketplace facilitators (Amazon, Etsy, eBay) to collect sales tax for the third-party sellers on their platforms?

Plain-English summary

In March 2019 the Tennessee General Assembly's majority leader asked whether the state Department of Revenue could require online marketplace facilitators (companies like Amazon, Etsy, and eBay that operate platforms where third-party sellers list goods) to collect Tennessee sales tax. The AG's answer was a structured yes.

The opinion broke the question into three pieces. First: does an online marketplace facilitator engage in "regular or systematic solicitation of a consumer market in this state" under § 67-6-102(23)(J)? Yes. The platform advertises goods, runs a search-able catalog, takes the buyer's order, and completes the sale. That is exactly the kind of regular and systematic solicitation the statute lists.

Second: does that solicitation make the facilitator a "dealer" under Title 67, Chapter 6? Yes, if the facilitator also consummates the sale. Opinion 2 turned on that consummation: a facilitator that both solicits Tennessee customers and executes the sale on the vendor's behalf is a dealer; one that only advertises is not.

Third: does the Department of Revenue have authority under §§ 67-6-402 and 67-6-501 to write rules requiring these dealers to collect and remit sales tax on transactions they consummate for third-party sellers? Yes, with one important caveat. The Commissioner's broad rulemaking authority over the sales tax laws covers in-state facilitators directly. For out-of-state facilitators, the Department's earlier-adopted Rule 129 was enjoined pending General Assembly review of Wayfair under 2017 Tenn. Pub. Acts, ch. 452, § 2. Until the legislature approved Rule 129, the Department was advised to limit any new rulemaking to in-state facilitators.

The opinion is a clean roadmap for the Department: it can move now on in-state platforms, it must wait on legislative action for out-of-state platforms.

Currency note

This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

This opinion describes the law in the post-Wayfair window before Tennessee adopted comprehensive marketplace-facilitator legislation. The framework here was later changed by statute, so verify the current sales-tax rules for marketplace facilitators before relying on anything below.

Common questions

Q: What is an "online marketplace facilitator" under this opinion?
A: A platform operator who advertises third-party sellers' goods, accepts the buyer's order, and consummates the sale. The opinion expressly excludes facilitators that only advertise without handling the transaction. Examples like Amazon, Etsy, and eBay all fit the consummating-the-sale model.

Q: What makes a marketplace facilitator a "dealer" rather than just an advertiser?
A: Consummating the sale. The opinion assumed a facilitator that not only advertises but also "accepts the consumer's purchase information and executes the sales transaction on behalf of the third-party vendor." Soliciting Tennessee customers and completing the sale together bring it within the dealer definition in § 67-6-102(23)(J). A platform that only advertised, without handling the transaction, would be a different case.

Q: Why is the in-state versus out-of-state distinction important?
A: Because of Rule 129's procedural posture. After South Dakota v. Wayfair removed the federal physical-presence rule, Tennessee's Rule 129 (which would require out-of-state dealers exceeding $500,000 in Tennessee sales to collect tax) was held in suspension by 2017 Tenn. Pub. Acts ch. 452, § 2 pending General Assembly review. The AG was cautious not to direct rulemaking that would conflict with that legislative pause. In-state facilitators were not subject to that pause, so the Department had a clear path on them.

Q: Could a third-party seller still owe the tax if a marketplace doesn't collect?
A: Yes. The dealer-liability rule in § 67-6-501(a) reaches every dealer making taxable sales in Tennessee. Marketplace facilitators were an additional collection point, not a substitute for seller liability. If a marketplace did not collect, the seller still owed tax under the underlying statute.

Q: What practical effect did this opinion have?
A: It cleared the way for the Department of Revenue to write rules covering in-state marketplace facilitators. It also signaled that comprehensive coverage of out-of-state marketplaces required legislative action, because Rule 129 (covering out-of-state dealers) was held in suspense pending General Assembly review.

Q: How does Wayfair fit in?
A: Wayfair (138 S. Ct. 2080 (2018)) overruled Quill's physical-presence rule, allowing states to require out-of-state retailers to collect sales tax. Tennessee had Rule 129 ready to enforce that kind of requirement, but the General Assembly's 2017 ch. 452 § 2 review provision held the rule in suspense. Wayfair did not automatically activate Rule 129; legislative review was the prerequisite.

Background and statutory framework

Tennessee's sales tax is in Title 67, Chapter 6. The general charging provisions (§§ 67-6-202(a) and 67-6-501(a)) impose the tax on retail sales of tangible personal property and place collection liability on "every dealer." The definition of "dealer" in § 67-6-102(23)(J) is broad: it covers any person who "engages in the regular or systematic solicitation of a consumer market in this state by the distribution of advertising, or by means of telephone, computer data base, cable, or other communication system."

Online marketplace platforms fit naturally inside that definition. They distribute advertising (product listings), use computer databases (their search catalogs), and consummate sales transactions on behalf of third-party vendors. The AG's analysis is essentially: read the words.

The Commissioner's rulemaking authority comes from two places. § 67-1-1439 gives general administration-and-enforcement authority. § 67-6-402 gives specific authority to "prepare instructions to dealers by setting out to them suitable methods for applying the tax" necessary for enforcement and collection. Together, those are sufficient to support a rule directing a dealer (the marketplace facilitator) on how to collect and remit tax for transactions it consummates on behalf of third-party vendors.

The out-of-state caveat comes from Rule 129 and 2017 Tenn. Pub. Acts ch. 452 § 2. Tennessee preemptively wrote Rule 129 (1320-05-01-.129) to require out-of-state dealers exceeding $500,000 in Tennessee sales to collect sales tax. After Wayfair, the legal obstacle to that rule disappeared, but the General Assembly's 2017 review provision still held it in suspense. The AG used Rule 129's status as a marker for where the Department could and could not write further rulemaking covering marketplace facilitators with no Tennessee presence.

The opinion sits in the post-Wayfair window while Tennessee was working out the practical mechanics of taxing online commerce. Op. 19-03 cleared the in-state piece and flagged that out-of-state coverage needed General Assembly action on Rule 129.

Citations

• Tenn. Code Ann. §§ 67-6-102(23)(J); 67-6-202(a); 67-6-402; 67-6-501(a); 67-1-1439
• Tenn. Comp. R. & Regs. 1320-05-01-.129(2)
• 2017 Tenn. Pub. Acts, ch. 452, § 2
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• Upper E. Tenn. Distrib. v. Johnson, 1997 WL 243503 (Tenn. Ct. App. 1997)

Subject

Authority of Department of Revenue to Promulgate Rules Requiring Online Marketplace Facilitators to Collect Sales Tax

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2019/op19-03.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
March 12, 2019
Opinion No. 19-03

Authority of Department of Revenue to Promulgate Rules Requiring Online Marketplace Facilitators to Collect Sales Tax

Question 1
Does an online marketplace facilitator "engage in the regular or systematic solicitation of a consumer market" when promoting the retail sale of tangible personal property by third-party sellers?

Opinion 1
Yes. An online marketplace facilitator, as defined for purposes of this opinion, engages in the regular, systematic solicitation of a consumer market in this State.

Question 2
If the answer to Question 1 is "yes," would such an online marketplace facilitator be considered a "dealer" for purposes of Tennessee Code Annotated Title 67, Chapter 6?

Opinion 2
An online marketplace facilitator that solicits sales from Tennessee customers would be considered a "dealer" under Tennessee law if it consummates the sales transactions with those consumers.

Question 3
Is the Department of Revenue currently empowered under Tennessee Code Annotated §§ 67-6-402 and 67-6-501 to promulgate rules requiring online marketplace facilitators to collect and remit sales tax on behalf of out-of-state dealers?

Opinion 3
The Department of Revenue currently is empowered to promulgate rules requiring online marketplace facilitators to collect and remit sales tax on behalf of out-of-state dealers, provided the facilitators themselves are not out-of-state dealers.

ANALYSIS

The Tennessee Retailers' Sales Tax Act levies a sales and use tax "[f]or the exercise of the privilege of engaging in the business of selling tangible personal property at retail in this state." Tenn. Code Ann. § 67-6-202(a). The tax "is levied on the sales price of each item or article of tangible personal property when sold at retail in this state." Id. "Every dealer making sales, whether within or outside the state, of tangible personal property, for distribution, storage, use, or other consumption in this state, . . . is liable for the tax imposed by this chapter." Tenn. Code Ann. § 67-6-501(a).

The Act broadly defines "dealer" to include, among others, every person who "[e]ngages in the regular or systematic solicitation of a consumer market in this state by the distribution of . . . advertising, or by means of . . . telephone, computer data base, cable, . . . or other communication system." Tenn. Code Ann. § 67-6-102(23)(J).

For purposes of this opinion, we assume that the "online marketplace facilitator" referred to by the Requestor not only advertises merchandise for sale but also consummates the sales transactions with the purchasers. Such a facilitator provides a marketplace or platform by which third-party vendors can solicit sales of tangible personal property, digital goods, and services. The facilitator usually operates an online platform containing a database or catalog of goods that allows consumers to search for specific products. The platform then accepts the consumer's purchase information and executes the sales transaction on behalf of the third-party vendor.

In performing this function, the online marketplace facilitator engages in the regular, "systematic solicitation of a consumer market in this state" by the distribution of advertising, a computer data base, or other communication system. The fact that the marketplace facilitator performs the sales transactions on behalf of third-party vendors does not remove the facilitator from the Act's definition of dealer. The marketplace facilitator itself solicits sales on behalf of its vendors, and it consummates these sales. These two activities qualify it as a "dealer" within the meaning of Tennessee law.

The Commissioner of Revenue generally is empowered to promulgate rules and regulations for administration and enforcement of the tax laws. See Tenn. Code Ann. § 67-1-1439. And in particular, the Commissioner is accorded broad powers to adopt rules and regulations deemed necessary to administer the sales and use tax laws and to "prepare instructions to dealers by setting out to them suitable methods for applying the tax that may be necessary for the purpose of the enforcement of [Chapter 6] and the collection of the tax imposed thereby." See Tenn. Code Ann. § 67-6-402. This includes rules requiring dealers, including online marketplace facilitators, to collect and remit sales tax on behalf of out-of-state dealers. This conclusion is consistent with section 67-6-402(b) because collection by an in-state facilitator dealing with and receiving payments from customers may often be the most practical means of ensuring payment of the tax. The conclusion also finds some support in an opinion of the Tennessee Court of Appeals, which acknowledges that the Department may hold an in-state dealer liable for the tax on sales made on behalf of an out-of-state vendor. See Upper E. Tenn. Distrib. v. Johnson, No. 03A01-9701-CH-00011, 1997 WL 243503, at *3 (Tenn. Ct. App. May 13, 1997), perm. app. denied (Tenn. Jan. 5, 1998).

The opinion that the Department is authorized to promulgate rules requiring online marketplace facilitators to collect and remit sales and use taxes presumes that the online marketplace facilitator is not itself an "out-of-state dealer." Tennessee Comp. R. & Regs. 1320-05-01-.129(2) currently requires out-of-state dealers "who engage in the regular or systematic solicitation of consumers in this state through any means and make sales that exceed $500,000 . . . during the previous twelve-month period" to collect and remit sales and use taxes to the Department. But for the time being, the Department is enjoined from collecting those sales and use taxes from out-of-state dealers until the General Assembly reviews the relevant court decision permitting such collection, i.e., South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), and gives final approval to Rule 129. See 2017 Tenn. Pub. Acts. ch. 452, § 2. Unless and until the General Assembly approves Rule 129, the Department should not promulgate rules and regulations regarding out-of-state online marketplace facilitators and should limit the exercise of its rule-making authority to in-state online marketplace facilitators.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

MARY ELLEN KNACK
Senior Assistant Attorney General

Requested by:
The Honorable William Lamberth
Majority Leader
425 5th Ave. North
Nashville, Tennessee 37243