Tennessee has revised their rules regarding the certificates required to document exemptions in a drop shipment scenario. In a typical drop shipment scenario, a customer makes a purchase from a seller and the seller directs their supplier to deliver the goods directly to the customer. Prior to January 10, 2022, the supplier was required to either collect a resale certificate with a Tennessee tax identification number or the sales tax from the seller. The seller was required to either collect Tennessee sales tax from the customer or pay sales tax to their supplier. If the seller was not registered to collect sales tax in Tennessee, they could not issue a resale certificate and could not collect sales tax from their customer.
Beginning January 10, 2022, the supplier may accept a resale certificate from another state or a Streamlined Sales and Use Tax Exemption Certificate that includes the sales tax identification number issued by another state. If the seller is not required to be registered in any state or is a foreign seller, the seller may provide a Streamlined Sales and Use Tax Exemption certificate that includes a tax identification number for another tax type, a federal employer identification number, or a tax identification number issued by the seller’s home country. If the seller is not registered to collect Tennessee sales tax but provides a resale certificate to the supplier, no tax will be collected on the transaction. However, the purchaser will owe use tax to the State of Tennessee.
By Nic Schatte