TN Extends Sales Tax Collection to Marketplace Facilitators

Tennessee is the most recent, and one of the last, state to adopt a new tax collection law to third-party TN Sealmarketplace facilitators.  On April 1, 2020, Gov. Bill Lee signed Senate Bill 2182, which takes effect on October 1, 2020.


Since the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., most states have now moved to extend their local sales tax collection requirements to third-party marketplace facilitators.


SB 2182 defines a “marketplace facilitator” as any business that meets both of the following requirements:

  1. The business provides, for compensation, a “physical or electronic marketplace” to facilitate the sale of goods or services subject to Tennessee sales tax; and
  2. The business “directly or indirectly” collects payments from consumers on behalf of sellers who use the marketplace.

This definition excludes firms that only provide payment processing services. So for instance, if a seller receives payment from a customer through PayPal, that does not make PayPal a marketplace facilitator under SB 2182. But if the seller used eBay and PayPal in tandem to conduct the sale and process the customer’s payment, then eBay/PayPal would be responsible for collecting any Tennessee sales tax due.


Even if a business qualifies as a marketplace facilitator, the obligation to collect sales tax does not kick in unless the total sales made or “facilitated” involving Tennessee customers exceeds $500,000 during the previous 12-month period. The marketplace facilitator also does not have to collect sales tax in either of the following scenarios:


  • An individual seller with “gross sales” exceeding $1 billion per year signs a separate agreement with the marketplace facilitator in which the seller agrees to collect and remit sales tax; or
  • “Substantially” all of the sellers who use the marketplace facilitator’s platform are “registered dealers” required to collect and remit sales tax to Tennessee, which allows the state’s Department of Revenue to issue a waiver to the facilitator.

A marketplace facilitator will also not be held liable for any sales tax due if a seller provides “incorrect or inaccurate information,” so long as the facilitator “made a reasonable effort” to obtain the correct information. SB 2182 also forbids consumers from filing a class action lawsuit against a marketplace facilitator “relating to the over-collection of sale or use taxes.” Furthermore, if a marketplace facilitator fails to collect sales tax for any reason, consumers may still have to pay any applicable use tax on their purchases.

TN starballWill SB 2182 Help Make Up the Sales Tax Losses from COVID-19?

Krista Lee Carsner, the executive director of the Tennessee General Assembly’s Fiscal Review Committee, wrote in a revised March 2 fiscal note that requiring marketplace facilitators to start collecting sales tax would increase state revenues by approximately $84.8 million during the current fiscal year, and more than $113.1 million in subsequent years. Carsner said these estimates were based on a 2017 study from the U.S. Government Accountability Office, which found that approximately 38 percent of “collectible revenues” comes from online sales, with 46 percent involving a marketplace facilitator.


It’s worth noting Carsner’s note came just before the onset of the COVID-19 pandemic, which has already forced state and local officials throughout the country to revise their estimates of sales tax revenues, at least in the short term. For example, WBIR-TV in Knoxville, Tennessee, recently reported that city officials prepared their current budget assuming sales tax revenues of $174 million. But as COVID-19 has forced the temporary closure of many businesses, Knoxville officials now believe they could face a sales tax shortfall of as much as $18.2 million.


And while you might think collecting sales taxes from online marketplace facilitators would help make up this shortfall, keep in mind that SB 2182 will not take effect until October–so any new revenues may come too late to help state and local governments during their current fiscal year.

“Things of the Soil” Tax Exemption

Michigan Court: Use Tax Exemption for “Things of the Soil” Does Not Cover Lawn Care Businesses


Is lawn care a form of “agriculture”? After all, grass is a plant, so growing and caring for a lawn would seem to fit within the literal meaning of agriculture. Yet most of us associate “agriculture” with producing crops or raising livestock on dedicated farmland–now mowing a lawn in a residential suburb.


A Michigan appeals court recently addressed this subject in connection with a use tax dispute. The case, TruGreen Limited Partnership v. Department of Treasury, involved a state law dating back to the 1930s that, in its current form, exempts from taxation any sale of property to a person “engaged in a business enterprise that uses or consumes the property, directly or indirectly, for either the tilling, planting, draining, caring for, maintaining, or harvesting of things of the soil.”

The specific question before the Court was whether this language applied to a lawn care company–i.e., is grass a “thing of the soil”?

TruGreen Unsuccessfully Seeks Over $1.1 Million in Tax Refunds


The plaintiff in this case, TruGreen, provides seasonal lawn care and related services for customers. TruGreen does not service agricultural clients, such as farms or nurseries. Rather, its business is limited to “turf and ornamental plant care.”


In 2015, TruGreen requested a $4,745.39 use tax refund from the Michigan Department of Treasury. The requested refund was connected to TruGreen’s purchases of “fertilizer, grass seed, and other products” needed in its lawn care business. TruGreen insisted these purchases were exempt from use tax under Michigan’s “things of the soil” law described above.


The Department of Treasury rejected TruGreen’s interpretation of the law. TruGreen then doubled down, not only requesting a conference with a referee; a lawyer hired to advise the state treasurer on sales tax disputes; but also demanding a refund of more than $1.1 million in use taxes paid over a four-and-a-half year period. Although the referee agreed with TruGreen it was entitled to a refund, the state treasurer ultimately declined to issue one.

TruGreen then went to court.  The Michigan Court of Claims, a special trial court that hears civil lawsuits against state agencies, upheld the treasurer’s decision.


TruGreen then filed an appeal with the Michigan Court of Appeals.

In an April 10, 2020, decision, a divided three-judge panel of the Court of Appeals affirmed the Court of Claims. Writing for the two-judge majority, Judge Elizabeth L. Gleicher explained the “[s]tatutory vocabulary” of the state’s use tax exemption “describes a tax subsidy aimed at growing Michigan’s agricultural economy, not ornamental grass and shrubs.”

While grass and trees are technically “things of the soil,” as used in the tax law Gleicher said “that phrase is surrounded by words describing activities that take place on farms,” such as “tilling” and “harvesting.” So while TruGreen “plants grass and cares for it,” Gleicher said the company ‘s work “is unrelated to crop cultivation or agriculture in general.”

Is It OK to Use a Dictionary to Interpret Sales and Use Tax Laws?


The other two judges on the panel issued separate decisions in which they sparred over the proper use of the dictionary in interpreting the use tax exemption. Judge Brock A. Swartzle wrote the dissenting opinion. He said that “things of the soil” had a broader meaning than “agricultural products.”


More precisely, Swartzle said the 1933 edition of the Oxford English Dictionary provided the “most relevant definition” of the word “thing,” which was “ [a]n entity of any kind” and “[a]pplied (usually with qualifying word) to a living being or creature; occasionally to a plant.” Based on this, Swartzle said a “plain reading” of the use tax law clearly applied to grass, trees, and shrubs, as they were “plants” and thus “things of the soil.”

The third member of the appeals panel, Presiding Judge Douglas B. Shapiro, wrote a concurring opinion. He agreed with Judge Gleicher’s conclusion that the phrase “things of the soil” was a “term of art” was clearly intended to cover “crops grown for harvest and sale.”


Shaprio took exception to Judge Swartzle’s reliance on the dictionary to justify his contrary view. Shapiro noted the “use of dictionaries as sources of law is a very recent phenomenon” in the law, and relying on them to interpret the law “dispenses with the constitutional fact that the judiciary is an independent co-equal branch of government and ultimately responsible for the interpretation of statutes and their fair application in individual cases.”


MO Sales Tax Ruling: Furniture Sold to Hotels Is Taxable

Missouri Supreme Court: Furniture Sold to Hotels Is Not “Resold” to Guests

In the United States, sales tax is generally assessed only on the final “sale” of a good to a consumer or end-user. A “sale for resale” is therefore normally exempt from paying tax. But what qualifies as a “resale”? For example, if a hotel purchases furniture for its rooms, does it then “resell” that furniture every time it rents that room to a guest? Or must sales tax be collected on the initial sale of the furniture to that hotel?


The Missouri Supreme Court addressed these specific questions in a March 17, 2020, opinion, DI Supply I, LLC v. Director of Revenue. DI Supply I, LLC, sold more than $11 million in room furnishings–beds, chairs, desks, wall art, etc. to the Drury Hotels chain between 2012 and 2015. DI Supply did not collect or remit sales tax on any of these sales. The State of Missouri’s Director of Revenue subsequently conducted an audit, determined DI Supply was liable for sales tax, and made a total assessment of tax (plus interest) of $613,159.38.


DI Supply unsuccessfully challenged the Director’s decision at an administrative hearing. The company then appealed directly to Missouri’s Supreme Court, which has exclusive jurisdiction under that state’s constitution to interpret tax laws. In a 5-1 decision, the Court sided with the Director and held DI Supply was liable for the sales tax.


Judges Choose to Interpret Sales and Use Tax Laws Differently

DI Supply’s legal challenge centered on a specific clause in Missouri’s resale exemption statute that excludes “items of a non-reusable nature which are furnished to the guests in the guests’ rooms” from the state’s sales tax. As written, this exemption covers items like “soap, shampoo, tissue and other toiletries and food or confectionery items offered to the guests without charge.” DI Supply maintained this should also extend to the furniture in the room, as those items were also included in the “nightly rate for a hotel room.” In other words, DI Supply said that Drury Hotels was actually “reselling” the furniture each time it rented out the room.

While this argument might sound ludicrous – and indeed, was rejected by the Court –  there was some legal basis for DI Supply’s position. There are several past rulings from the Missouri courts, some dating back 25 years, that define a “resale” to include the transfer of the “right to use” tangible personal property, such as furniture. The problem, the Court said, was that these decisions interpreted Missouri’s use tax laws, not its sales tax laws.


Transfer of title from DI Supply to Drury

As far as the Court was concerned in 2020, a “sale at retail”– i.e., a sale subject to sales tax – requires a “transfer of title or ownership for the purchaser’s use or consumption.” A transaction that only transfers the “right to use,” such as a guest renting a hotel room for the night, does not count. When DI Supply sold its furniture, there was a transfer of title to Drury Hotels. Conversely, when Drury later rented its rooms with that furniture, there was no transfer of title to the individual guests. DI Supply therefore had to pay the sales tax bill.


One Dissenting Judge Claims Precedent

As noted above, the Supreme Court’s decision was not unanimous. One judge, Zel M. Fischer, authored a dissenting opinion. He argued that the Court’s prior rulings with respect to the use tax should apply to the sales tax as well. After all, Fischer observed, the sales and use tax statutes were meant to “complement each other,” so it only made sense that “their respective language must be harmonized to allow for identical application.”


Fischer argued that his colleagues were effectively overturning 25 years of precedent. This not only violated stare decisis–the doctrine that judges should stick to their previous rulings; it also made little sense to interpret the sales and use tax statues differently. Ultimately, Missouri’s General Assembly establishes tax policy. Fischer said if the legislature wanted to set different rules for sales and use taxes, it could do so.


Louisiana vs

Louisiana Supreme Court Finds Does Not Have to Collect Sales Tax on Behalf of Third-Party Sellers

The U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair opened the door for states to require out-of-state sellers to collect sales tax even if they lacked a “physical presence” within that state. A majority of states have subsequently imposed such requirements. For example, as of July 1, 2020, businesses that sell their products online to customers in Louisiana must start collecting state and parish (county) sales taxes.


There is also the separate but related issue of “marketplace facilitators.” These are businesses that allow or facilitate third-party sales. Amazon and Wal-Mart, for example, allow third-party merchants to conduct sales through their websites. Most states included language in their post-Wayfair legislation that require these marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. Louisiana’s law, however, did not include such language.

Despite this, Louisiana’s Jefferson Parish attempted to force to remit taxes on third-party sales made through the site between 2009 and 2015. The parish’s sheriff, who also serves as its tax collector, argued that under pre-Wayfair law, was properly classified as a “dealer” required to collect tax. On this basis, the sheriff sought a court order directing to pay nearly $1.9 million in back sales taxes.



Although two lower courts ruled in favor of Jefferson Parish, a divided Louisiana Supreme Court agreed with that it was not a dealer for purposes of sales tax collection. Justice John L. Weimer, writing for a 4-3 majority, said the legislature broadly defined “dealer” in the pre-Internet age to include out-of-state businesses that primarily sold goods through a mail-order catalogue. The key, however, was that these dealers actually owned the goods they were selling. In contrast, Weimer said there was no evidence the legislature ever intended dealer to cover “intermediaries that are only tangentially involved in sales transaction, such as a marketplace facilitator relative to sales by third party retailers.”

Court Points to Special Exception for Auctioneers as Proof Marketplace Facilitators Are Not “Dealers”


Weimer compared marketplace facilitators like to auctioneers. It was generally accepted in Louisiana that auctioneers did not have to collect sales tax on goods sold at auction. The legislature therefore adopted special legislation requiring auctioneers to register as “dealers” and start collecting sales tax. The need for such legislation at all meant that third-party facilitators are presumably not “dealers,” Weimer noted. Indeed, to assume that facilitators were dealers, as Jefferson Parish urged, would mean that “any intermediary that aids or enables sellers to reach new customers although not selling anything” directly could be held responsible for collecting sales tax. Weimer said that would be an “absurd result.”


In a dissenting opinion, Chief Justice Bernette Joshua Johnson said she would hold that “is responsible for collecting and remitting the taxes from sales of third party retailer items on its online Marketplace.” As the chief justice saw the case, was not a “hands-off bystander” to these transactions. To the contrary, she noted that “has sole control over the website as well as sole control of marketing of products.” More importantly, it owned the actual transaction information–the customer’s credit card information. Johnson said she was also troubled that the terms of’s marketplace retailer agreements “effectively disallows collection of sales taxes by remote sellers.”

Louisiana Legislators May Moot Long-Term Impact of Court’s Ruling


In the end, the Supreme Court’s decision may only give and other marketplace facilitators a brief reprieve. Two bills are currently pending before the state legislature that would bring Louisiana in line with the majority of states that now require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. One of the bills, SB 138 expressly states a marketplace facilitator must collect tax even if it is not a dealer. However, the bill would only apply to marketplace facilitators that derive more than $100,000 in gross sales or complete at least 200 transactions in Louisiana annually.


Leveling the Playing Field for Illinois Retail Act

Illinois Will Require Online Marketplaces to Collect Sales Taxes for Out-of-State Sellers Starting in 2020

Illinois was quick to jump on the post-Wayfair bandwagon in requiring out-of-state businesses to start collecting sales taxes on purchases made by in-state customers. Now the state has gone a step further. On June 28, 2019, Illinois Gov. J. B. Pritzker signed into law Senate Bill 690, which impose new collection requirements on online marketplaces starting on July 1, 2020. SB 690 also directs Illinois officials to implement new automated systems to assist businesses in complying with the law.

Thresholds Set for Remote Retailers

SB 690, officially named the “Leveling the Playing Field for Illinois Retail Act” by the state legislature, says that a “remote retailer” must collect sales tax if its “gross receipts from the sales of tangible personal property to purchasers in Illinois are $100,000 or more,” or the retailer makes more than 200 separate sales transactions to Illinois buyers during the tax year. In this context, a remote retailer includes a business that facilitates transactions between a buyer and a third-party seller.


For example, if a small business in Oregon sells goods to Illinois customers through Etsy, then Etsy is considered the remote retailer and must take responsibility for collecting and remitting any applicable sales tax. As far as Illinois law is concerned, Etsy is the actual retailer as opposed to the third-party seller.

And while Etsy is obviously one of the larger online marketplaces, any platform whose total sales exceed the $100,000-or-200-transactions threshold meets the definition of remote retailer. This includes first-party sales made by the platform itself in addition to all third-party transactions.


The platform is also responsible for determining whether it meets the threshold. This determination must be made on the last day of the month for March, June, September, and December. If at each of these times the remote retailer made enough sales to meet or exceed the threshold during the preceding 12-month period, it must subsequently collect and remit sales taxes to Illinois for the following 12-month period.

The marketplace must also certify to its individual third-party sellers that it has assumed all responsibility for complying with Illinois sales tax rules.

For their part, third-party sellers must keep records of any sales they make to Illinois customers through an online marketplace starting no later than July 2020.  But to reiterate, the third-party seller is not liable for collecting taxes on marketplace sales, and such sales will not count towards the third-party seller’s individual threshold under SB 690. So if our hypothetical Oregon retailer makes all of her Illinois sales through Etsy, as opposed to filling orders directly, she is not responsible for collecting or remitting any tax on her own.


New Regulations for Service Providers, Automated Systems, Coming by the End of the Year

SB 690 directs the Illinois Department of Revenue to “establish standards for the certification of certified service providers and certified automated systems” to assist out-of-state businesses in complying with their sales tax collection obligations.


A certified service provider (CSP) is a business authorized by the Department to “perform the remote retailer’s use and occupation tax functions,” while a certified automated system (CAS) is any software used by the State to perform sales tax calculations. The Department must adopt CSP and CAS regulations no later than December 31, 2019, and have the systems up-and-running by July 1, 2020.


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