Does an out-of-state winery or alcoholic-beverage seller that holds a Tennessee nonresident seller permit or direct shipper license also have to register as a foreign corporation with the Tennessee Secretary of State?

Plain-English summary

The TN Alcoholic Beverage Commission's executive director asked AG Slatery a simple practical question: when an out-of-state winery or alcohol seller gets a TN nonresident seller permit (§ 57-3-602(a)) or direct wine shipper license (§ 57-3-217), does that company also have to file with the Secretary of State for a certificate of authority as a foreign corporation/LLC?

The answer is "it depends," because the two regimes are independent.

The certificate-of-authority requirement (§ 48-25-101 for corporations, § 48-249-904 for LLCs) applies to foreign entities that "transact business" in Tennessee. The Tennessee Supreme Court in Lloyd Thomas Co. v. Grosvenor, 233 S.W. 669, 670-71 (1921), defines that as a course of conduct beyond "merely casual or occasional transactions," reaching "some substantial portion of [the company's] ordinary business." The General Assembly has carved out a list of activities that do not constitute transacting business: selling through independent contractors, soliciting orders that require out-of-state acceptance, single transactions completed within one month, and interstate commerce activities. § 48-25-101(b); § 48-249-902(a).

For activities outside that safe-harbor list, courts apply a totality-of-the-circumstances test. United Artists Corp. v. Bd. of Censors, 225 S.W.2d 550, 554 (1949). Common factors include the amount of property owned in Tennessee, the presence of employees in the state, in-state buying or selling, and the company's letterhead or correspondence references. Advance Lumber Co. v. Moore, 148 S.W. 212; Shoenterprise Corp. v. Butler, 329 S.W.2d 361.

The alcohol licensing rules under § 57-3-602(a) and § 57-3-217 are different. They require a permit or license as a condition of conducting specific alcohol-related transactions, "regardless of whether the sale is consummated inside or outside Tennessee." § 57-3-602(a). So a foreign corporation can need a nonresident seller permit for a single out-of-state sale to a Tennessee wholesaler, even though that one sale would not be enough to trigger the certificate-of-authority requirement.

The opinion thus splits the answer:

• A nonresident seller permit holder may or may not need a certificate of authority. A pure out-of-state-sales operation likely does not. A company with Tennessee employees, warehouses, or repeated direct contact with the state probably does.
• A direct shipper licensee under § 57-3-217 is more likely to need a certificate of authority because direct shipping to Tennessee consumers tends to involve repeated, ongoing transactions with the state, but even here the test is fact-specific. A direct shipper conducting only sporadic shipments could fall short of "transacting business."

Each case is its own. Foreign sellers should evaluate their actual contacts with Tennessee, not their alcohol license type, when deciding whether to register with the Secretary of State.

Currency note

This opinion was issued in 2018. 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. The certificate-of-authority, LLC, and alcoholic-beverage statutes cited here may have been amended since 2018, so confirm the current text before relying on any specific provision.

Common questions

Q: I'm a winery in California with a TN direct shipper license. Do I need a certificate of authority?
A: Probably yes, but it depends on volume. If you ship to Tennessee customers regularly throughout the year, that is repeated business in the state and likely "transacting business." A handful of shipments in a year might not be. The opinion expressly notes that "[m]ost foreign corporations or LLCs licensed as direct shippers are likely 'transacting business' in Tennessee."

Q: My company sells one shipment of wine a year to a Tennessee wholesaler, all paperwork done outside Tennessee. Do I need a certificate of authority?
A: Probably not. A single out-of-state transaction would not on its own clear the "transacting business" bar. You would still need the nonresident seller permit under § 57-3-602(a) for that one sale.

Q: How do I get a certificate of authority?
A: A foreign corporation or LLC applies for a certificate of authority through the Tennessee Secretary of State, which maintains the forms and instructions. This opinion does not address the application process itself; it addresses only whether the requirement is triggered.

Q: What activities are explicitly safe?
A: § 48-25-101(b) and § 48-249-902(a) list activities that do not constitute transacting business: maintaining a bank account, holding shareholder or director meetings, holding property in trust, soliciting orders that require out-of-state acceptance, isolated transactions completed within one month, and "transacting business in interstate commerce." See Alison Group, Inc. v. Ericson, 181 S.W.3d 670, 673-75 (Tenn. Ct. App. 2005).

Q: What if my LLC was formed before 2005 under the older Tennessee LLC Act?
A: The opinion notes that some LLCs may be governed by the 1994 Tennessee Limited Liability Company Act (Tenn. Code Ann. § 48-201-101 et seq.) rather than the 2005 Revised Act. The opinion states the "transacting business" requirements and exemptions are materially identical between the two acts (the 2005 act's §§ 48-249-904 and 48-249-902 versus the 1994 act's §§ 48-246-102 and 48-246-301).

Background and statutory framework

Tennessee's foreign-entity registration scheme is part of the broader uniform-act tradition. A "transacting business" test plus a list of safe-harbor activities is the standard pattern, and Tennessee follows that pattern in both the foreign-corporation provisions (Tenn. Code Ann. § 48-25-101 et seq.) and the foreign-LLC provisions (§ 48-249-901 et seq., with parallel rules in the older § 48-246-101 et seq.).

The alcohol licensing scheme operates independently. § 57-3-602(a) requires a nonresident seller permit for any "manufacturer, distillery, winery, importer, broker, or person which sells or distributes alcoholic beverages" to a Tennessee licensed wholesaler or manufacturer, regardless of where the sale is consummated. § 57-3-217 sets up the direct shipper license for direct-to-consumer wine sales.

Because the alcohol scheme triggers off specific transactions, while the certificate-of-authority scheme triggers off the totality of business activity, the two can diverge. This opinion documents that divergence and tells the ABC executive director that holding an alcohol license, by itself, does not automatically place a foreign entity under the certificate-of-authority requirement.

Citations

• Tenn. Code Ann. §§ 48-25-101(a), (b); 48-201-101; 48-249-101; 48-249-902(a); 48-249-904(a)
• Tenn. Code Ann. §§ 48-246-102, 48-246-301 (1994 LLC Act, materially identical)
• Tenn. Code Ann. §§ 57-3-217(b); 57-3-602(a), (b)
• Lloyd Thomas Co. v. Grosvenor, 233 S.W. 669 (Tenn. 1921)
• Alison Group, Inc. v. Ericson, 181 S.W.3d 670 (Tenn. Ct. App. 2005)
• United Artists Corp. v. Bd. of Censors, 225 S.W.2d 550 (Tenn. 1949)
• Advance Lumber Co. v. Moore, 148 S.W. 212 (Tenn. 1912)
• Shoenterprise Corp. v. Butler, 329 S.W.2d 361 (Tenn. App. 1959)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2018/op18-28.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
July 6, 2018
Opinion No. 18-28

Certificates of Authority for Nonresident Sellers and Direct Shippers

Question
Must a foreign corporation or limited liability company obtain a certificate of authority from the Tennessee Secretary of State pursuant to Tenn. Code Ann. § 48-25-101 or § 48-249-901 when the corporation or company is licensed as a nonresident seller pursuant to Tenn. Code Ann. § 57-3-602(a) or as a direct shipper pursuant to Tenn. Code Ann. § 57-3-217?

Opinion
A foreign corporation or limited liability company licensed as a nonresident seller or direct shipper must obtain a certificate of authority only if the corporation or company transacts business in the State within the meaning of the relevant statutes, which depends on the character and extent of the corporation's or company's transactions and business in the State.

ANALYSIS

A foreign corporation is prohibited from transacting business in Tennessee until it obtains a certificate of authority from the Secretary of State. Tenn. Code Ann. § 48-25-101(a). A similar obligation is imposed on foreign limited liability companies (LLCs). Id. § 48-249-904(a). Whether a foreign corporation or LLC is "transact[ing] business" in Tennessee depends on whether its business in the State constitutes "merely casual or occasional transactions" or "some substantial portion of its ordinary business." Lloyd Thomas Co. v. Grosvenor, 144 Tenn. 347, 233 S.W. 669, 670-71 (1921).

The General Assembly has enumerated several activities that do not constitute transacting business in the State, including, for example, "[s]elling through independent contractors," "[s]oliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts," "[c]onducting an isolated transaction that is completed within one (1) month and that is not one in the course of repeated transactions of a like nature," and "[t]ransacting business in interstate commerce." Tenn. Code Ann. §§ 48-25-101(b), 48-249-902(a). Foreign corporations or LLCs conducting only these activities are not required to obtain a certificate of authority. See Alison Group, Inc. v. Ericson, 181 S.W.3d 670, 673-75 (Tenn. Ct. App. 2005).

With respect to activities other than these statutorily exempt activities, Tennessee courts evaluate the character and extent of a foreign entity's contact with the State to determine whether the contact constitutes "transacting business." See Lloyd Thomas Co., 233 S.W. at 671. That is, whether a foreign corporation or LLC is transacting business in Tennessee and is required to obtain a certificate of authority is "in a large measure found in the facts" and dependent on the totality of the circumstances in each case. United Artists Corp. v. Bd. of Censors, 189 Tenn. 397, 225 S.W.2d 550, 554 (1949). Factors considered in the analysis may include the amount of property owned in Tennessee, the location of employees within the State, the buying or selling of products within the State, or references to Tennessee in letterhead or official correspondence. See, e.g., Advance Lumber Co. v. Moore, 126 Tenn. 313, 148 S.W. 212, 212-13 (1912); Shoenterprise Corp. v. Butler, 46 Tenn. App. 302, 329 S.W.2d 361, 363 (1959).

The fact-specific determination of whether a foreign corporation or LLC must obtain a certificate of authority is distinct from the statutory requirements applicable to foreign corporations and LLCs that wish to sell or distribute wine and alcoholic beverages in Tennessee. A "manufacturer, distillery, winery, importer, broker, or person which sells or distributes alcoholic beverages" to any wholesaler or manufacturer licensed in Tennessee must obtain a nonresident seller's permit. Tenn. Code Ann. § 57-3-602(a). And a nonresident seller's permit is required "regardless of whether the sale is consummated inside or outside Tennessee." Id. A nonresident seller's permit is also required of an entity that imports alcoholic beverages into Tennessee for any of the other purposes specified by the General Assembly, including warehousing wine and alcoholic beverages in Tennessee for the purpose of selling them outside the state. Id. § 57-3-602(b).

Because a nonresident seller is required by § 57-3-602(a) to obtain a permit to conduct even a single sale, nonresident sellers may be required to obtain a permit to sell alcoholic beverages even if they are not required to obtain a certificate of authority from the secretary of state under § 48-25-101(b) or § 48-249-902(a). For example, a foreign corporation wishing to conduct a single sale of alcoholic beverages to a Tennessee wholesaler outside of Tennessee's borders would be required to obtain a nonresident seller's permit under § 57-3-602(a). But because that single, out-of-state transaction likely would not, on its own, rise to the level of transacting business in the State, the corporation likely would not be required to obtain a certificate of authority. Foreign corporations and LLCs holding nonresident seller's permits are thus not necessarily required to obtain a certificate of authority.

The same principle is true for foreign corporations or LLCs holding direct shipper's licenses under Tenn. Code Ann. § 57-3-217. Direct shippers may make sales and deliveries of wine by common carrier to Tennessee citizens at least twenty-one years of age who purchase wine "directly from the direct shipper." Tenn. Code Ann. § 57-3-217(b). Most foreign corporations or LLCs licensed as direct shippers are likely "transacting business" in Tennessee and are thus required to obtain a certificate of authority pursuant to § 48-25-101(b) or § 48-249-902(a). It is possible, however, that a foreign corporation or LLC licensed as a direct shipper could conduct so few transactions and have such little contact with the state that they would not be required to obtain a certificate of authority.

In sum, whether a foreign corporation or LLC licensed as a nonresident seller or direct shipper must obtain a certificate of authority will depend on the character and extent of the corporation's or LLC's transactions within and contacts with Tennessee.

[Footnote 1: Section 48-249-904 was enacted as part of the Tennessee Revised Limited Liability Company Act, 2005 Tenn. Pub. Acts, ch. 286, § 1. See Tenn. Code Ann. § 48-249-101. However, some LLCs may continue to be governed by the former law, the Tennessee Limited Liability Company Act, 1994 Tenn. Pub. Acts, ch. 868, § 1. See Tenn. Code Ann. § 48-201-101. The relevant portions of the requirements and exemptions found in the 2005 Revised LLC Act, Tenn. Code Ann. §§ 48-294-904, 48-294-902, are materially identical to the previous requirements and exemptions in the 1994 LLC Act, Tenn. Code Ann. §§ 48-246-102, 48-246-301. Because the analysis does not differ between these sections, all references in this opinion are to the 2005 Revised LLC Act.]

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

JONATHAN DAVID SHAUB
Assistant Solicitor General

Requested by:
Clayton Byrd
Executive Director
Alcoholic Beverage Commission
500 James Robertson Parkway
Nashville, TN 37243