A company takes online orders and uses its own drivers to deliver goods to Tennessee customers on behalf of disclosed third-party vendors, collecting the sales tax and remitting it to the vendors. Must the company itself collect and remit Tennessee sales tax on those sales?

Plain-English summary

The company (its identity is redacted) runs what works like a delivery marketplace. Through its website it promotes and takes orders for tangible personal property sold by third-party vendors, displaying each vendor's own name, logo, and slogan. A Tennessee customer orders and pays online — the listed price plus a flat delivery fee (and an optional tip) — and the company's own drivers pick the goods up from the vendor and deliver them. The company collects the sales tax, and each week it remits to each vendor that vendor's sales proceeds and all the sales tax collected, keeping only its negotiated commission and the delivery fees. It asked whether it has to collect and remit Tennessee sales tax on these sales.

The Department said no — the company isn't the one liable. Sales tax is collected from "dealers," and a person who sells tangible personal property in Tennessee is generally a dealer. But Tennessee's longstanding "Rule 1" (Tenn. Comp. R. & Regs. 1320-5-1-.01) says that when a factor, auctioneer, or agent entrusted with possession of property for sale sells for a known or disclosed principal, the sale is taxable to the principal, not the agent. Here the company is exactly that: it takes possession of the vendors' goods only to deliver them, can't alter them, sells under the vendors' own branding, and passes the money and tax back to the vendors. Because the vendors are always disclosed, Rule 1 applies and the vendor — not the company — is responsible for the sales tax.

Two practical footnotes from the ruling: the flat delivery fee is part of the taxable sales price, so tax applies to it; but a discretionary tip that goes straight to the driver is not part of the sales price and isn't taxed. And an out-of-state vendor that engages the company to make Tennessee sales has nexus with Tennessee and must register to collect and remit the tax.

The takeaway: a delivery or sales agent that operates openly for disclosed sellers generally isn't the taxpayer for sales tax — the disclosed seller is. The analysis can change if the seller is undisclosed or if the agent is really selling on its own account.

What this means for you

Delivery platforms and sales agents

If you sell or deliver goods on behalf of disclosed vendors — their branding is on the order, you just take orders, carry the goods, and pass the money and tax back to them — Tennessee's Rule 1 generally puts the sales-tax responsibility on the vendor (the disclosed principal), not on you. Keep the principal genuinely disclosed to customers, and keep the arrangement consistent with agency (you don't take title or alter the goods).

Vendors who sell through a delivery service

If a delivery company sells your goods to Tennessee customers as your disclosed agent, you are the seller responsible for the sales tax. If you're located out of state, engaging a Tennessee delivery agent gives you Tennessee nexus, so you must register and collect and remit the tax.

Delivery fees and tips

A mandatory delivery fee charged as part of the sale is included in the taxable sales price and is taxed. A discretionary tip that goes directly to the driver is not part of the sales price and isn't taxed. Keep tips truly optional and separately handled.

Accountants and tax professionals

This is the disclosed-principal/agency rule of Tenn. Comp. R. & Regs. 1320-5-1-.01, applied against the general dealer-collection duty (§ 67-6-501; § 67-6-102(23)(C)). It predates Tennessee's marketplace-facilitator regime, so check current marketplace-facilitator law for present-day platform obligations; here the question was simply who, as between agent and disclosed principal, bears the collection duty. Delivery fees follow § 67-6-102(79)(A); discretionary tips are excluded under Tenn. Comp. R. & Regs. 1320-5-1-.76.

Common questions

Q: I deliver and sell goods for other vendors. Do I collect Tennessee sales tax?
A: Generally not, if you act as a disclosed agent — the vendors' branding is on the sale, you only take orders and deliver, and you remit the proceeds and tax back to them. Under Rule 1, the disclosed principal (the vendor) is responsible for the tax.

Q: What makes the principal "disclosed"?
A: The customer can see who the actual seller is. Here the vendors' names, logos, and slogans appeared on the company's website, so customers knew they were buying from those vendors.

Q: Is the delivery fee taxable?
A: Yes. A delivery fee charged as part of the sale is part of the taxable sales price. A discretionary tip paid directly to the driver is not part of the sales price and isn't taxed.

Q: I'm an out-of-state vendor using a Tennessee delivery service. Do I have to register?
A: Yes. Engaging a Tennessee agent to make sales to Tennessee customers gives you nexus, so you must register and collect and remit Tennessee sales and use tax.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. Marketplace-facilitator rules have also developed since 2015. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-501(a), (b) (dealers are liable to collect and remit sales and use tax); § 67-6-102(23)(C) (definition of "dealer")
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A) ("sale"); § 67-6-102(89)(A) ("tangible personal property")
• § 67-6-102(79)(A) (the delivery fee is part of the taxable sales price)

Tennessee rules (Tenn. Comp. R. & Regs.):

• 1320-5-1-.01 (1974) ("Rule 1" — sales by an agent entrusted with possession for a known or disclosed principal are taxable to the principal, not the agent)
• 1320-5-1-.76 (1992) (discretionary tips paid directly to drivers are not part of the sales price)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/15-02.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 15-02

Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and
circumstances presented, and is an interpretation of the law at a specific point in time. The
law may have changed since this ruling was issued, possibly rendering it obsolete. The
presentation of this ruling in a redacted form is provided solely for informational purposes,
and is not intended as a statement of Departmental policy. Taxpayers should consult with a
tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax to a company that promotes, sells, and
delivers [TANGIBLE PERSONAL PROPERTY] to Tennessee customers on behalf of disclosed,
third-party vendors.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The ruling herein is binding upon the
Department, and is applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the
taxpayer’s detriment.

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FACTS
[TAXPAYER], doing business as [D/B/A NAME] (the “Taxpayer”), is [REDACTED] company
engaged in promoting, selling, and delivering [TANGIBLE PERSONAL PROPERTY] from
third-party vendors to individual and business customers in Tennessee. [REDACTED], some of
its contracted vendors are located outside of Tennessee. The Taxpayer enters into contracts with
nearby [VENDORS OF TANGIBLE PERSONAL PROPERTY] to provide these functions and
generates revenue through a flat delivery fee paid by customers on each order and a negotiated
commission [REDACTED].
Through its website, the Taxpayer solicits and generates orders for the vendors’ [TANGIBLE
PERSONAL PROPERTY] from Tennessee customers. The Taxpayer’s website presents the
customers with the logo and slogan of each vendor, which the customers then click through to
view and select [ITEMS OF TANGIBLE PERSONAL PROPERTY] available for purchase from
the vendor. Customers pay the regular [LISTED SALES] price for each item of [TANGIBLE
PERSONAL PROPERTY] ordered plus a flat delivery fee. Per its contracts with vendors, the
Taxpayer collects sales tax on the total [LISTED SALES] price of the items purchased and the
delivery fee. Additionally, the customers have the option of adding a tip to the order, which goes
directly to the driver. The Taxpayer never imposes a mandatory tip.
Once a customer places an order and pays for it electronically through the Taxpayer’s online
portal, the order is transmitted for fulfillment to the Taxpayer’s dispatch office in Tennessee. The
customer funds are processed immediately through the Taxpayer’s bank and merchant accounts.
Upon receiving the order at the dispatch office, the Taxpayer calls the appropriate vendor to
place the [TANGIBLE PERSONAL PROPERTY] order.
The Taxpayer’s delivery drivers pick up the [TANGIBLE PERSONAL PROPERTY] from the
vendor and deliver it to the customer’s address. The drivers typically do not use the dispatch
office as a home base. Instead, they operate remotely and use text and cell phone to relay their
location to the dispatch office. At the end of each week, the Taxpayer reconciles its orders by
vendor and remits a payment to each vendor for that vendor’s portion of total [TANGIBLE
PERSONAL PROPERTY] sales and all sales tax collected with respect to those sales. The
Taxpayer retains its negotiated commission and all delivery fees.
RULING
Is the Taxpayer liable for the collection and remittance of Tennessee sales and use tax with
respect to the [TANGIBLE PERSONAL PROPERTY] it promotes, sells, and delivers on behalf
of its contracted vendors?
Ruling: No. The Taxpayer is acting on behalf of a disclosed seller, and as such, is not
liable for the collection and remittance of Tennessee sales and use tax pursuant to TENN.
COMP. R. & REGS. 1320-5-1-.01 (1974).

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ANALYSIS
Under the Retailers’ Sales Tax Act, 1 the retail sale in Tennessee of tangible personal property
and specifically enumerated services is subject to the sales tax, unless an exemption applies. For
purposes of the Tennessee sales and use tax, “retail sale” is defined as “any sale, lease, or rental
for any purpose other than for resale, sublease, or subrent.” 2 The term “sale” is defined in
pertinent part to mean “any transfer of title or possession, or both, exchange, barter, lease or
rental, conditional or otherwise, in any manner or by any means whatsoever of tangible personal
property for a consideration.” 3
The sales tax is collected from dealers. 4 “Dealer” is defined under TENN. CODE ANN. § 67-6102(23)(C) to include any person who “[s]ells at retail, or who offers for sale at retail, or who has
in such person’s possession for sale at retail,” tangible personal property in this state. Every such
person “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 collection and
remittance of sales and use tax. 5
Notwithstanding the foregoing, a dealer may not be liable for the sales tax when it is acting on
behalf of a disclosed third party. TENN. COMP. R. & REGS. 1320-5-1-.01 (1974) [hereinafter Rule
1] instructs that sales by a factor, auctioneer, or agent “entrusted with possession of . . . property
for the purpose of sale” and “acting for a known or disclosed principal” are taxable to the
principal, not the seller.
At most, the Taxpayer is taking and transferring possession of the vendors’ [TANGIBLE
PERSONAL PROPERTY] for the purpose of selling to Tennessee customers on behalf of the
vendors. The Taxpayer promotes sales of the vendors’ [TANGIBLE PERSONAL PROPERTY]
on its website utilizing the vendors’ own names, logos, slogans, and [TANGIBLE PERSONAL
PROPERTY] descriptions. The Taxpayer takes possession of the [TANGIBLE PERSONAL
PROPERTY] for the limited purpose of [REDACTED] delivery to a customer. While
transporting the [TANGIBLE PERSONAL PROPERTY], the Taxpayer is prohibited from
altering the [TANGIBLE PERSONAL PROPERTY] in any way and is required to make all
reasonable efforts to maintain the [TANGIBLE PERSONAL PROPERTY] in the same condition
in which the Taxpayer received it. Finally, the Taxpayer remits to the vendors all sales proceeds

1

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. §§ 67-6-101 to -907 (2013)).
2

TENN. CODE ANN. § 67-6-102(76) (Supp. 2014).

3

TENN. CODE ANN. § 67-6-102(78)(A). “Tangible personal property” includes “property that can be seen, weighed,
measured, felt, or touched, or that is in any other manner perceptible to the senses.” TENN. CODE ANN. § 67-6102(89)(A). [REDACTED].
4

TENN. CODE ANN. § 67-6-501(b) (2013).

5

TENN. CODE ANN. § 67-6-501(a).

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and the taxes it collects with respect to those sales, retaining only the delivery fee and its predetermined commission. 6
Thus, to the extent the Taxpayer makes sales of [TANGIBLE PERSONAL PROPERTY] to
customers in Tennessee, it does so acting on behalf of the vendor with whom it contracts.
Because the third-party vendors are always disclosed on the Taxpayer’s website, Rule 1 applies,
with the result being that the Taxpayer is not liable for collecting Tennessee sales tax on such
sales.
Accordingly, the Taxpayer is not liable for the Tennessee sales and use tax on its sales of
[TANGIBLE PERSONAL PROPERTY] made on behalf of third-party vendors to customers in
Tennessee. 7

Caleb Barron
Assistant General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

June 10, 2015

6

The delivery fee is subject to sales tax because it is included in the sales price of the [TANGIBLE PERSONAL
PROPERTY]. See TENN. CODE ANN. § 67-6-102(79)(A). However, any discretionary tip going directly to the
delivery drivers is not part of the sales price and, therefore, is not subject to tax. See TENN. COMP. R. & REGS. 13205-1-.76 (1992).
7

Note that any out-of-state [TANGIBLE PERSONAL PROPERTY] vendor engaging the Taxpayer for making
sales of [TANGIBLE PERSONAL PROPERTY] to Tennessee customers will have sufficient nexus with Tennessee
for purposes of the Tennessee sales and use tax. Thus, any such out-of-state dealer must register for the Tennessee
sales and use tax and collect and remit all taxes due on sales to Tennessee customers. See TENN. CODE ANN. § 67-6501(a).

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