Does Tennessee sales or use tax apply to an out-of-state seller's goods that pass through a Tennessee transload facility — offloaded and reloaded onto other trucks or railcars — when title passed to the buyer outside Tennessee?

Plain-English summary

An out-of-state manufacturer sells wholesale goods to Customers who resell them down a chain to consumers. By contract, title and risk of loss pass to the Customer outside Tennessee — the moment the goods are handed to the common carrier at the manufacturer's out-of-state locations. The carrier then delivers the goods to a third-party transload facility in Tennessee, where workers offload them from one truck or railcar and reload them onto another for shipment to the Customers' resellers (some in Tennessee, some not). Sometimes the goods sit at the facility for a few days waiting for the next carrier. The manufacturer is registered in Tennessee as a remote seller and asked: are its sales to Customers subject to Tennessee sales or use tax? The Department said no.

Two ideas drive the answer.

Where the sale happens. Tennessee defines a "sale" as a transfer of title or possession. Here title passes to the Customer outside Tennessee, so for tax purposes the sale occurs outside Tennessee — the manufacturer looks to the law of the state where the sale is made, not Tennessee's.

Goods in the stream of interstate commerce. Tennessee taxes property only "after it has come to rest in this state and has become a part of the mass of property in this state" (§ 67-6-211). The Tennessee Supreme Court has held that goods passing through Tennessee in interstate commerce are not taxable unless there is a "sufficient interruption in actual transit." In Service Merchandise Co. v. Tidwell, printed materials shipped into Tennessee, unloaded at a regional post office, and re-mailed to addressees in and out of state stayed in interstate commerce — the brief stop existed only to keep the goods moving and was "merely incidental to the journey." The transload facility here is the same: offloading and reloading the goods, even with a change of carrier and a few days' wait, is a temporary interruption that keeps them in the stream of commerce on the way to their final destination. Merely traveling through a transload facility in Tennessee is not a taxable event.

The boundary. The ruling draws a clear line: if goods stop and stay in Tennessee instead of passing through, they "come to rest" and join the mass of property in the state. So when a Customer later transfers title and possession to a purchaser located in Tennessee, that downstream sale is subject to Tennessee sales or use tax unless it qualifies as a sale for resale or is otherwise exempt.

What this means for you

Manufacturers and wholesalers shipping through Tennessee

If your goods only pass through Tennessee — including a stop at a transload or cross-dock facility to change trucks or railcars — they stay in interstate commerce and Tennessee doesn't tax that movement, especially where title passed to your buyer out of state. A short, transit-driven pause (here, a few days waiting for the next carrier) doesn't break the journey. Watch the facts that would break it: goods that come to rest and stay in Tennessee, or possession transferred to your buyer in-state.

Title terms matter

Where title and risk of loss pass is doing real work here. Because title passed to the Customer outside Tennessee, the sale was an out-of-state sale. If your contracts pass title inside Tennessee — or transfer possession to the buyer in-state — the analysis can change. Know what your shipping terms say.

Buyers and resellers receiving goods in Tennessee

The pass-through exemption protects the through-shipment, not what happens after. If you take goods out of the interstate stream and sell them to a Tennessee purchaser, that sale is taxable unless it's a documented sale for resale or another exemption applies. Keep resale certificates and exemption documentation.

Accountants and tax professionals

The "sale" definition is § 67-6-102(84)(A); the taxable-privilege declaration is § 67-6-201(1); the "comes to rest / mass of property" limit (reaching the fullest extent allowed by the Commerce Clause) is § 67-6-211. The controlling case is Service Merchandise Co. v. Tidwell, 529 S.W.2d 215 (Tenn. 1975), with Itel Containers, Texas Eastern, Williams Rentals, and Board of Publication v. Woods in the same line. The downstream resale rules are § 67-6-102(81)(A) and Rule 1320-5-1-.68(1).

Common questions

Q: My goods pass through a Tennessee warehouse or transload facility to change carriers. Is that a taxable event?
A: Under this ruling, no. Offloading and reloading goods that are still moving to a downstream or out-of-state destination is a temporary interruption in interstate transit; the goods stay in the stream of commerce and Tennessee doesn't tax the pass-through.

Q: The goods sat at the Tennessee facility for a few days. Does that change things?
A: Not here. A short pause driven by transit logistics — waiting for the next available truck or railcar — doesn't make the goods "come to rest" in Tennessee. What matters is whether the stop is incidental to a continuing journey or the goods actually stop and stay.

Q: When does Tennessee tax kick in on this kind of supply chain?
A: When goods leave the interstate stream and come to rest in Tennessee — for instance, when your buyer transfers title and possession to a purchaser in Tennessee. That downstream sale is taxable unless it's a sale for resale or otherwise exempt.

Q: Does it matter where title passes?
A: Yes. Because title passed to the buyer outside Tennessee, the sale itself occurred out of state. Shipping terms that pass title (or possession) in Tennessee could lead to a different result.

Q: Can I rely on this ruling?
A: Not directly. A Tennessee letter ruling binds the Department only as to the taxpayer and exact facts it addressed and cannot be relied on by anyone else. This analysis is fact-sensitive, so confirm your own facts with a tax professional.

Citations and references

Tennessee statutes and rules:
- Tenn. Code Ann. § 67-6-102(84)(A) (definition of "sale" — any transfer of title or possession of tangible personal property for consideration)
- Tenn. Code Ann. § 67-6-201(1) (selling tangible personal property at retail in Tennessee is a taxable privilege)
- Tenn. Code Ann. § 67-6-211 (tax applies to property after it comes to rest and becomes part of the mass of property in the state; intended to reach the fullest extent allowed by the Commerce Clause)
- Tenn. Code Ann. § 67-6-102(81)(A) (definition of "sale for resale")
- Tenn. Comp. R. & Regs. 1320-5-1-.68(1) (sales for resale)

Tennessee cases:
- Service Merchandise Co., Inc. v. Tidwell, 529 S.W.2d 215, 218 (Tenn. 1975) (a temporary, transit-driven interruption in Tennessee does not remove goods from interstate commerce)
- Itel Containers Int'l Corp. v. Cardwell, 814 S.W.2d 29 (Tenn. 1991); Texas Eastern Transmission Corp. v. Benson, 480 S.W.2d 905 (Tenn. 1972); Williams Rentals, Inc. v. Tidwell, 516 S.W.2d 614 (Tenn. 1974); Board of Publication of the Methodist Church, Inc. v. Woods, 609 S.W.2d 501 (Tenn. 1980) (§ 67-6-211 reaches the fullest extent allowed by the Commerce Clause)

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/21-07.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 21-07
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 out-of-state sales shipped to a transload facility
in Tennessee.
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 rulings herein are binding upon the
Department and are 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.
FACTS

[TAXPAYER] (the “Taxpayer”) is a [PRODUCT] manufacturer headquartered in [CITY, STATE OTHER
THAN TENNESSEE]. The Taxpayer operates [TYPE OF BUSINESS] in [STATES OTHER THAN TENNESSEE].
The Taxpayer sells [REDACTED] products to wholesale customers (“Customer” or “Customers”) that
resell the [PRODUCTS] to other resellers that sell the [PRODUCTS] to consumers.

1

Upon the Taxpayer’s sale of [PRODUCTS] to a Customer, the Customer may arrange and pay for the
freight or the Taxpayer may arrange and pay for freight and pass the cost of freight to the Customer
as part of the sale. The Customer arranges and pays for insurance coverage of the [PRODUCT] while
it is in transit. Freight is either by truck or railcar. Regardless of who arranges and pays for freight,
contractual terms between the Taxpayer and its Customer provide that title to the [PRODUCT] and
risk of loss passes to the Customer upon placement of the [PRODUCT] into the hands of the common
carrier at the [BUSINESS] locations outside of Tennessee.
At the Customers’ direction, the common carrier delivers the [PRODUCT] to a third-party transload
facility in Tennessee where transload facility employees offload the [PRODUCT] from the railcars or
trucks and reload it onto other railcars or trucks for shipment to the Customers’ resellers both inside
and outside of Tennessee. In some instances, the common carriers that will transport the [PRODUCT]
from the transload facility to the resellers are not immediately available when the inbound carrier
arrives with the [PRODUCT] at the transload facility. When this occurs, the [PRODUCT] is temporarily
stored at the transload facility – typically for only a few days – until the outbound railcars or trucks
become available for loading.
The Taxpayer’s Customers direct the transload facility where to ship the [PRODUCT] to the Customers’
resellers and, while the Taxpayer is aware that the [PRODUCT] is delivered to the transload facility in
Tennessee from its out-of-state [BUSINESS LOCATIONS], the Taxpayer does not know the identity of
the resellers, the resellers’ location(s) where the [PRODUCT] is delivered from the Tennessee transload
facility, or the terms of sale between its Customers and its Customers’ resellers.
The Taxpayer is registered for Tennessee sales and use tax as a remote seller. The Taxpayer’s
Customers using the transload facility are not registered dealers in Tennessee.
RULING
Are the Taxpayer’s sales to Customers subject to Tennessee sales and use tax when title to the
[PRODUCT] passes to Customers at the [BUSINESS LOCATIONS] outside of Tennessee and there is no
indication that there is a transfer of possession to the Customer in Tennessee?
Ruling: No. The Taxpayer’s sales to Customers are not subject to Tennessee sales and use tax
when title to the [PRODUCT] passes to Customers at the [BUSINESS LOCATIONS] outside of
Tennessee and there is no indication that there is a transfer of possession to the Customer in
Tennessee.
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. TENN. CODE
ANN. § 67-6-102(84)(A) (Supp. 2020) defines “sale,” 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.” Pursuant to TENN. CODE ANN.
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 (2018 & Supp. 2020)).
1

2

67-6-201(1) (Supp. 2020), it is the declared legislative intent that every person who engages in the
business of selling tangible personal property at retail in Tennessee is exercising a taxable privilege in
this state. 2
Additionally, TENN. CODE ANN. § 67-6-211 (2018) provides, “It is the intention of this chapter to levy a tax
on the sale at retail, the use, the consumption, the distribution, and the storage to be used or
consumed in this state of tangible personal property after it has come to rest in this state and has
become a part of the mass of property in this state.” The Tennessee Supreme Court has held that this
statute was intended “to extend the taxing power of the state of Tennessee to the fullest extent under
the Commerce Clause, and that where a tax does not constitute a violation of the Commerce Clause,
no exemption is available under the statute.” 3
The Tennessee Supreme Court has also stated that tangible personal property passing through
Tennessee in the course of interstate commerce is not subject to Tennessee sales or use tax absent a
sufficient interruption in actual transit. 4 In Service Merchandise Co., Inc. v. Tidwell, 5 the Court held that
the Department of Revenue could not impose use tax on printed materials that were shipped into
Tennessee by common carrier, unloaded at the regional post office, and placed in the mail for delivery
to addressees both in and outside of Tennessee. The Court determined that “the interstate character
of the transactions in question here did not terminate at the postal docks.” 6 The Court reasoned that
the temporary interruption in the interstate transit of the printed materials was solely for the purpose
of promoting the materials’ continued movement and the break in Tennessee was merely incidental
to the journey. 7
The Taxpayer’s situation is similar to that of Service Merchandise. In the Taxpayer’s case, title to the
[PRODUCT] passes to the Taxpayer’s Customers at the Taxpayer’s out-of-state [BUSINESS] locations.
As a result, the sale of [PRODUCT] for purposes of taxation occurs outside of Tennessee. The Taxpayer
should comply with the laws of the state where the sale is made to determine the taxability of its sales.
When the [PRODUCT] arrives at the Tennessee transport facility, even if there is a change in mode of
transportation, the offloading of [PRODUCT] from one railcar or truck to another is a temporary
interruption in interstate transit. For the short period of time it is at the transport facility, the
[PRODUCT] remains in the stream of interstate commerce on its movement through Tennessee to its
final destination. Merely traveling through a transload facility in Tennessee is not a taxable event.
2

TENN. CODE ANN. § 67-6-201(1) (Supp. 2020).

Itel Containers Int’l Corp. v. Cardwell, 814 S.W.2d 29, (Tenn. 1991) (citing Texas Eastern Transmission Corp. v. Benson, 480 S.W.2d
905, 907 (Tenn. 1972), and Williams Rentals, Inc. v. Tidwell, 516 S.W.2d 614, 615 (Tenn. 1974). Prior to 1983, TENN. CODE ANN. §§
67-6-211 and and 67-6-313 were both part of TENN. CODE ANN. § 67-3007; in 1983, they were separated when the Code
Commission rearranged and renumbered Title 67.
3

See Service Merchandise Co., Inc. v. Tidwell, 529 S.W.2d 215, 218 (Tenn. 1975); Board of Publ’n of Methodist Church Inc. v. Woods,
609 S.W.2d 501, 502-03 (Tenn. 1980).

4

5

529 S.W.2d 215, 218 (Tenn. 1975)

6

Id. at 218.

7

Id. at 220.

3

To the extent the [PRODUCT] remains in Tennessee after passing through the transload facility, it will
have come to rest in this state and become a part of the mass of property in Tennessee. For example,
when the Taxpayer’s Customer transfers title and possession to a purchaser located in Tennessee, the
Customer’s sale of the [PRODUCT] will be subject to either sales or use tax unless the sale qualifies as
a sale for resale or is otherwise exempt under Tennessee law. 8

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

7/14/2021

TENN. CODE ANN. § 67-6-102(81)(A) requires that all “sales for resale” be in strict compliance with the rules and regulations
promulgated by the Commissioner of Revenue. A “sale for resale” is defined in pertinent part as “the sale of the property,
services, or taxable item intended for subsequent resale by the purchaser.” TENN. CODE ANN. § 67-6-102(81)(A). See also, TENN.
COMP. R. & REGS. 1320-5-1-.68(1) (2017).
8

4