Were goods shipped from Tennessee to out-of-state customers taxable when the contract passed title at the Tennessee facility?

Plain-English summary

Tennessee treated the sales as taxable even though the merchandise was shipped to customers outside the state. The seller hired the carriers, customers reimbursed freight, and the sales terms expressly transferred title when the goods were shipped from the Tennessee facility.

Under the law applied in the ruling, a taxable sale occurred when either title or possession transferred in Tennessee for consideration. The out-of-state destination therefore did not control; the contractual passage of title in Tennessee did.

What this means for you

Tennessee sellers shipping interstate

Delivery destination alone did not establish exemption under this ruling. Review the contract's title and possession terms and the actual delivery arrangement.

Contract and logistics teams

Boilerplate shipment terms can determine the tax result. The seller's product warranty during transit did not overcome the express title-transfer clause.

Common questions

Q: Were the out-of-state shipments taxable?
A: Yes.

Q: Why?
A: Title passed at the Tennessee facility when the goods were shipped.

Q: Did customer reimbursement of freight change the result? A: No.

Citations and references

• Tenn. Code Ann. §§ 67-6-102(25)(A) and 67-6-202
• Eusco, Inc. v. Huddleston, 835 S.W.2d 576 (Tenn. 1992)

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/02-33.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 02-33
WARNING
Revenue rulings are not binding on the Department. This presentation of the ruling in a redacted form is information only. Rulings are made in response to particular facts presented and are not intended necessarily as statements of Departmental policy. SUBJECT The application of the sales and use tax to goods shipped from Tennessee to destinations outside of Tennessee. SCOPE Revenue rulings are statements regarding the substantive application of law and statements of procedure that affect the rights and duties of taxpayers and other members of the public. Revenue rulings are advisory in nature and are not binding on the Department. FACTS The taxpayer is a [TYPE OF COMPANY] company that ships merchandise from its Tennessee facility to its customers located outside of Tennessee. The carriers are hired by the taxpayer to transport the goods to the customers outside of Tennessee. The terms of sale require the customer to reimburse the taxpayer for the freight charges. The terms and conditions of sale clearly state that title to all products sold to the customer passes from the taxpayer to the customer upon shipment from the taxpayer’s facility in Tennessee. Any damage that occurs during shipping is covered by the product warranty provided by the taxpayer. QUESTION Are the sales subject to the sales tax? RULING Yes. The sales are subject to the sales tax.

ANALYSIS
Tennessee taxes the sale of tangible personal property in this State. Tenn. Code Ann. § 67-6-202. “‘Sale’ means any transfer of title or possession, or both, … of tangible personal property for a consideration … .” Tenn. Code Ann. § 67-6102(25)(A). If either title to or possession of the tangible personal property passes in Tennessee for a consideration, the sale is subject to the sales tax. Eusco, Inc. v. Huddleston, 835 S.W.2d 576, 579 (Tenn. 1992). According to the facts provided by the taxpayer, the terms and conditions of sale clearly state that title to all products sold to the customer passes from the taxpayer to the customer upon shipment from the taxpayer’s facility in Tennessee. Therefore, because title to the goods passes in Tennessee for a consideration, the sales are subject to the sales tax. Id.

______
Steve Butler
Tax Counsel
APPROVED: ___
Ruth E. Johnson
Commissioner of Revenue
DATE: 9-6-02______

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