Tennessee Sales and Use Tax Protest

TENNESSEE SALES AND USE TAX PROTEST

TABLE OF CONTENTS

1. Filing Caption
2. Identification of Taxpayer and Assessment / Refund Claim
3. Procedural Posture and Timeliness
4. Statement of Disputed Issues
5. Substantive Grounds
6. Computation of Correct Tax / Refund Amount
7. Documentary Evidence
8. Relief Requested
9. Reservation of Rights
10. Verification
11. Certificate of Service
12. Tennessee Practice Notes
13. Sources and References

1. FILING CAPTION

1.A. INFORMAL CONFERENCE — Hearing Office Submission

TENNESSEE DEPARTMENT OF REVENUE — HEARING OFFICE

500 Deaderick Street, Nashville, Tennessee 37242

Re: Sales and Use Tax Protest — Notice of Proposed Assessment No. [____________]

Tax Periods: [__/__/____] – [__/__/____]

1.B. REFUND CLAIM — Audit Division Submission

TENNESSEE DEPARTMENT OF REVENUE — AUDIT DIVISION

500 Deaderick Street, Nashville, Tennessee 37242

Re: Claim for Refund of Sales and Use Tax — T.C.A. §§ 67-1-1802 and 67-6-409

Periods: [__/__/____] – [__/__/____]

Amount Claimed: $[____________]

1.C. CHANCERY COURT COMPLAINT

STATE OF TENNESSEE

CHANCERY COURT FOR [__________] COUNTY

No. [____________]

COMPLAINT FOR REFUND / TO CHALLENGE FINAL ASSESSMENT (T.C.A. §§ 67-1-1801 / 67-1-1802)

2. IDENTIFICATION OF TAXPAYER AND ASSESSMENT / REFUND CLAIM

Disputed Items:

3. PROCEDURAL POSTURE AND TIMELINESS

3.1. Notice of Proposed Assessment dated [__/__/____] issued to Taxpayer for sales and use tax periods [__/__/____] through [__/__/____].

3.2. Informal Conference Request. This Protest is filed within thirty (30) days of the date of the Notice of Proposed Assessment, in compliance with T.C.A. § 67-1-1438.

3.3. Refund Claim (alternative posture). Pursuant to T.C.A. § 67-1-1802 and § 67-6-409, this refund claim is filed within three (3) years from December 31 of the year in which the disputed payment was made. Payments at issue were made on the dates set forth in Exhibit [__].

3.4. Chancery Court Suit (alternative posture). Pursuant to T.C.A. § 67-1-1801, this Complaint is filed within ninety (90) days after the date the assessment became final on [__/__/____]. A copy of the Notice of Proposed Assessment is attached as Exhibit A. This Complaint is signed under penalties of perjury as required by T.C.A. § 67-1-1801(b).

4. STATEMENT OF DISPUTED ISSUES

The Taxpayer disputes the assessment / seeks refund on the following grounds (check all applicable):

Nexus and Collection Obligation:

• ☐ Taxpayer lacks substantial nexus with Tennessee under Quill Corp. v. North Dakota, 504 U.S. 298 (1992), as modified by South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
• ☐ Taxpayer's Tennessee receipts did not exceed the $100,000 economic-nexus threshold of T.C.A. § 67-6-543 in the relevant 12-month measurement period.
• ☐ Taxpayer is a marketplace facilitator and the marketplace seller, not Taxpayer, was responsible for collection (T.C.A. § 67-6-501); or vice versa.
• ☐ Out-of-state vendor improperly subjected to use-tax accrual.

Taxability — Tangible Personal Property:

• ☐ Item is not "tangible personal property" within T.C.A. § 67-6-102(95).
• ☐ Sale qualifies as a sale for resale; valid resale certificate held (T.C.A. § 67-6-409 and Rule 1320-05-01-.96).
• ☐ Sale qualifies for an enumerated exemption under T.C.A. § 67-6-322 et seq. (e.g., manufacturing M&E, agricultural, government, nonprofit, industrial machinery).

Taxability — Services and Digital Products:

• ☐ Service is not an enumerated taxable service under T.C.A. § 67-6-205 (e.g., not telecommunications, not lodging, not amusements).
• ☐ True-object test favors a non-taxable service over an incidental tangible component.
• ☐ Computer software / SaaS taxability disputed under T.C.A. § 67-6-231 and Rule 1320-05-01-.129; software accessed remotely vs. delivered.
• ☐ Custom software vs. canned software classification.
• ☐ Digital products / specified digital products taxability — T.C.A. § 67-6-233.
• ☐ Cloud-based offering with multi-state users — sourcing disputed.

Sourcing and Local Tax:

• ☐ Sourcing under T.C.A. § 67-6-902 (destination-based) misapplied.
• ☐ Local-option rate misapplied (T.C.A. Title 67, Ch. 6, Pt. 7).
• ☐ Single-article local-option cap exceeded contrary to T.C.A. § 67-6-702.

Procedural / Other:

• ☐ Statute of limitations bars portions of the assessment (T.C.A. § 67-1-1501).
• ☐ Penalty should be abated for reasonable cause (T.C.A. § 67-1-803).
• ☐ Estimated assessment based on insufficient evidence (T.C.A. § 67-1-1438(g)).
• ☐ Sampling methodology defective.
• ☐ Mathematical / clerical error.
• ☐ Successor-liability assessment improper under T.C.A. § 67-6-513.
• ☐ Other: [________________________________]

5. SUBSTANTIVE GROUNDS

5.1. Factual Background

5.1.1. Taxpayer is a [________________________________] organized under [____________] law on [__/__/____].

5.1.2. Taxpayer's relevant Tennessee activities consist of [________________________________].

5.1.3. Taxpayer's Tennessee gross receipts during the periods at issue were approximately $[____________].

5.1.4. Taxpayer filed Tennessee sales and use tax returns (Form SLS 450) for the periods [list] reporting [________________________________].

5.1.5. The Department conducted an audit beginning [__/__/____] resulting in the Notice of Proposed Assessment dated [__/__/____]. The audit relied upon a [block sample / random sample / detailed review] of [____] periods/transactions.

5.2. Legal Argument — Nexus / Wayfair Compliance

5.2.1. Substantial Nexus Required. Under the Commerce Clause and Wayfair, a state may impose collection obligations on a remote seller only where the seller has substantial nexus with the state. South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2099 (2018). Tennessee codified its post-Wayfair threshold at T.C.A. § 67-6-543, which requires more than $100,000 in sales to Tennessee customers during the previous twelve (12) months before a remote seller becomes a "dealer" required to register and collect.

5.2.2. Threshold Not Met. During the measurement period [date range], Taxpayer's sales delivered to customers in Tennessee totaled $[____________], which does not exceed the $100,000 threshold. See computation in Exhibit [__]. Taxpayer is therefore not required to register or collect under T.C.A. § 67-6-543, and the assessment must be withdrawn.

5.2.3. No Transaction-Count Threshold. Tennessee, unlike some states, does not impose a transaction-count threshold; only dollar volume matters. Compare T.C.A. § 67-6-543 with the laws of states maintaining a 200-transaction alternative.

5.2.4. Effective Date. The $100,000 threshold has applied since October 1, 2020. The prior $500,000 administrative threshold under former Rule 1320-5-1-.129 was superseded by Public Chapter 759 of 2020. Assessments seeking to impose collection duties for periods prior to the effective date based on the lower threshold are not authorized.

5.3. Legal Argument — Marketplace Facilitator (if applicable)

5.3.1. T.C.A. § 67-6-501 places the collection obligation on a "marketplace facilitator" that exceeds the $100,000 threshold for facilitated and direct sales combined. Marketplace sellers' sales facilitated by a marketplace facilitator that has registered and is collecting are not double-counted against the seller.

5.3.2. [Application to facts.] [________________________________]

5.4. Legal Argument — Resale and Exemption Certificates

5.4.1. T.C.A. § 67-6-409 and Rule 1320-05-01-.96 provide that a resale certificate accepted in good faith relieves the seller of collection responsibility. Beare Co. v. Tennessee Dep't of Revenue, 858 S.W.2d 906 (Tenn. 1993).

5.4.2. Taxpayer holds the certificates listed in Exhibit [__], obtained at the time of sale, in proper form, and accepted in good faith. The Department's disallowance is contrary to T.C.A. § 67-6-409 and the cited rule.

5.5. Legal Argument — True Object / Software & SaaS Taxability

5.5.1. T.C.A. § 67-6-231 imposes sales tax on the sale, lease, licensing, or use of computer software, including remotely accessed software. The taxability of cloud / SaaS offerings depends on whether the customer obtains use of the software vs. a non-taxable information service.

5.5.2. Under the true-object test, if the customer's true object is to obtain a non-taxable service, an incidental tangible or software component does not convert the transaction into a taxable sale. [Apply facts.]

5.6. Legal Argument — Sourcing and Local Tax

5.6.1. Tennessee sales tax is destination-sourced for most transactions (T.C.A. § 67-6-902). The Department's sourcing of [____________] to [city/county] is incorrect because [________________________________].

5.6.2. The single-article local-tax cap in T.C.A. § 67-6-702 limits local sales tax to the first $1,600 of any single article (with state single-article tax of 2.75% on $1,600–$3,200). Application to multiple-item invoices is governed by Department guidance.

5.7. Legal Argument — Penalty Abatement

5.7.1. Under T.C.A. § 67-1-803, penalty is waived upon a showing of reasonable cause and absence of willful neglect. Taxpayer's reliance on [advice / certificate / system / Letter Ruling] establishes reasonable cause as a matter of law.

5.8. Legal Argument — Statute of Limitations

5.8.1. T.C.A. § 67-1-1501 bars assessment more than three (3) years after a return is filed (six years if 25%+ omitted; unlimited for fraud or no return). Periods [________] are time-barred and must be withdrawn.

6. COMPUTATION OF CORRECT TAX / REFUND AMOUNT

6.1. Adjustment Schedule

6.2. Penalty and Interest Recalculation

6.3. Refund Computation (if applicable)

7. DOCUMENTARY EVIDENCE

• ☐ Exhibit A — Notice of Proposed Assessment / Refund Denial Letter.
• ☐ Exhibit B — Form SLS 450 returns for periods at issue.
• ☐ Exhibit C — Sales journals / POS data extracts and reconciliation.
• ☐ Exhibit D — Resale and exemption certificates.
• ☐ Exhibit E — Customer invoices and contracts.
• ☐ Exhibit F — Vendor invoices and use-tax accrual workpapers.
• ☐ Exhibit G — Nexus and economic-threshold computation.
• ☐ Exhibit H — Marketplace agreements and facilitator confirmations.
• ☐ Exhibit I — Sourcing analysis and ship-to address data.
• ☐ Exhibit J — Department audit workpapers and IDR responses.
• ☐ Exhibit K — Power of Attorney (Form RV-F0103801).
• ☐ Exhibit L — Refund-of-tax-to-customer documentation (where applicable).
• ☐ Exhibit M — Letter Rulings and Important Notices relied upon.
• ☐ Exhibit N — Affidavit(s) of [________________________________].

8. RELIEF REQUESTED

WHEREFORE, the Taxpayer respectfully requests:

• A. Withdrawal of the Notice of Proposed Assessment in its entirety; or in the alternative, abatement of the disputed portion of $[____________];
• B. Issuance of refund in the amount of $[____________], plus statutory interest under T.C.A. § 67-1-1802(b), where applicable;
• C. Abatement of all penalties under T.C.A. § 67-1-803;
• D. A written determination consistent with the relief sought; and
• E. [In chancery court] Judgment against the Commissioner for the disputed tax, interest, penalty, costs, and attorney's fees as allowed by law (T.C.A. § 67-1-1803(d)).

9. RESERVATION OF RIGHTS

9.1. Taxpayer reserves the right to supplement this submission, amend pleadings, and present additional evidence and arguments at the Informal Conference, in any chancery-court proceeding, or in any administrative appeal.

9.2. No statement herein shall constitute a waiver of any right under the Tennessee Taxpayer Bill of Rights, the Commerce Clause, the Due Process Clause, the Internal Revenue Code, or any other applicable law.

9.3. The Taxpayer expressly preserves the right to file (a) suit in chancery court within ninety (90) days of any final assessment under T.C.A. § 67-1-1801, (b) a refund claim under T.C.A. § 67-1-1802, (c) successive refund claims for periods within the three-year window, and (d) any related federal or constitutional claim.

10. VERIFICATION

STATE OF [____________]

COUNTY OF [____________]

I, [________________________________], being first duly sworn and under penalties of perjury pursuant to T.C.A. § 67-1-1801(b), depose and say that I am the [☐ Taxpayer / ☐ Officer / ☐ Member / ☐ Authorized Representative] of the Taxpayer named in this Protest / Refund Claim / Complaint; that I have read the foregoing; and that the statements contained therein are true and correct to the best of my knowledge, information, and belief.

[________________________________]

[NAME], [TITLE]

Sworn to and subscribed before me this [____] day of [_______________], 20[____].

[________________________________]

Notary Public

My Commission Expires: [_______________]

11. CERTIFICATE OF SERVICE

I hereby certify that on the [____] day of [_______________], 20[____], a true and correct copy of the foregoing was served upon the Tennessee Department of Revenue and (if a chancery-court complaint) upon the Tennessee Attorney General by:

• ☐ Hand delivery;
• ☐ United States Postal Service, certified mail, return receipt requested, to:
• Tennessee Department of Revenue, Hearing Office, 500 Deaderick Street, Nashville, TN 37242
• Tennessee Attorney General, P.O. Box 20207, Nashville, TN 37202-0207
• ☐ Email to [email protected];
• ☐ TNTAP electronic submission;
• ☐ Court e-filing system (chancery-court filing).

[________________________________]

[ATTORNEY / REPRESENTATIVE NAME], TN BPR No. [____]

12. TENNESSEE PRACTICE NOTES

• Combined sales-tax rate. Tennessee imposes a state sales tax of 7.0% on most tangible personal property (4.0% on food and food ingredients per T.C.A. § 67-6-228) plus local-option rates of 1.5%–2.75% under T.C.A. Title 67, Ch. 6, Pt. 7, capped at 2.75% locally. Most jurisdictions combine to 9.25%–9.75%.
• Single-article local cap. T.C.A. § 67-6-702 caps local tax at the first $1,600 of the sales price of any single article; a state single-article tax of 2.75% applies to the portion from $1,600 to $3,200. This is a frequent over-collection / refund issue on motor vehicles, equipment, and high-value retail.
• Wayfair / economic nexus. Tennessee's threshold under T.C.A. § 67-6-543 is $100,000 in sales to Tennessee customers in the previous 12 months, with NO transaction count. Effective October 1, 2020 (Public Chapter 759 of 2020), lowered from $500,000.
• Marketplace facilitators. T.C.A. § 67-6-501 places primary collection responsibility on marketplace facilitators meeting the $100,000 threshold; the Department generally will not pursue marketplace sellers for the same transactions. Cross-check Department Important Notices for current implementation.
• Resale and exemption certificates. Strict good-faith and form requirements apply (T.C.A. § 67-6-409; Rule 1320-05-01-.96). Maintain certificates throughout the assessment limitations period; certificate disallowance is the most common audit adjustment.
• Software and SaaS. T.C.A. § 67-6-231 makes both delivered and remotely accessed software taxable. Custom software is generally exempt; canned and SaaS are generally taxable. Multi-state users may apportion based on user location with Department approval.
• Refund procedure for collected tax. A seller seeking refund of tax collected from a customer must show that the tax has been refunded to the customer or that the customer has assigned the refund right (T.C.A. § 67-6-409; Rule 1320-05-01-.79). Direct-pay permit holders refund directly.
• Successor liability. Asset purchasers face successor liability for the seller's unpaid sales tax under T.C.A. § 67-6-513 unless a Department clearance is obtained. Build clearance procurement into deal closing checklists.
• Statute of limitations. Three years from filing under T.C.A. § 67-1-1501; six if 25%+ omitted; unlimited for fraud or non-filing. Refund window is three years from December 31 of the year of payment under T.C.A. § 67-1-1802.
• No general personal income tax. Tennessee imposes no broad-based personal income tax. The Hall Income Tax was repealed effective January 1, 2021. State tax practice in Tennessee is dominated by sales/use, F&E, and Business Tax controversies.
• Voluntary disclosure. Out-of-state sellers discovering a historical Tennessee filing obligation should evaluate the Department's Voluntary Disclosure program before any contact from the Department; VDA generally limits look-back to three years and waives most penalties.
• TNTAP. Sales-tax registration, returns, payments, refund claims, and many audit communications run through tntap.tn.gov.

13. SOURCES AND REFERENCES

• T.C.A. Title 67, Ch. 6 (Sales and Use Taxes) — https://www.capitol.tn.gov/
• T.C.A. § 67-6-102 (Definitions)
• T.C.A. § 67-6-202 (State sales tax rate)
• T.C.A. § 67-6-203 (Use tax)
• T.C.A. § 67-6-205 (Enumerated services)
• T.C.A. § 67-6-228 (Food and food ingredients rate)
• T.C.A. § 67-6-231 (Computer software)
• T.C.A. § 67-6-322 et seq. (Exemptions)
• T.C.A. § 67-6-409 (Refund of sales and use tax) — https://law.justia.com/codes/tennessee/title-67/chapter-6/
• T.C.A. § 67-6-501 (Marketplace facilitator)
• T.C.A. § 67-6-513 (Successor liability)
• T.C.A. § 67-6-543 (Out-of-state dealer / economic nexus)
• T.C.A. § 67-6-702 (Single-article local-option cap)
• T.C.A. § 67-6-902 (Sourcing)
• T.C.A. § 67-1-110 (Taxpayer Bill of Rights)
• T.C.A. § 67-1-803 (Penalty waiver)
• T.C.A. § 67-1-1438 (Informal Conference)
• T.C.A. § 67-1-1501 (Limitations on assessment)
• T.C.A. §§ 67-1-1801 to 67-1-1808 (Taxpayer Remedies for Disputed Taxes)
• T.C.A. § 67-1-1802 (Refunds — three-year window)
• Tenn. Comp. R. & Regs. 1320-05-01 (Sales and Use Tax Rules)
• Tenn. Comp. R. & Regs. 1320-05-01-.79 (Refunds)
• Tenn. Comp. R. & Regs. 1320-05-01-.96 (Certificates of Resale)
• Tenn. Comp. R. & Regs. 1320-05-01-.129 (Computer software / remote access — superseded in part by Public Chapter 759 of 2020)
• Tennessee Department of Revenue — Sales and Use Tax — https://www.tn.gov/revenue/taxes/sales-and-use-tax.html
• Sales and Use Tax Guide — https://www.tn.gov/content/dam/tn/revenue/documents/tax_manuals/
• SUT-4 Nexus Overview — https://revenue.support.tn.gov/hc/en-us/articles/360058589291
• Hearing Office — https://www.tn.gov/revenue/tax-resources/compliance-information/request-an-informal-conference.html
• TNTAP Portal — https://tntap.tn.gov
• Public Chapter 759 of 2020 (economic nexus threshold reduction)
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)
• Beare Co. v. Tennessee Dep't of Revenue, 858 S.W.2d 906 (Tenn. 1993)
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. A Tennessee-licensed attorney or CPA must review and customize this document for the specific assessment, refund claim, taxpayer, and audit record before filing. Tennessee sales-and-use tax statutes, rules, Department Letter Rulings, and Important Notices change frequently; verify all authorities through the Tennessee Code Annotated, Tenn. Comp. R. & Regs., and the Tennessee Department of Revenue before use. Missed deadlines under T.C.A. §§ 67-1-1438, 67-1-1801, and 67-1-1802 are jurisdictional and foreclose remedies.