The Tennessee Department of Revenue recently published Letter Ruling No. 21-05 (dated April 28, 2021) determining that an online marketplace was not a marketplace facilitator responsible for sales tax collection because it did not process payments.  The taxpayer is creating an online platform that allows a network of independent dealers across the country to make business-to-business sales of equipment, manufactured by the taxpayer’s affiliates, that is in the dealer’s inventory.  The taxpayer can charge the dealers for use of the platform, and the taxpayer will also receive a percentage of the dealers’ sales made through the platform. However the taxpayer will not collect payments from the dealers’ customers.  Purchasers pay for their selected inventory in one of two ways: (i) dealer accounts or (ii) by credit card.  The taxpayer’s role with both types of is just communicating the dealer’s preliminary order approval or rejection with the purchaser.

Under Tennessee law, marketplace facilitators are responsible for collecting and remitting sales and use tax on sales made through its marketplace if Tennessee sales exceed $100,000 during the previous 12-month period.  The Department of Revenue found that while the taxpayer was providing an electronic marketplace for the dealers, it was not a marketplace facilitator because the taxpayer only provides the electronic display of the Dealer User’s inventory and communicates the preliminary order approval or rejection, but is not involved in collecting or transmitting the payments.