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Tennessee Department of Revenue rules marketplace facilitator fees nontaxable


In Letter Ruling 22-02 (publicly released last week), the Tennessee Department of Revenue ruled that fees a marketplace facilitator charges for connecting buyers and sellers and processing payments are not subject to sales tax. The taxpayer in the ruling was a “delivery network company” under Tennessee law. It connects third-party sellers of tangible personal property to purchasers and also connects purchasers to third-party service providers (such as delivery services). The taxpayer does this through a web-faced interface or app. The marketplace facilitator taxpayer was responsible for remitting sales tax on behalf of the sellers. The marketplace facilitator taxpayer separately charges the marketplace sellers and the third-party service provider for its fees. The fees are for connection, lead generation, and payment processing services. The Tennessee Department of Revenue ruled that the fees charged to the marketplace seller and service providers are not subject to sales tax because the “true object” of the transactions covered by these fees are lead generation and payment processing, which are not taxable services in Tennessee. The taxable web-based interface and app are merely incidental components of the transaction.


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