After Much Ballyhoo, Economic Nexus Challenge Makes Its Way Into Tennessee Courts

We've been hearing the drum beat mounting for months that there is a fight brewing over economic nexus in Tennessee. Taking a page out the Alabama Commissioner of Revenue's book, Governor Haslam has been banging his chest that he's ready to take on Quill in the Courts. The Legislature has been going through the motions, conducting hearings for the public to comment on the proposed economic nexus regulation while practically running out of the hearing room when Representative Stewart called for a vote on the proposal. It proceeded out of committee and now still sits silently in the Legislature as part of SB53/HB261.

While all that wrangling was going on, two industry groups have been plotting a challenge in the Tennessee Courts initiating a petition for declaratory order before the Commissioner of Revenue in January, which finally made it into Court on January 30 with the filing of a complaint for declaratory judgment - American Catalog Mailers Assn. and NetChoice v. Gerregano, Civil No. 17-307-IV.

As expected, the Complaint focuses on the constitutional infirmity of the proposed economic nexus regulation, asserting that it "was adopted by the Department with the express understanding that its terms contradict ... the limitations on state taxing power under the Commerce Clause of the U.S. Constitution." It goes on to point out that the Department adopted the law not relying on "current law, but on a hoped-for future change in the Quill physical presence stand by the United States Supreme Court." Yeah...that sounds about right.

In addition to challenging the validity of the law under both the Commerce Clause and Due Process Clause of the constitution, the Petitioners also allege that the Commissioner and the Department "lack authority to promulgate the rule under Tennessee law, focusing on the limited authority of the Commissioner to prescribe rules and regulations "not inconsistent with law" and "not inconsistent with the Tax Code ... or the constitution of [Tennessee] or the United States."

As ESPN's Stuart Scott would say ... Boo! Yah!

Taxes are never that exciting, but for those of us who like to use shirt pockets for storing pens and pencils, this is going to be fun to watch. Now ... that it is out shadows and in the Tennessee Courts.