Call off the Dogs! Agreed Order in Tennessee Economic Nexus Case Prevents State From Enforcing New Regulation

Stop the presses! Wait a minute! Hold that thought! That's right, Tennessee's efforts towards enforcing economic nexus for remote/online retailers has been put on hold as the parties have entered into an agreed order to prevent the Department of Revenue from enforcing the new regulation while the challenge filed by the American Catalog Mailers Association and NetChoice works its way through the Tennessee Courts and potentially beyond. (Davidson County Chancery Court No. 17-307-IV.)

That is good news for online retailers still grappling with how to respond to Tennessee's economic nexus regulation which became effective January 1, 2017 and required out-of-state dealers to register by March 1, 2017 and begin collecting after July 1, 2017. For retailers that have already registered or for those that intend to register, the order does not prevent taxpayers from voluntarily complying with the regulation, but those efforts could be put on hold (assuming no other basis for nexus in Tennessee).  

While not a common course of action in Tennessee tax litigation, the Agreed Order is consistent with the injunction that was entered in the Colorado Direct Marketing Association case, which gave a reprieve from compliance pending the challenge in that state, which went all the way to the U.S. Supreme Court on a separate, procedural challenge that involved the Tax Injunction Act.

From here, you could see this action heading to cross-motions for summary judgment rather quickly as there are no real facts to discover in this case. That said, these cases have a way of getting off track on procedural grounds where the Constitutional issue is treated as the red-headed stepchild of the case. (I can get away with saying this because I am both red-headed and a stepchild, but I was not neglected or ignored.)

Here, that could very well be the statutory authority for the state to have even acted using a regulation as the basis for requiring compliance. The Department has treated this as a foregone conclusion, but it is far from clear considering there is no statute on point and only limited reference to such authority in the legislative record.

Just think, you've barely been able to sit down and take a bite of popcorn, and there is already some action. Stay tuned!