Beginning October 1, 2021, the Tennessee Department of Revenue will permit taxpayers to seek a refund of sales and use tax directly from the Department under certain circumstances. This new refund method was enacted during the 2021 Tennessee legislative session as Public Chapter 480. Under the existing law, a taxpayer who has overpaid sales tax to its dealer is unable to seek a refund directly from the Department. Instead, the dealer must first seek a refund from the Department and then pay those funds back to the taxpayer. However, under this new procedure, a taxpayer will be permitted to seek a refund directly from the Department when the overpaid tax exceeds $2,500 per dealer and where the requirements outlined below have been satisfied.
The new procedure does not eliminate the requirement that a taxpayer first seek a refund directly from the dealer, but requires the taxpayer to have made two such attempts before seeking a refund from the Department. Specifically, it requires a taxpayer to have requested a refund in writing or electronically from the dealer on “at least two separate occasions,” with the dealer having failed or declined to issue the refund each time. The Department recently posted Notice 21-18 on its website providing further detail on the new refund procedures and timelines:
- If the first request is unsuccessful, the taxpayer can make the second request upon the earlier of: (i) the dealer’s issuance of a written refusal in response to the first request, or (ii) 30 days after the first request was submitted.
- The second request should also ask the dealer to complete a Dealer Attestation Form. The Attestation form requires the dealer to confirm, among other things, that the taxes were indeed collected and remitted to the state, and that the dealer has not and will seek a refund or take a credit for such taxes.
- Once the taxpayer has the completed Attestation form in hand, it may then seek a refund directly from the Department by submitting a claim for refund with the completed Attestation form attached.
- Note that if the dealer refuses or ignores the request to complete the Attestation form, the taxpayer may still be able to obtain a refund directly from the Department. In this situation, the taxpayer must show that it “reasonably attempted” to obtain a completed attestation from the dealer but was unable to do so. If the Commissioner of Revenue can verify the existence of all information required to be set forth in the attestation form through reasonably available information, then the Department may issue the refund at the Commissioner’s discretion.
A taxpayer seeking to use this new refund method must be mindful of all requirements and adhere to all deadlines as outlined above. Although not addressed in the Notice, from a practical perspective if a taxpayer is facing a looming statute of limitations expiration deadline, it should proceed with making the two attempts as soon as reasonably possible rather than waiting until the last minute. This is because the new law states that where the taxpayer is unsuccessful in obtaining a completed Dealer Attestation Form, it can satisfy the “reasonably attempted” statutory requirement by showing that it made the two attempts as outlined above at least 90 days prior to the expiration of the statute of limitations. While the Commissioner still has the discretionary authority to grant a refund where the process is ongoing within this 90-day window, it is best practice to be on the safe side and have the two-request process completed before the 90-day threshold.
Jay Hancock is the LBMC State and Local Tax Practice Leader. He can be reached at 615-690-1982 or jay.hancock@239877.com.
Content provided by LBMC State and Local Tax professional, Jay Hancock.
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