When do the new Tennessee money transmission tax rules start?

The new rules take effect on January 1, 2027, when sales tax will begin applying to qualifying money transmission services under Tennessee’s updated framework.

What taxes apply to money transmission transactions in Tennessee?

The tax includes a flat $10 charge per qualifying transaction and an additional 2% tax applied to the portion of any transmitted amount that exceeds USD 500.

How is the origin of a money transfer determined if it is done in person?

If a transaction is initiated in person, it is considered to originate in Tennessee when the customer makes the request while physically present in the state.

Are international money transfers taxed under these rules?

Money transfers from Tennessee to destinations outside the US or its territories are not subject to local sales tax under the new rules.

Which money transmission services are exempt from the tax?

Financial institutions defined under state rules are generally exempt, unless they are specifically licensed under the Tennessee Money Transmission Modernization Act.

Tennessee Money Transfer Sales Tax Rules Explained

Q: How is the origin determined for electronic or phone money transfers?

For electronic or phone transactions, the origin is based on the customer’s associated physical location in Tennessee, as identified through provider records such as residential or business addresses.

The Tennessee Department of Revenue (DOR) has released a public sales and use tax notice informing taxable persons of new sales tax rules on certain money transmission services. The notice also provides guidelines on how to determine whether a sale originates in Tennessee, with different rules depending on how the transaction is initiated. The new rules apply to transactions where money is sent from Tennessee to destinations outside the US or its territories.

New Sales Tax Rules for Money Transfers

Starting January 1, 2027, sales tax will apply to entities licensed under the Tennessee Money Transmission Modernization Act. The tax consists of two components: a flat USD 10 charge per qualifying transaction, and a variable component of 2% applied to the portion of the transmitted amount exceeding USD 500

Furthermore, the DOR clarified that if the transfer is initiated in person, the sale is sourced to Tennessee when the customer requests it while physically present in the state. On the other hand, if the transaction is initiated electronically or by phone, the origin is determined by the customer’s associated physical location in Tennessee as identified by the money transmission provider.

To determine the customer's location, the provider can rely on available records, including the customer’s residential address, principal place of business, another listed physical address, such as a P.O. Box, or the address tied to the customer’s account.

To determine whether money is being transferred outside the US or its territories, such as Puerto Rico, the US Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa, the provider may use existing transaction information, such as the recipient's address provided by the customer or account records indicating the recipient is located in a foreign jurisdiction.

Notably, the tmoney transfers from Tennessee to a location outside of the US or its territories are not subject to local sales tax. Also, money transmission by any corporation defined as a financial institution under state rules is exempt, unless that corporation is licensed under the Tennessee Money Transmission Modernization Act.

Conclusion

With new rules in place, the international transfer of money will become a state sales-taxable service in Tennessee. The Fiscal Review Committee estimated that this tax measure will generate an additional USD 54.8 million in annual revenue. More specifically, nearly USD 49 million will come from the USD 10 flat rate, and around 10% of all transactions will be subject to the 2% tax.

Source: Tennessee Department of Revenue, Tennessee General Assembly - Fiscal Review Committee