Financial Technology Association Lawsuit Challenges Tennessee Cross-Border Payment Tax

The Financial Technology Association has taken Tennessee to court over a newly enacted levy on outbound transfers, asserting constitutional defects and asking a judge to stop the measure from taking effect.

Dive Brief

• The Financial Technology Association sued the state on Wednesday, arguing Tennessee’s new tax on cross-border transactions runs afoul of constitutional limits.
• Penny Lee, the association’s chief executive, said the state cannot single out international payments with a special charge and called the approach plainly unconstitutional.
• The complaint, filed in a Nashville state court, seeks a permanent injunction to bar enforcement of the law.

Dive Insight

Beginning next year, the statute would apply a per-transfer fee and, for higher-value transfers, an additional percentage-based assessment. According to the state’s bill summary, the levy applies to transactions initiated in Tennessee that are sent to other states or abroad, affecting cross-border payment activity and related transmission. The summary describes the charge in a way that would reach routine transfers made by both individuals and businesses; public summaries do not highlight broad exemptions, and the association argues the measure would still apply to everyday remittances and business payments. In practice, the fee would typically be collected by the money transmitter or payment provider facilitating the transfer and then remitted to the state through periodic filings.

Lee said Tennesseans sending money to relatives, and businesses paying overseas suppliers, should not shoulder extra costs simply because the state chose to tax a particular way of moving funds.

The lawsuit follows months of work by the trade group:

• Advocacy by the trade group.
• Efforts to seek legislative changes.
• Partnerships with other industry associations.
• Urging the governor not to sign the bill.

The Republican governor approved it in May, and the law is scheduled to take effect Jan. 1, 2027.

If the courts do not block it, lawmakers expect the new tax to raise significant revenue. The legislature’s Fiscal Review Committee projects approximately $54.8 million in yearly receipts for the state from these transactions. The fiscal estimate describes the proceeds as state revenue and does not outline a dedicated earmark for a specific program.

Tennessee’s broader tax structure is unusual compared with many states: it does not impose a state income tax on wages and salaries, and residents generally do not pay Tennessee income tax on foreign wages or other foreign-source personal income. Tennessee also does not levy city or county income taxes, though residents still pay federal taxes and a range of state and local consumption and business taxes.

For everyday purchases, Tennessee’s state sales tax rate is 7%, and local option taxes can increase the combined rate depending on the county or city. At the 7% state rate, a $12.99 purchase would total $13.90 after tax ($12.99 + $0.91).

Separate from payments and sales taxes, Tennessee imposes a realty transfer tax often referred to as a conveyance tax when real property changes hands. The state rate is $0.37 per $100 of consideration (equivalent to $3.70 per $1,000) and is generally associated with recording deeds for real estate transfers.

Beyond the disputed cross-border transfer levy, recent tax law activity in Tennessee has included updates to sales-tax administration and collection practices, including rules that affect how taxes are collected on certain remote or third-party-facilitated transactions, alongside periodic adjustments to business-tax administration.

People looking for international tax services in Tennessee typically start with certified public accountants and tax professionals who advertise cross-border experience, including foreign income reporting and compliance. Residents and businesses also often ask their bank, payroll provider, or legal counsel for referrals to firms that handle international tax matters.

In its statement, the association cautioned that the policy would saddle companies, money transmitters, and consumers with substantial new expenses for routine money transfers and remittances.

The group argued that the dormant Commerce Clause is designed to prevent one state from unilaterally burdening interstate and international commerce with a targeted tax on payments.

The dormant Commerce Clause is a legal doctrine inferred from the U.S. Constitution’s Commerce Clause that limits states from enacting laws that discriminate against or place an undue burden on interstate commerce, even when Congress has not passed a specific statute on the subject. In this case, the association’s claim is that Tennessee’s structure effectively targets out-of-state and international transfers in a way that invites heightened constitutional scrutiny.

Constitutional challenges often focus on whether a state tax treats in-state and out-of-state economic activity evenhandedly and whether the burden on cross-border commerce is justified by a legitimate local purpose.

The Financial Technology Association is experienced in contesting rules that affect the fintech and broader payments industry, frequently engaging in litigation over regulatory issues.

Last year, the organization intervened to support a Consumer Financial Protection Bureau open banking rule that faced a lawsuit from banking groups. In October, a federal judge in Kentucky paused enforcement, and bureau leaders said they would revise the regulation; that process remains pending.