Financial Technology Association Challenges Tennessee's New Tax Law

The Financial Technology Association (FTA) has initiated a lawsuit against the state of Tennessee, arguing that a recently enacted law imposing taxes on cross-border transactions is unconstitutional. The law, which is set to take effect on January 1, 2027, mandates a $10 fee for each international fund transfer, in addition to a 2% fee on any transfer exceeding $500. Penny Lee, the FTA's chief executive, emphasized that the law unfairly targets international payments, stating, "When a state singles out international payments for special taxation, that is unconstitutional, plain and simple."

The lawsuit was filed in a Nashville state court, with the FTA seeking a permanent injunction to prevent the law from being enforced. According to the FTA, the new fees will impose significant financial burdens on Tennessee residents who send money to family and friends abroad, as well as on small business owners who engage with global vendors or suppliers. Lee expressed concern that the tax would lead to higher costs for consumers, which could discourage international transactions.

The Tennessee law is expected to generate an estimated $54.8 million in annual revenue for the state, according to the legislature's Fiscal Review Committee. However, the FTA argues that the financial implications for consumers and businesses could outweigh any potential benefits to state revenue. The organization contends that the dormant Commerce Clause of the U.S. Constitution exists to prevent states from imposing discriminatory taxes that could hinder interstate and international commerce.

Prior to the lawsuit, the FTA attempted to amend the bill during legislative discussions and collaborated with other industry groups to persuade Tennessee Governor Bill Lee not to sign the measure. Despite these efforts, Governor Lee, a Republican, signed the bill into law in May.

This legal challenge is not the first for the FTA, which has previously engaged in litigation regarding industry regulations. Last year, the association intervened to defend an open banking rule from the Consumer Financial Protection Bureau (CFPB) that faced opposition from banking associations. A federal judge in Kentucky ultimately blocked the enforcement of that rule, prompting the CFPB to announce plans for a revamp.

The outcome of the FTA's lawsuit against Tennessee could set a precedent for how states can regulate and tax international transactions, particularly as the fintech landscape continues to evolve. For freelancers and small businesses, the implications of this law could be significant, as increased transaction costs may affect their ability to operate competitively in a global marketplace.