A lawsuit filed on Wednesday by the Financial Technology Association (FTA) claims Tennessee’s new law to tax money sent from the state to foreign destinations will violate the dormant Commerce Clause and Import-Export Clause of the U.S. Constitution.
The lawsuit claims that FTA-member companies, with the filing specifically naming PayPal and Remitly, are already being harmed as they prepare to comply with the law by January 2027, with investments in engineering, software, and other infrastructure needing updates over the next six months.
Signed into law by Governor Bill Lee last month, and introduced by State House Speaker Cameron Sexton (R-Crossville) and State Senator Bo Watson (R-Hixson) in February, the law will require those who facilitate money transfers out of the country to collect a tax of $10 per transaction, plus 2 percent of any transmitted amount over $500, then report, file returns, and remit the money to the State of Tennessee, beginning next year.
The law applies only to foreign-bound money transfers, and will not apply to those who send money within the United States or its territories. Tennessee will use the increased revenue for its General Fund, as well as funds related to hospitals, child care, housing, and development of new teachers.
According to the FTA lawsuit, because the tax will be triggered by the foreign destination of a money transfer, it violates the dormant Commerce Clause of the Constitution. The dormant Commerce Clause is a judicial doctrine based on the Foreign Commerce Clause of the Constitution, which delegates regulation of commerce with foreign nations to Congress.
Courts’ interpretation of the dormant Commerce Clause as it relates to interstate commerce is also the subject of Tennessee litigation regarding its recent law regulating pharmacy benefit managers (PBMs), with CVS arguing in one part of its lawsuit that the state is violating the dormant clause by establishing laws that disparately impacts out-of-state companies.
Despite the longstanding status of the doctrine, at least two U.S. Supreme Court justices have questioned its existence in dissents. Justice Clarence Thomas has expressed criticism of the dormant Commerce Clause at least six times since he was confirmed to the high court in 1991, including in 1997, when he wrote in a dissent, “The negative Commerce Clause has no basis in the text of the Constitution, makes little sense, and has proved virtually unworkable in application.”
More recently, Thomas joined in a dissent written by U.S. Supreme Court Justice Neil Gorsuch, who wrote, “Unlike most constitutional rights, the dormant Commerce Clause doctrine cannot be found in the text of any constitutional provision but is (at best) an implication from one.”
Gorsuch added, “Under its banner, this Court has sometimes asserted the power to strike down state laws that discriminate against nonresidents on the ground that they usurp the authority to regulate interstate commerce that the Constitution assigns in Article I to Congress.”
In addition to their claim regarding the dormant Commerce Clause, the FTA lawsuit claims Tennessee’s taxation of international money transmissions violates the Constitution’s Import-Export Clause because taxing based on destination amounts to the state exaction of a tax on exports, essentially arguing the state is establishing a toll on money leaving the country through its borders.
The lawsuit was filed in Davidson County Chancery Court on Wednesday. It seeks a declaratory judgment declaring the law unconstitutional, and an injunction blocking it from taking effect.
– – –
Tom Pappert is a 2025 recipient of the Dao Prize and the lead reporter for The Tennessee Star. He also reports for the Star News Network. Follow Tom on X. Email tips to [email protected].
