Dive Brief:

• The Financial Technology Association sued Tennessee on Wednesday, alleging a new state law that levies a tax on cross-border transactions is unconstitutional.
• “When a state singles out international payments for special taxation, that is unconstitutional, plain and simple,” the FTA’s chief executive, Penny Lee, said in a Wednesday press release.
• With its lawsuit, in a state court in Nashville, Tennessee, the trade organization is seeking a permanent injunction blocking the law.

Dive Insight:

The new law, which takes effect next year, requires a $10 fee per international fund transfer and another 2% fee for transfers exceeding $500 or more. The fees would apply to transactions originating in Tennessee to another state as well as to other countries, according to the state’s bill summary. 

“Tennessee consumers sending money to friends and family or business owners paying global vendors or suppliers should not face a higher cost simply because a state decided to tax the way they transact,” Lee said in the release.

The lawsuit is the FTA’s latest push to block the passage of Tennessee’s bill. In addition to challenging the legislation in court, the FTA also sought to amend the bill as legislators debated it and teamed up with other industry groups to discourage Tennessee Governor Bill Lee from signing the bill. Lee, a Republican, signed the measure in May, and it is slated to take effect Jan. 1, 2027.

Unless the law is struck down by the court, the measure is expected to generate new revenue for the state. The legislature’s Fiscal Review Committee anticipates that the law will generate $54.8 million in annual revenue for the state.

In its press release, the FTA warned that the tax would impose “significant costs” on companies and consumers sending funds to family, friends and others. 

“The dormant Commerce Clause exists precisely to prevent this kind of unilateral state action,” the FTA’s release said. “Tennessee consumers sending money to friends and family or business owners paying global vendors or suppliers should not face a higher cost simply because a state decided to tax the way they transact.”

The FTA is no stranger to litigating over industry regulations.

Last year, the trade group intervened to defend a Consumer Financial Protection Bureau open banking rule, which had drawn a lawsuit in federal court by banking associations. In October, a federal judge in Kentucky blocked enforcement of the rule, which CFPB leaders said they would revamp. That effort is pending.