Remittance Tax Faces Constitutional Challenge As Fintech Trade Group Files Suit
By CU Today Staff —
WASHINGTON—The Financial Technology Association has sued Tennessee to block a new tax on international money transfers, arguing the law unconstitutionally discriminates against foreign commerce and unfairly targets money transmitters while exempting banks and other financial institutions. The lawsuit, filed Wednesday in federal court, seeks to prevent the tax from taking effect Jan. 1, 2027, according to court filings and reporting by Law360.
The Tennessee law imposes a $10 charge on international money transfers under $500 and an additional 2% tax on amounts exceeding $500. State officials estimate the measure will generate roughly $55 million annually from more than 16 million cross-border transfers originating in Tennessee each year. The tax applies to entities licensed under the state's Money Transmission Modernization Act and is expected to affect approximately $5.5 billion in annual remittance volume, according to guidance issued by the Tennessee Department of Revenue.
In its complaint, the fintech trade group contends the law violates the U.S. Constitution's Foreign Commerce Clause and Import-Export Clause by imposing a burden on transactions sent abroad while exempting similar transfers processed by banks. FTA President and CEO Penny Lee has argued the measure raises costs for consumers, businesses, nonprofits, military families and charitable organizations sending money overseas and conflicts with recently enacted federal remittance-tax provisions. Legal observers had raised constitutional concerns even before the bill's enactment, with tax attorneys warning the measure could be vulnerable to court challenge because it applies only to international transfers, according to the association's court filing.
The lawsuit escalates a growing battle over remittance taxes as lawmakers at both the state and federal levels seek new revenue from cross-border payments. Tennessee became only the second state after Oklahoma to impose such a levy, while Congress last year approved a federal excise tax on certain international money transfers. Industry groups including the Financial Technology Association, Electronic Transactions Association and Money Services Business Association have warned that higher costs could push consumers toward unregulated channels and reduce access to regulated payment services, according to Bloomberg Tax.
Originally reported by CU Today.