Tennessee has introduced a new tax on overseas money transfers, drawing criticism from fintech trade groups over the treatment of licensed money transmitters and the potential cost for consumers and businesses sending funds abroad.

House Bill 2502, also known as Senate Bill 2166, classifies money transmission from Tennessee to a location outside the US or its territories as a taxable service transaction when processed by an entity licensed under the Money Transmission Modernization Act. Tennessee’s bill summary says the tax is levied at $10 per transaction, plus 2% of any amount transmitted above $500.

Remittances usually refer to cross-border money transfers sent to recipients overseas, including payments made by individuals, businesses, charities and other organisations.

Trade groups warn on money transmitter treatment

The Financial Technology Association (FTA), a Washington, D.C.-based trade body representing fintech companies, criticised the law after it was signed.

“Tennesseans shouldn’t face new taxes when sending money to friends, family, business partners, or suppliers abroad, or when making charitable donations,” said Penny Lee, president and CEO of the FTA. “This law raises taxes on Tennessee consumers, businesses, and non-profits, and contradicts recently passed federal law while also running afoul of the Foreign Commerce Clause in the U.S. Constitution.”

The constitutional claim is the trade group’s argument, not a court finding. The Foreign Commerce Clause refers to the part of the US Constitution that gives Congress power over commerce with foreign nations.

The American Fintech Council, another US fintech trade group, also published a joint industry letter urging Tennessee Governor Bill Lee to veto the bill. The letter argued that HB 2502 would apply a $10 minimum tax, plus 2% above $500, to cross-border payments processed by licensed money transmitters, but not to payments processed by other financial institutions.

The American Fintech Council had previously warned that broadening Tennessee’s sales and use tax to include cross-border payments would add costs to transfers used by individuals and families.

What Tennessee’s bill does

The Tennessee General Assembly’s bill information says the measure applies to money transmitted from Tennessee to locations outside the US or its territories by entities licensed under the Money Transmission Modernization Act. It also sets out allocations for the revenue, including portions for the state general fund, counties and metropolitan governments, law enforcement training and housing-related initiatives.

Local reporting said the proposal was expected to generate $183 million in new state revenue annually, citing a fiscal analysis. It is also reported that corporations defined as financial institutions would be excluded from the proposed tax, leaving the measure focused largely on money transfers outside traditional banking institutions.

That distinction is central to the fintech industry’s response. Money transmitters are non-bank firms licensed to move money, including remittance companies and digital payment providers. Fintech groups argue that taxing those providers differently from banks could affect competition in cross-border payments.

The bill materials frame the measure as a state tax, with revenue allocated across state, local government, law enforcement training, childcare and housing-related funds. The fintech industry’s objection is that the mechanism chosen could raise the cost of some international transfers and create different treatment between providers serving similar customer needs.

Not the only remittance tax debate

Tennessee’s law arrives as remittance taxes are already being discussed at federal level.

The Internal Revenue Service says a 1% federal remittance transfer tax applies from 1 January 2026 to remittances sent from the US to foreign recipients when the sender provides cash, a money order, a cashier’s cheque or a similar physical instrument to the remittance transfer provider.

That federal rule is narrower than Tennessee’s law as described by state materials, because the IRS measure is tied to certain cash or cash-like funding methods. Even so, the timing means money transfer providers are dealing with federal tax implementation at the same time as state-level proposals.

The American Fintech Council has also published a federal joint industry letter opposing remittance taxes more broadly, alongside groups including the Electronic Transactions Association, the Money Services Business Association, The Money Services Round Table, the Financial Technology Association and the Innovative Payments Association.

Other states have looked at similar ideas

Tennessee is not the first state to consider or apply fees linked to money transmission.

Oklahoma has had a money and wire transmission fee since 2009. State rules require money transmitter licensees and delegates to collect $5 for transactions up to $500, plus 1% of the amount above $500. Oklahoma’s rules also say customers may claim an income tax credit equal to the fee paid if they file an Oklahoma individual income tax return with a valid Social Security number or taxpayer identification number.

The Financial Technology Association has also previously opposed proposed international money transfer taxes in other states, including Alabama, Kansas and Nebraska, according to its policy page.

That gives the Tennessee law a wider fintech relevance beyond one state. US money transmitters already operate under state licensing regimes, and new state-level taxes could add another layer to cross-border payments compliance.

Why payments firms are watching

For payments firms, the issue is not only the tax amount. It is also the structure.

A state-level tax on overseas transfers can affect pricing, checkout disclosures, agent networks, customer communications and compliance processes. If more states adopt different approaches, providers may need to manage a patchwork of rules across jurisdictions.

There is also a competitive question. If a tax applies to licensed money transmitters but not to some other financial institutions, providers may argue that similar transactions are being treated differently depending on the type of company processing them.

For consumers and small businesses, the effect depends on how providers implement the tax and whether costs are passed on at the point of transfer. For states, the question is whether international money transfer taxes can raise revenue without pushing users towards less visible or less regulated channels.

The Tennessee law puts that policy debate directly in front of remittance and  cross-border payment providers.