The Tennessee Department of Revenue has released a legislative proposal with the stated intent of clarifying the application of the locally-imposed business tax to out-of-state businesses while also codifying an existing Tennessee regulation that provides for sourcing of Tennessee sales. The department is circulating the legislation, the Uniformity and Small Business Act of 2013, for comments and it may be introduced later this month.
Proposed substantive amendments in the draft legislation include:
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Elimination of the county-level business tax, to be substituted with a state-level tax that would be levied on sales of tangible personal property and services in Tennessee. Elevating the tax from a county-level to a state-level tax could impact businesses such as satellite providers that, under existing law, are not subject to local taxes based on federal law. The municipal-level tax remains unchanged. (Section 3)
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Clarification that the business tax applies to out-of-state companies that:
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Provide services in Tennessee,
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Lease property located in Tennessee,
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Sell tangible personal property in Tennessee and deliver such property in company-owned trucks, and
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Sell tangible personal property in Tennessee through agents in a purely intrastate transaction. (Section 15)
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Taxation of leases of property located in Tennessee appears to be inconsistent with current business tax law and sales and use tax law for in-state companies. Under current law, in-state companies pay business tax based on where the lease is executed. It is unclear whether the department intends to treat in-state lessors and out-of-state lessors differently or whether this is a topic that will be addressed during the comment process. (Section 15)
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Allocation of 100% of the tax generated from out-of-state businesses to the state general fund. (Section 18)
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The draft bill has no amnesty or voluntary disclosure provisions for taxpayers that are not compliant with current law. (Section 20)
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Codification of several sourcing rules:
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“Television service providers” would be taxed in local jurisdictions based on customer addresses.
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Under the more general “place of business” sourcing provision, businesses would be taxed in local jurisdictions where the business maintains a “place of business.” The tax would be on sales from both within and without that local jurisdiction. The proposal does not currently define “place of business.”
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Codifies sourcing provisions applicable to contractors. (Section 15)
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There is no modification to the personal property tax credit, despite codification of the sourcing rules. (Section 13)
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Increase the exemption level from $3,000 to $10,000, but it is unclear how the $10,000 threshold would be calculated, whether by location or by total in-state sales. (Section 12)
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Establish a new rate for gasoline and diesel fuel wholesalers, reducing the rate from .000375 to .0003125. (Section 9)
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Expand the Commissioner’s authority to accept single, combined returns for all business tax due from a single business, regardless of jurisdiction. (Section 14)
The Department has requested comments on the proposed legislation and may be submitted directly to Barbara Sampson, Assistant Commissioner for Tax Policy. Her email contact is barbara.sampson@tn.gov.
We invite you to contact members of Bradley Arant Boult Cummings State and Local Tax group in the Nashville office if you have specific questions.
