For the latest news and updates on Tennessee state and local tax
October 9, 2023
Tennessee Court of Appeals Rules Horse Drawn Carriage Company is Subject to Amusement Tax
On September 28, 2023, the Tennessee Court of Appeals upheld the lower court’s determination in Smith v. Gerregano that a horse-drawn carriage business is an amusement and thus subject to the State’s Amusement Tax. In upholding the lower court’s decision, the Court of Appeals determined that a “place of amusement” did not need to be a physical location and that the taxpayer was not providing a transportation service because the horse-drawn carriage operation was limited to a very small portion of Nashville. Thus, riders were not using carriage rides as a means of transportation. It remains to be seen if the taxpayer will appeal this case further.
May 30, 2023
Tennessee Imposes Additional Tax on Hemp-Derived Cannabinoid Products
Effective July 1, 2023, Tennessee Senate Bill 378 imposes an additional 6% sales tax on retail sales of products containing hemp-derived cannabinoids. This tax is in addition to the 7% state sales tax rate and the applicable local sales tax rates. This tax does not apply to hemp-derived fiber, grain, or topical products. Taxpayers must file a monthly return with the Department and remit payment on or before the 20th day of each month.
May 19, 2023
Major Law Changes Adopted by Tennessee
On May 11, 2023, Gov. Bill Lee enacted several changes to Tennessee’s tax laws. The tax law changes include, but are not limited to, the following:
- Phase-in of Single Factor apportionment formula for Corporate Excise and Franchise Tax: For tax years ending on or after 12/31/2023 but before 12/31/2024, net earnings must be apportioned to Tennessee by multiplying the earnings by a fraction, the numerator of which is the property factor plus the payroll factor plus five times the receipts factor, and the denominator of the fraction is seven. For tax years ending on or after 12/31/2024 but before 12/31/2025, net earnings must be apportioned to Tennessee by multiplying the earnings by a fraction, the numerator of which is the property and payroll factors plus 11 times the receipts factor, and the denominator of the fraction is 13. For tax years ending on or after 12/31/2025, net earnings will be apportioned by the receipts factor only.
- Sales Tax Holiday on food and food ingredients: The state has amended their tax codes to provide a sales tax holiday for food and food ingredients that are sold between August 1, 2023, at 12:01 am and 11:59 pm on October 31, 2023.
- Business Tax: Tenn. Code Ann. § 67-4-712(b)(2) provides that the Business Tax Act (BTA) (gross receipts tax) does not apply to a person mainly involved in the manufacture of goods, wares, merchandise, or other articles of value from a location or outlet subject to ad valorem taxation. Effective 5/11/2023, the subsection provides that the BTA does not apply to a person mainly involved in the fabrication or processing of tangible personal property for resale and consumption off the premises with respect to the sales of such property made from the manufacturing location or from a storage or warehouse facility that is situated within a ten-mile radius of the manufacturing location.
April 14, 2023
Tennessee Extends Franchise/Excise Tax Deadlines
The Tennessee Department of Revenue recently issued Notice 23-02.The Tennessee Commissioner of Revenue is authorized to extend State tax due dates if the IRS extends the deadline to file returns and pay taxes as a result of a natural disaster.Pursuant to 23-02, Tennessee conforms to the IRS’ extended due date to file and pay franchise and excise tax for taxpayers impacted by recent severe weather. The state granted affected individuals and businesses an extension until July 31st, 2023, to file returns and make payments, including quarterly estimated payments. The extension applies to affected taxpayers in the ten (10) counties impacted by severe storms and may be offered to taxpayers in other counties if they are later deemed to be in a designated disaster area.
January 27, 2023
Tennessee Farmers May Make Sales-Tax Exempt Purchases
On January 18, 2023, the Tennessee Department of Revenue (DOR) declared that farmers, timber harvesters, and nursery operators can buy additional items free from sales tax in 2023. Effective January 1, 2023, qualified farmers, harvesters, and nursery operators may purchase building material, fencing material, and almost all other tangible personal property utilized in agriculture exempt from sales and use tax. To purchase these items tax-free, the qualified purchaser must present a sales tax exemption card. To obtain an exemption card, the taxpayer will have to complete an on the Department’s website.
Automobiles, trucks, household appliances, and gasoline or diesel fuel used in vehicles operated on public highways remain subject to sales tax.
November 11, 2022
Tennessee DOR Issues Information on Agricultural Sales Tax Exemption for Farm Equipment, Machinery
On November 4, 2022, the Tennessee Department of Revenue issued guidance regarding sales and use tax exemptions for farm equipment and machinery. Pursuant to the Department’s guidance:
- Starting January 1, 2023, qualified farmers and nursery operators are exempt from sales tax on building and fencing materials, warranties, and other tangible personal property primarily used for agricultural purposes. As such, qualified farmers and nursery operators may wish to delay such purchases until next year.
- To make tax exempt purchases, qualified farmers and nursery operators must present their agricultural exemption certificate to the seller.
- Automobiles, trucks, household appliances, and gasoline or diesel fuel used in vehicles operated on public highways remain taxable.
- Contractors and subcontractors who perform services on behalf of farmers may not claim a sales tax exemption on property used providing such services. The exemption may only be claimed by qualified farmers and nursery operators. Titling property in the name of a qualified farmer/nursery operator does not make the property exempt if used by a contractor.
June 17, 2022
Tennessee To Enact Sales and Use Tax Vendor’s Compensation Discount
The Tennessee Department of Revenue issued Notice 22-09 to address the sales and use tax vendor compensation discount. This deduction compensates retailers and vendors who are registered with the Department to remit sales and use tax. Beginning on or after July 1, 2022 and ending on or before June 30, 2023, dealers are eligible for a deduction equal to 2% of the state tax due and not to exceed $25 per return filed. The discount is not applicable to local sales and use tax. The vendor’s compensation discount is only available if the return is timely filed, and taxes are timely paid by the 20th of the month following a returns period end.
June 17, 2022
Tennessee Sales Tax Holiday for Food and Food Ingredients
Tennessee announced a new sales and use tax holiday effective July 1, 2022 for “food and food ingredients” which will be exempt from sales and use tax. The tax holiday will start August 1, 2022 at 12:01 a.m. and extend through August 31, 2022 at 11:59 p.m. As noted in Tennessee’s Important Notice 17-20:
“Food and food ingredients” are defined by the State as “liquid, concentrated, solid, frozen, dried, or dehydrated substances that are sold to be ingested or chewed by humans and are consumed for their taste or nutritional value. Food ingredients do not include alcoholic beverages, tobacco, candy, dietary supplements, and prepared food.”
January 17, 2022
Tennessee To Repeal Drop Shipment Rule
The Tennessee Department of Revenue recently announced that they will repeal Rule 96 related to the collection of sales tax on drop shipments. Prior to the repeal, the Tennessee supplier would have to collect sales tax on the sales price of products drop shipped to a Tennessee customer unless the dealer provided a Tennessee resale certificate or Streamlined Sales Tax Exemption. The reason for this is that pre-Wayfair, the vendor may not have had nexus to collect sales tax on the transaction. Effective January 10, 2022 a Tennessee supplier drop ships personal property to a Tennessee customer can accept an out-of-state resale certificate or a Sales and Use Exemption Certificate, including sales tax ID, to be exempt from any tax related to the drop shipment. Tennessee sellers may also accept a Streamlined Sales and Use Tax Exemption Certificate with a tax ID other than sales and use for domestic dealers, or a tax ID by its home country for foreign dealers.
November 23, 2021
Potential Refund for Out of State Manufacturers for Tennessee Business Tax
The Tennessee Business Tax is a gross receipts tax imposed on sales sourced to the state. An exemption is allowed for taxpayers that are involved in the sale of self-manufactured goods. However, there appears to be a disconnect in applying the rule between good manufactured in-state versus good manufactured out-of-state for the purpose of claiming this exemption. Out of state taxpayer’s may potentially claim that goods manufactured out-of-state should be afforded the same exemption under the Commerce Clause. Each taxpayer’s facts and circumstances are different and will have to be examined individually to see if an exemption claim is supportable and if refunds should be requested. Taxpayers who can claim an exemption should file protective refund claims by December 31, 2021 to preserve their refunds for the 2017 tax year.
August 26, 2021
Tennessee – Tax Consequences of Bundled Transactions
The Tennessee Department of Revenue (Department) ruled on bundling taxable and nontaxable items in a single contract. The Department determined that sales tax is applied to a package, even if the package only contains one taxable item sold for one amount. The Department also noted that when a product is leased or rented as part of a contract, the sales tax will be computed on a lump sum or a periodic basis, based on the contract terms. However, the entire package is subject to tax at the general rate, even if the package includes several items with only one taxable item. (Tennessee Letter Ruling No. 21-04, 04/28/2021.)
June 18, 2021
Tennessee Discusses Foreign Corporations for Corporate Tax Purposes
In a recently updated tax manual, the Tennessee Department of Revenue has advised that ifa company is treated as a foreign corporation under the Internal Revenue Code (IRC), but has income effectively connected with a United States trade or business, then its net earnings and net worth connected with its United States trade or business will be its net earnings and net worth for Tennessee franchise and excise tax purposes. Whether a company has income effectively connected with a United States trade or business and the amount of its net earnings and net worth connected with its United States trade or business will be determined in accordance with the provisions of the IRC. For the specific rationale and analysis of the Tennessee Department of Revenue, please see Tennessee Franchise and Excise Tax Manual – Chapter 3 (Nexus), 03/01/2021.
May 21, 2021
Tennessee Issues Notice on Definition of Tangible Personal Property for Sales Tax Purposes
For sales tax purposes The Tennessee Department of Revenue has advised that, effective July 1, 2021, tangible personal property does not include mains, pipes, pipelines, or tanks after that property has become attached to a building, or other structure, or installed underground for conducting steam, heat, water, wastewater, oil, electricity, gas, or any property, substance, or product capable of transportation or conveyance therein or that is protected thereby, excluding propane tanks for residential use and above-ground storage tanks that can be moved without disassembly and are not affixed to the land. Additionally, tangible personal property for sales tax purposes will also not include surface, underground, or elevated railroads, or railroad structures, substructures, and superstructures, tracks and the metal thereon, branches, switches, and other improvements or structures permitted or authorized to be made in, upon, or under public or private property. For specific information, please see Tennessee Important Notice 21-06.
May 13, 2021
Tennessee Modifies Unclaimed Property Provisions
Effective 04/28/2021,Tennessee extends its unclaimed property rules for tax deferred accounts to apply to Roth IRA accounts; reduces the threshold for escheating and reporting traveler’s checks and money orders from $50 to $25; and permits the treasurer to pay or directly deliver property to any person if the person receiving the property is shown to be the same person as the apparent owner on a filed unclaimed property report and the treasurer reasonably believes the person is entitled to receive the property and payment.For specific information, please see L. 2021, S611 (c.258).
April 14, 2021
Tennessee Modifies Definition of Tangible Personal Property for Sales Tax Purposes
Effective for transactions occurring after 06/30/2021,Tennessee provides that for sales tax purposes, “tangible personal property” does not include mains, pipes, pipelines, or tanks after that property has become attached to a building, or other structure, or installed underground for conducting steam, heat, water, wastewater, oil, electricity, gas, or any property, substance, or product capable of transportation or conveyance therein or that is protected thereby, excluding propane tanks for residential use and above-ground storage tanks that can be moved without disassembly and are not affixed to the land. Tangible personal property for sales tax purposes also does not includesurface, underground, or elevated railroads, or railroad structures, substructures, and superstructures, tracks and the metal thereon, branches, switches, and other improvements or structures permitted or authorized to be made in, upon, or under public or private property.For specific details, please see the corresponding legislation for these changes (L. 2021, H131 (c.86)), or reach out to Withum’s SALT team with questions.
March 25, 2021
Tennessee Indicates Computer Software is Excluded from the State’s Property Factor of the Apportionment Ratio for Franchise/Excise Tax Purposes
The property factor is based on the real and tangible personal property owned or rented and used during the tax period. Because computer software is not tangible personal property for franchise and excise tax purposes, it should not be included in the property factor on Schedules N or 170NC. Even though capitalized software may be reported as a long-lived asset and amortized, it is nonetheless not tangible personal property for franchise and excise tax purposes and should be omitted from Schedules N and 170NC.
March 23, 2021
Tennessee Update on Extension of Filing Deadline
The Tennessee Department of Revenue announced that, consistent with the IRS’ decision to extend the filing deadline for individuals, the department has extended the due date for filing and paying the Hall income tax from April 15, 2021, to May 17, 2021. This extension will automatically apply; no further action is required. The department has also extended the franchise and excise tax due date from April 15, 2021, to May 17, 2021 for individuals who file a Tennessee franchise and excise tax return using Schedule J2 – Computation of Net Earnings for a Single Member LLC Filing as an Individual. This extension will also automatically apply. The automatic extension is based upon information available in the department’s tax system, and the department will work with taxpayers on a case-by-case basis to provide an extension consistent with this notice in the event the automatic extension is not applied to a specific account. Interest and late filing penalties will not be applied to returns filed and payments made on or before the May 17 extended due date. The October 15, 2021, six-month extension date for calendar year 2020 tax returns remains unchanged. Estimated payments due on April 15, 2021, are not included in this extension; those estimated payments are still due on April 15th. ( Tennessee Important Notice, No. 21-02, 03/01/2021 .)
March 17, 2021
Tennessee Posts Guidance on Marketplace Facilitators and 100K Sales Tax Filing Threshold
The Tennessee Department of Revenue has posted guidance on sales tax collection for marketplace facilitators. A marketplace facilitator must collect and remit Tennessee sales tax if the marketplace facilitator made or facilitated total sales to consumers in this state of $100,000 or more during the previous twelve-month period. The marketplace facilitator’s own sales are counted towards the $100,000 threshold. For purposes of applying the $100,000 threshold, a potential marketplace facilitator should include all retail sales, including exempt retail sales, but should exclude sales for resale. The requirements for marketplace facilitators and sellers, including the filing and threshold requirements, do not affect the nexus requirements for business tax or franchise and excise tax.
March 3, 2021
Tennessee Addresses Sales Tax as Applied to Membership Fees
Under Tennessee law, professional memberships are not an enumerated taxable service or amusement. In a recent ruling, the State held while dues paid for membership to a taxpayer’s professional organization included access to e-learning courses and on-demand webinars—which would be taxable on a standalone basis—these taxable items were incidental to the sale of the memberships itself. The primary benefit of membership was the non-taxable access to certifications, resources, tools, academic research, publications, professional development courses, and networking opportunities.
Franchise and Excise Tax and Hall Income Tax
Consistent with the IRS’s decision to extend Federal deadlines for those businesses located in a designated disaster area, the TN Department of Revenue (DOR) has extended the Franchise and Excise tax and Hall Income tax filing and payment deadlines to July 15, 2020. This extension applies to all taxpayers located in any disaster area designated by the Federal Emergency Management Agency (FEMA). Currently this includes Davidson, Putnam, and Wilson counties, but taxpayers located in areas subsequently designated as disaster areas will automatically receive the same filing and payment extension. This tax relief postpones the Franchise and Excise tax, Income tax filing, and payment deadlines for these taxes that occur starting March 3, 2020. Affected businesses and individuals will have until July 15, 2020, to file returns and make any payments (including quarterly estimated payments) originally due during this period.
The Department will automatically apply these extensions to Franchise, Excise and Income tax accounts of taxpayers with an address in the designated disaster area. Penalties and interest will not be applied to returns filed and payments made on or before this extended due date. These extensions will not alter due dates or extend due dates that otherwise fall after July 15, 2020.
Sales and Use Tax, Business Tax, and other taxes due to the Department
Although these extensions cannot be applied automatically, the Department will approve, on a case-by-case basis, extension requests from those who are unable to file returns for other taxes because of the impact of the March 2-3 storms.
Additional Areas Impacted by Disaster
If impacted by the storms but located outside of the Federally designated disaster area, a request can be made for an extension to file any returns due to the Department after March 3. If approved, the Department will waive penalties on any returns filed after the original due date but before July 15, 2020. Requesting Extensions Requests should include the business name, entity ID or Tennessee account number, business location, and a brief description of the loss. We have set up a dedicated email account for expedited service of these requests: [email protected].
The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.