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Tennessee State Tax Updates

For the latest news and updates on Tennessee state and local tax

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 if a 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 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 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.

March 2020

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: Revenue.DisasterExtension@tn.gov.

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