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S.A.L.T. Select Developments: Tennessee

Baker Donelson's S.A.L.T. Select Developments will identify important state and local tax developments from Tennessee.


State and local taxes impact almost every taxpayer. S.A.L.T developments in any one jurisdiction can be frequent and sometimes confusing. Where multiple jurisdictions are involved, staying current with state and local tax developments can be overwhelming for any taxpayer.

To assist you with staying current on a periodic basis, Baker Donelson's S.A.L.T. Select Developments will identify one or more recent state and local tax developments from Tennessee.

February 2020

Business Tax: On February 6, 2020, the Tennessee Department of Revenue published on its website Letter Ruling #20-01, dated January 13, 2020. This Letter Ruling addresses application of the Tennessee business tax to administrative fees received by a human resource management service company which coordinated staff-augmentation needs of its customers. The Tennessee business tax applies to all sales of a retailer or wholesaler according to its dominant business activity at rates specified in the business tax statutes, and taxable sales include the transfer of title or possession to tangible personal property as well as the furnishing of any taxable services. The tax applies to the actual consideration passed, without any deduction on account of the cost of the property sold or any other expense whatsoever. In this current Ruling, the taxpayer resource management service company received payments from its customers which included not only the taxpayer's fee for providing the staff-augmentation needs, but also included amounts charged by third-party suppliers of contract workers as well as the amounts owed to those contract workers. The Department, relying upon a 1996 unreported Tennessee Court of Appeals decision, noted that the taxpayer was contractually obligated to pass along amounts owed to the third-party contract suppliers as well as the contract workers themselves. As a result, those amounts were not subject to the business tax owed by the taxpayer; that taxpayer is obligated to the business tax on the administrative fees that the taxpayer retained as its compensation. 

Refer to this Ruling for more details.

November 2019

Sales/Use Taxes: On November 6, 2019, the Tennessee Department of Revenue posted Revenue Ruling #19-07, dated October 14, 2019, which addresses the tax exemption under Tennessee Code Annotated Section 67-6-207 for certain tangible personal property sold to a qualified farmer or nurseryman – assuming the conditions of that Section are satisfied. This Ruling discusses several of those conditions and determines that the equipment in question does satisfy the exemption requirements. However, in addition to this exempt equipment for sale to qualified farmers and nurserymen, the Ruling also addresses the question of whether warranties accompanying the equipment, as well as separately sold warranties or service contracts, would also be accorded exempt status. The Ruling refers to Section 67 6-208(a) which provides in essence that the sale, use or subscription to a warranty or service contract is subject to the Tennessee sales and use tax; and then concludes that since the tax exemption under Section 67-6-207 does not specifically extend to the sales of warranty or service contracts, the sales of warranty and service contracts covering the exempt equipment are subject to the Tennessee sales and use tax. The Department does acknowledge, however, that because such warranties or service contracts are taxable on the front-end, any repairs made under the warranty or service contracts would not be subject to additional tax. Refer to Revenue Ruling #19-07 for more details.

October 2019

Franchise and Excise Taxes: On October 2, 2019, the Tennessee Department of Revenue posted Letter Ruling #19-05, dated August 29, 2015, which addresses various questions regarding the application of the community investment tax credits available to certain financial institutions pursuant to Tennessee Code Annotated Section 67-4-2109(h). Under that Section, a financial institution may take a credit against its total liability for franchise and excise taxes when it makes qualified loans, qualified long-term investments, grants or contributions to eligible housing entities for any eligible activity. The community investment tax credits under Section 67-4-2109(h)(1)(A) equal five percent of a qualified loan or qualified long-term investment, and the credits under Section 67-4-2109(h)(2)(A) equal ten percent of a qualified low-rate loan, grant, or contribution; and those credits can be applied one time with any unused credit carried forward for 15 years. The community investment tax credits under Section 67-4-2109(h)(1)(B) equal three percent annually of the unpaid principal balance of a qualified loan for the life of the loan or 15 years, whichever is earlier, and the credit under Section 67-4-2109(h)(2)(B) equals five percent annually of the unpaid principal balance of a qualified low-rate loan for the life of the loan or 15 years, whichever is earlier. The Ruling addresses those situations in which a qualified loan is made by more than one financial institution pursuant to a syndicated loan or, separately, pursuant to a loan participation. In essence, and as applicable, the Ruling states that all originating lenders in a syndicated loan may claim the one-time credit as well as the annual credits under these Sections. However, with respect to loan participations, only the financial institution that originated the loan may claim the one-time credit; however, both the originating lender and all participating lenders are entitled, as applicable, to claim the annual credits based upon the unpaid principal balance of the loan. While Letter Rulings are applicable only to the taxpayer being addressed, refer to Letter Ruling #19-05 for more details.

September 2019

Business Excise Tax: In August, Tennessee Department of Revenue posted Notice # 19-18 addressing the impact of amended Section 163(j) of the Internal Revenue Code with respect to the computation of Tennessee's excise tax (that is, this State's business income tax) for purposes of the deduction for business interest expense. That amended Section 163(j), enacted as part of the Federal Tax Cuts and Jobs Act, limits the amount of business interest expense that can be deducted in a tax year for federal income tax purposes. That federal Act impacts the computation of the Tennessee excise tax. However, and as a result of Tennessee legislation enacted in 2018, this State decouples from that particular amended Section 163(j) for excise tax computation as to tax years beginning on or after January 1, 2020. Nevertheless, the federal interest limitation is still in effect for excise tax computations with respect to tax years beginning after December 31, 2017 and before January 1, 2020. This Notice addresses various interest limitation issues applicable to those tax years beginning after December 31, 2017 and before January 1, 2020. Refer to Notice # 19-18 for more details.

August 2019

Sales Tax: On August 7, 2019, Tennessee Department of Revenue posted Notice #19-17 addressing a new statutory exemption from the Tennessee sales/use taxes with respect to a fiber-optic cable that is attached to a utility pole, building or other structure, or that has been installed underground. As stated in the Notice, and while the purchase of such cable before it is installed remains subject to the tax, the installation of the cable is exempt from the sales/use tax under this new legislation. Further, the lease of a fiber-optic cable is exempt if certain criteria are satisfied as referenced in that Notice. This new statutory exemption is effective July 1, 2019. Refer to Notice #19-17 for more details: 19-17: Fiber-Optic Cable.

July 2019

Business Income Tax: On July 8, 2019, Tennessee Department of Revenue issued two Notices pertaining to a newly enacted 2019 law which addresses adjustments for certain foreign source income in the computation of this State's excise (business income) tax. Notice #19-13 addresses the global intangible low-taxed income (GILTI) and Notice #19-14 addresses untaxed foreign earnings deemed to be repatriated to the United States (Repatriated Earnings). Consistent with that new Tennessee law which predominately decouples from GILTI and Repatriated Earnings provisions of the federal Tax Cuts and Jobs Act, these Notices state in essence that taxpayers with such foreign source income must make two adjustments to net earnings subject to the excise tax effective for tax periods on or after January 1, 2018, with one such adjustment reversing out the GILTI and Repatriated Earnings included in federal taxable income and the second adding back an amount equal to five percent of the GILTI and the Repatriated Earnings.

Refer to these two Notices for more details:

June 2019

Sales Tax: On June 5, 2019, two Notices and a listing of Frequently Asked Questions were issued by the Tennessee Department of Revenue addressing numerous interpretive, administrative and enforcement issues pertaining to Sales and Use Tax Rule 129(2). Remote sellers meeting the Rule's $500,000 sales threshold as of July 1, 2019 are directed to register and begin collecting sales and use taxes by October 1, 2019, with further directives for those remote sellers meeting that threshold after July 1, 2019.

Links to the two Notices and the FAQ are as follows:

For more information about state and local tax developments in Tennessee, please contact:

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