Source: https://www.jdsupra.com/legalnews/spotlight-on-tennessee-2015-tax-and-57375/
Timestamp: 2019-05-19 21:35:41
Document Index: 505005628

Matched Legal Cases: ['art 6', '§7', '§4', '§5', '§9', '§10', '§11', '§12', '§13', '§14', '§15', '§16', '§ 67', '§ 56']

Spotlight on Tennessee: 2015 Tax and Related Legislation | Baker Donelson - JDSupra
A. RMA. The following are just some of the material portions of the RMA dealing with sales/use taxes, most being effective July 1, 2015:
C. Other Sales/Use Tax Legislation.
(1) Streamlined Sales Tax Project Again Delayed. The Streamlined Sales and Use Tax Project has again been delayed from the effective date of July 1, 2015 to July 1, 2017 by 2015 Public Chapter No. 273. The project is a national effort to simplify and modernize sales tax systems which are imposed by a significant number of states. Tennessee has been an associate member of the Streamlined Sales Tax Governing Board since its inception in 2005. However, also since its inception, there have been concerns within this state that Tennessee should not become a full member of the project. As a result, and even though legislation has been enacted years ago so as to conform our sales and use tax laws with the project, the effective date of many of those conforming statutes has been delayed on several occasions, the latest one now being to July 1, 2017. It is possible that the Department will again issue a Notice that the primary sales and use tax changes to become effective July 1, 2017 would include: (i) requirements that sales delivered or shipped to the customer be sourced to the delivery or shipping destination; (ii) modifications to the single article limitation own local option sales taxes; (iii) use of a single sales and use tax return covering multiple dealer locations; and (iv) implementation of certain privileged taxes in lieu of sales taxes.
(2) Warranty/Services Contracts Consolidated. In addition to delaying the Streamlined Project, 2015 Public Chapter No. 273 also consolidates the sales/use tax laws with respect to warranty and services contracts effective October 1, 2015. Based upon discussions with the Department, these considerations are intended to be more a reconfiguration of those provisions than a substantive law change. The Department has advised that warranty/service contract provisions for tangible personal property are located in one Section of Tennessee law, while maintenance contracts for computer software are located in another Section of Tennessee law -- and this new law is intended to consolidate those provisions into a single Section. The Department has issued an Important Notice No. 15-11 (June 2015) providing guidance with respect to these warranty/service contract provisions.
(5) Expanded Wastewater Treatment Equipment as Industrial Machinery. The industrial machinery exemption currently includes equipment for use by a county or municipality or a contractor pursuant to a contract for use in water pollution control or sewage systems. Pursuant to 2015 Public Chapter No. 81, effective July 1, 2015, that current language involving waste water treatment equipment is deleted and new language is substituted as follows: "or such use by a county, municipality or water and wastewater treatment authority created by private act or pursuant to the Water and Wastewater Treatment Authority Act, compiled in title 68, chapter 221, part 6, or a contractor pursuant to a contract with the county, municipality or water and wastewater treatment authority for use in water pollution control or sewage systems".
(1) Economic Nexus. The Commerce Clause of the United States Constitution has long been interpreted as prohibiting discrimination against interstate commerce, such that a tax with respect to interstate commerce will be sustained only if certain conditions are satisfied -- one such condition being that the taxes must apply to an activity with a substantial nexus to the taxing state. In a 1999 franchise and excise tax case, the Tennessee Court of Appeals relied upon a 1992 U.S. Supreme Court decision addressing the North Dakota use tax in ultimately determining that the physical presence in Tennessee is required in order to satisfy the substantial nexus condition -- as compared to economic nexus where an out-of-state business avails itself of the benefits of the economic market in Tennessee but without physical presence in this state. Since 1999, several court decisions outside Tennessee and many commentators have indicated that the 1992 Supreme Court decision was limited to use taxes and, in any event, economic nexus would also satisfy the substantial nexus condition for business income taxes. Section 6 of the RMA now defines substantial nexus as not only including traditional notions of nexus such as being organized or domiciled in Tennessee or systematically or continuously doing business activity in Tennessee, but also including economic presence in this state for purposes of constituting substantial nexus. Based upon that new definition, §§7 (excise tax) and 15 (franchise tax) impose these taxes upon businesses doing business in Tennessee and having substantial nexus in this state. The economic nexus provisions include situations where the taxpayer licenses intangible property for use by another party in Tennessee and derives income from that use of intangible property from this state; as well as in other situations that are described in the RMA as "bright-line" presence in Tennessee -- with a person having such bright-line presence in Tennessee if (a) the taxpayer's total receipts in Tennessee during the tax period exceed the lesser of $500,000 or 25% of the taxpayer's total receipts everywhere, (b) the average value of the taxpayer's real and tangible personal property owned or rented in Tennessee during the tax period exceeds the lesser of $50,000 or 25% of the average value of all the taxpayer's total real and tangible personal property, or (c) the total amount paid in this state during the tax period as compensation exceeds the lesser of $50,000 or 25% of the total compensation paid by the taxpayer. Notwithstanding any of the foregoing, the RMA provides that no company that is treated as a foreign corporation under the Internal Revenue Code and that has no income "effectively connected" with a U.S. trade or business (as such phrase is determined in accordance with such Code) shall be considered to have a substantial nexus in this state.
(5) Certified Distribution Sales - New Apportionment Formula. Section 14 of the RMA adopts a new elective apportionment provision for certain taxpayers having significant sales of tangible personal property in Tennessee which constitute "certified distribution sales." That phrase means the sale of tangible personal property "made in this state by the taxpayer to any distributor, whether or not affiliated with the taxpayer, that is resold for ultimate use or consumption outside this state; provided that the distributor has certified that such property has been resold for ultimate use or consumption outside this state." Assuming that the taxpayer makes an election under this new provision, "the total amount derived from certified distribution sales is excluded from the numerator of the taxpayer's receipts factor" -- in essence, reducing the overall amount that is apportioned to Tennessee under the standard three factor formula. In exchange for such exclusion, however, the taxpayer must pay a separate excise tax on the certified distribution sales equal to 0.5% if such sales do not exceed $2 billion; 0.375% of such sales that exceed $2 billion but not more than $3 billion, plus a payment of $10 million; 0.25% of such sales that exceed $3 billion but not more than $4 billion plus an additional $13 3/4 million; and 0.125% of such sales that exceed $4 billion plus an added $16 1/4 million. This separate excise tax is in addition to all other taxes, including the existing excise tax. A taxpayer would be able to utilize this alternative, elective apportionment if its gross sales of tangible personal property in Tennessee exceed $1 billion and the taxpayer's receipts factor exceeds 10%. This new apportionment formula is intended to encourage the location of distributors in Tennessee through the interaction of high-volume sellers of tangible personal property; and is effective as of January 1, 2016, and shall apply to all tax years beginning on or after that date.
(3) Expiring Credits. The ECD Initiative sunsets a number of credits as of July 1, 2015 that were otherwise available for franchise and excise tax purposes, based on the low-volume usage of such credits. Just some of these expiring credits include: (a) the 1% industrial machinery credit for a general partnership that operates a call center (§4); (b) the credit for qualifying environmental projects (§5); (c) the job tax credit for a general partnership that operates a call center (§9); (d) converting unused job tax credits and other credits into refundable credits by certain airline companies (§10); (e) certain headquarters relocation credits (§11); (f) certain headquarters credits tied to net operating losses (§12); (g) certain certified green energy credits (§13); (h) certain qualified medical trade center relocations (§14); (i) certain qualified advertising expenses promoting a qualified medical trade center (§15); and (j) certain credits for buildings and other structures developed using the state funding method (§16). Business plans submitted to the Department prior to July 1, 2015 may preserve eligibility for some of these credits.
Reduction of Excise Tax on Craft Beer on the Horizon?
67-5-1510. Changes of individual classification or assessment by state board , Tenn. Code § 67-5-1510
56-32-124. Taxation , Tenn. Code § 56-32-124