Background
The Tennessee Business Tax (“TBT”) is a state-level gross receipts tax imposed on the vast majority of receipts earned in Tennessee, including sales of goods shipped to a Tennessee location and providing services to Tennessee customers. Many Tennessee cities and counties also impose additional local business taxes for taxpayers with locations in Tennessee.
The business tax rate that Tennessee applies to a particular business is determined based on the statutory classification of the “dominant business activity” performed at each location. Business locations outside of Tennessee are combined and treated as a single location for purposes of establishing the dominant business activity. Businesses are segregated into 10 classifications with tax rates ranging from one fiftieth of one percent (0.02%) to three tenths of one percent (0.3%). Note that retailers are often subject to a higher rate compared to wholesalers.
A number of businesses are exempt, such as certain manufacturers who pay Tennessee property taxes. Various deductions are available, including, among others, for merchandise returns, bad debts and payments to licensed subcontractors. Credits for certain personal property taxes may also reduce TBT liability. February 2017 taxalerts.plantemoran.com 2
TBT is reported and remitted on an annual basis by the 15th day of the fourth month after the close of the business’ fiscal year. For 2016, calendar year taxpayers must file a return and remit tax by April 15, 2017.
What changed?
For tax years beginning on or after Jan. 1, 2016, Tennessee expanded the meaning of substantial nexus for imposition of the TBT to include meeting certain thresholds of Tennessee receipts, property, or payroll. The receipts threshold, met whenever a business either has more than $500,000 in Tennessee sales or 25 percent of its total receipts from Tennessee sales during the tax period, is the most likely factor to be applicable.
While not new, physical presence in Tennessee will also create TBT nexus. Physical presence can be through owning or leasing property in Tennessee, and from employees or independent contractors working in the state. For example, soliciting sales from customers during in-person meetings in Tennessee will generally create nexus.
What should I do about it?
Businesses should evaluate whether they are subject to the TBT under the new nexus rules for 2016 even if there hasn’t been any significant change in activities or the revenues generated in the state. If a tax filing obligation is found to exist, care should be taken to determine the dominant business activity and, consequently, the applicable tax rate, as well as identify and maximize applicable deductions, exemptions and credits. Should a filing obligation be discovered for years before 2016, the tax due might be mitigated through participation in the Tennessee voluntary disclosure program.
For additional information or for assistance determining if TBT applies to your business, please contact your Plante Moran tax advisor.
