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Tennessee’s Business Tax


1/10/2017
 
Synopsis
 
In addition to the well-publicized Tennessee excise and franchise taxes, Tennessee also imposes a gross receipts tax known as the “Business Tax.” However, many taxpayers conducting business in Tennessee are not aware of this tax. This alert summarizes some of the key aspects of the Business Tax.
 
Tennessee’s Business Tax
 
The State of Tennessee imposes a gross-receipts tax, called the Business Tax, on businesses that sell goods or services in the state.  Effective for tax periods beginning on and after January 1, 2016, this tax is imposed, using economic nexus rules, on any business that derives at least $500,000 from sales to Tennessee customers during the current tax period.  Accordingly, an out-of-state business with no physical presence in the state could still potentially be liable for the Business Tax.  The Business Tax is imposed on a “location-by-location” basis whereby taxpayers are required to register, file a Business Tax return and remit payment for each location, unless the taxpayer received permission to file a combined return for the multiple locations. However, businesses with no physical location in Tennessee must consolidate their return and treat their Tennessee sales as arising from a single location for purposes of the state imposed Business Tax.
 
The Business Tax rates vary from 0.02% to 0.3%, based on a taxpayer’s specific business classification. A business classification is determined based on a taxpayer’s “dominant business activity” at a particular location. A “dominant business activity” is defined as the business activity that is the major and principal source of taxable gross sales of the business. 
 
A business entity that generates gross receipts of less than $10,000 is not subject to the Business Tax and, is not required to file a Business Tax return. However, a business entity that generates more than $3,000 at a particular location must still pay a minimal activity license fee of $15.
 
The Business Tax is not imposed on the following employment activities:
 
  • Sales made to wholesalers for resale;
  • Occasional and isolated sales or transactions by a person not routinely engaged in business;
  • Certain services within the fields of law, accounting, human and veterinary medicine, animal boarding, domestic services, public utilities, banking, insurance, engineering and architecture, building management, farming, nonprofit, education, religion, and charity.
 
In addition, Tennessee has authorized its localities, i.e., towns, cities and counties, to impose a similar tax which is state administered. 
 
What Does CohnReznick Think?
 
State and local tax rules are becoming ever more complex.  If your business sells to Tennessee customers, it should review its Tennessee contacts to determine whether a Business Tax return is due.  If there are exposures for prior periods, taxpayers should review whether they qualify to participate in a “voluntary disclosure program.”  We also want to remind taxpayers that they should annually undertake a nexus review to ensure that they understand the rules in the jurisdictions in which they have customers.  
 
Contact
 
For more information, please contact Henry Chiwaya, Director State and Local Tax Services, at henry.chiwaya@cohnreznick.com or 301-280-1812 or Cheryl Povilonis, Associate, at cheryl.povilonis@cohnreznick.com or 959-200-7296.
 
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 
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