On May 20, 2015, Governor Bill Haslam signed the Revenue Modernization Act. The Act expands the definition of nexus, changes sourcing rules for franchise and excise tax purposes, places greater weight on the sales factor for franchise and excise tax purposes, and makes other changes.
Under current law, taxpayers are subject to the franchise and excise tax if they are doing business in Tennessee. The term “doing business in Tennessee” refers to any activity purposefully engaged in within Tennessee, by a person with the object of gain, benefit, or advantage to the extent permitted by the U.S. Constitution and the Constitution of Tennessee. The Act, effective for tax years beginning on or after January 1, 2016, provides that taxpayers are subject to the franchise and excise tax if they are doing business in Tennessee and have substantial nexus with Tennessee.
Effective for tax years beginning on or after July 1, 2016, the Act increases the weight of the sales factor so that it makes up 60% of the apportionment factor rather than 50% of the apportionment factor.
Under Tenn. Code Ann. § 67-4-2012(i), sales, other than sales of tangible personal property, are in Tennessee, if the earnings-producing activity is performed: (1) in Tennessee; or (2) both inside and outside Tennessee and a greater proportion of the earnings-producing activity is performed in Tennessee than in any other state, based on costs of performance. The Act, effective for tax years beginning on or after January 1, 2016, provides that receipts from sales, other than sales of tangible personal property, are in Tennessee if the taxpayer's market for the sale is in Tennessee.
The actual law change can be found here.
If you are doing business in Tennessee, the State and Local Tax (SALT) professionals at RubinBrown can assist you understanding the impact that this law change may have on your business.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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