Tennessee Department of Revenue

Business TaxBusiness Tax 20152015

Brief History of Tennessee’s Business Tax

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Began in 1971 Rate change in 2002Public Chapter 530 in 2009 – major changePublic Chapter 313 - Uniformity and Small

Business Relief Act of 2013 made other changes

Public Chapter 514 – Revenue Modernization Act

A privilege tax imposed upon all businesses that sell tangible personal property and most businesses that render services

Business Tax Changes for 2015 (Effective 1/1/2016)

Public Chapter 514 Revenue Modernization Act

New definition of “substantial nexus in this state”

Line #1 of Schedule A – language changeLaw changes what it means to be

“engaged in this state”

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Local and State Governments Administer Business Tax

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Cities and CountiesAll businesses statewide are subject to

business tax unless statutorily exemptedBusinesses in cities that have passed

business tax ordinances pay twice – state and city business tax

Local governments issue standard business licenses and minimal activity licenses

State of TennesseeResponsible for return processing, tax

payments, audit, and collection functionsHandles tax accounting – money back to

local governments

Transient Vendor FeeOnly applies to out-of-state vendors coming into

Tennessee to sell stocks of new merchandise$50 fee for each 14-day periodImposed at the local level and must be paid

before engaging in business$50 fee applies regardless of the amount of sales Tennessee businesses holding licenses report

taxes back to home or billing location, unless new location officially established – transient vendor license not needed

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Business Tax Applies To Certain Out-of-State Businesses

Taxable Transactions for State Business Tax Until 1/1/16

◦ Performing a service received by a TN customer◦ Leasing tangible personal property located in TN◦ Shipping or delivering tangible personal property

to a location in this state◦ Sale of natural gas to a customer located in this

state through sellers property in this stateRegistration and tax payments required to be

submitted directly to the TN Department of RevenueLicense is not required & not issued

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Licenses Are Issued By Local Governments

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Counties and cities issue business licenses for businesses with $10,000 or more in taxable gross income for a one-time fee of $15.

• A standard license is renewed annually for no additional fee when the tax return has been filed and taxes paid with the Department of Revenue

• A minimal activity license may be obtained annually for businesses having $3,000 to $9,999 in gross income (eliminates having to file and pay taxes to Revenue). License costs $15 each year

Businesses having less than $3,000 in gross income do not need a license, but can obtain a license upon request

Transient vendor and flea market licenses are obtained with the local governments - local governments retain 100% of funds

Personal Property Taxes Are Deductible

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Credit can offset up to 50% of the total business tax liability

By location and jurisdiction – ensure the correct tax deduction is taken

Some cities do not have personal property taxes

Classifications and Tax Rates

Are Tied Together

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There are five main classifications of businesses defined in the statute – some have subclasses

Each of these classifications is subject to a different rate

Wholesaler vs. Retailer – the taxpayer declares their rate when filing

Business Tax Classification 1

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Classification 1 (A, B, C, D, E)oRetail and Wholesale Rates, except for

1(D), which is retail only and 1(E) which is wholesale only

oRates vary from .001 - .0005 retail & .00025 - .000375 wholesale

oSales include food, lumber, tools, hay, seeds, and gasoline

oGasoline wholesalers are Classification 1E

Business Tax Classification 2

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Classification 2o Has retail and wholesale rates o Rates: .0015 retail & .000375 wholesaleo Sales include motor vehicles, clothing, and

home furnishings

Business Tax Classification 3

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Classification 3oHas retail and wholesale ratesoRates: .001875 retail & .000375

wholesaleoSales include books, sports

equipment, tobacco, and services

Business Tax Classification 4

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Classification 4oRetail onlyoRate: .001 retail; no wholesaleoContractors who install personal

property or construct and improve real property

oSales by commodity brokers or livestock auctions of farm products

Contractors Have Special Requirements

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Contractors may deduct amounts paid to a subcontractor if:

1. The subcontractor has their own business license or contractor’s license (not a minimal activity license),

2. The subcontractor must be making improvements to real property

3. The contractor submits with the tax return the subcontractor’s name, address, license number, and amount paid, and

4. Contractor maintains a copy of the license in his files

Out-of-State Contractors Have

Different Requirements

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Out-of-State Contractors

• Register with Department of Revenue and pay state business tax when $10,000 or more in gross receipts is made in any county

• This is per county, not aggregated• No city license or tax requirement & no

county license required, unless $50,000 or more

• If $50,000 or more – get licenses from city and county and pay both city and state business tax (deemed location)

Minimum Tax Due For All Taxpayers

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Classifications 1 through 4 and 5B: $22No such thing as a $0 business tax returnOut-of-state businesses having no

permanent location in TN only pay one $22 minimum tax or their tax liability, whichever is higher

Fiscal Year Filing Required

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Taxpayers file their tax returns based on their fiscal year

Same as their federal (IRS) tax yearTaxpayers not having a special fiscal year are

assumed to have a December year endThis applies to all classificationsNew businesses must tell Revenue or the

city/county clerk what their fiscal year is when registering

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Fiscal Year Filing Example:December Tax Year End

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Taxpayers not having a special fiscal year are assumed to have a December year end

Most businesses have a January-December tax year

All tax returns for all classifications are due on or before April 15th of the following year

Electronic filing and payment is required

Electronic filing and payment waivers may be requested

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License Periods

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Current licenses are good until 30 days past due date for next tax return

Newly-issued standard and minimal activity licenses expire 30 days after the due date for the tax return

Minimal activity licenses follow the same license period as taxpayers having standard business licenses

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Filing Correctly

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Returns must be filed electronically or a waiver must be applied for in writing and approved by Revenue

Returns are due by the 15th day of the fourth month following the end of the tax period

If the return becomes delinquent, penalty and interest is assessed

Penalty can be waived under certain conditions; interest cannot be waived

Current Issues

Nexus definition change beginning in 2016

Delinquency notices Electronic filing has been successful!

Continue to encourage businesses to register early for electronic filing usernames and passwords.

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www.TN.gov/revenue

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