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Tennessee Business Tax
Manual
March 2022
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Tennessee Business Tax
Manual
March 2022
|
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Contents
Chapter 1: Introduction .............................................................................................. 10
History ........................................................................................................................................................... 10
Brief Business Tax Overview................................................................................................................... 11
Nature of the Business Tax ..................................................................................................................... 12
1. State-Level and Municipal-Level Taxes .................................................................................. 12
Application.................................................................................................................................................... 14
1. Doing Business .............................................................................................................................. 14
2. Imposition ....................................................................................................................................... 14
3. Business Tax Classifications ...................................................................................................... 15
4. Retailer vs. Wholesaler................................................................................................................ 15
Chapter 2: Who is Subject to Tennessee Business Tax? ............................................... 16
Historical Context ....................................................................................................................................... 16
1. Pre-2014 Tax Periods................................................................................................................... 16
2. Periods Beginning on or after January 1, 2014 .................................................................... 17
Present Law.................................................................................................................................................. 18
1. Substantial Nexus......................................................................................................................... 19
2. Activities Engaged in this State ................................................................................................. 20
3. Nexus in Tennessee – Other Tennessee Taxes ................................................................... 21
4. Establishing a Location, Outlet, or Other Place of Business ............................................ 23
Chapter 3: Registration and Licensing ........................................................................ 25
Registration .................................................................................................................................................. 25
1. In-State Businesses ...................................................................................................................... 25
2. Out-of-State Businesses ............................................................................................................. 26
Business License......................................................................................................................................... 26
1. Standard Business License ........................................................................................................ 27
2. Minimum Activity License .......................................................................................................... 28
3. Transferring Licenses .................................................................................................................. 28
4. Contractors..................................................................................................................................... 28
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 Enlarge image | Closing a Business...................................................................................................................................... 29 1. Successor Liability ........................................................................................................................ 30 Chapter 4: Determining Gross Sales............................................................................ 32 Gross Sales ................................................................................................................................................... 32 Taxable Sales ............................................................................................................................................... 32 1. Casual and Isolated Sales........................................................................................................... 33 2. Sales of Services............................................................................................................................ 34 3. Sales of Intangible Personal Property .................................................................................... 37 4. Installation Sales ........................................................................................................................... 38 5. Sales to Employees ...................................................................................................................... 39 6. Installment and Credit Sales ..................................................................................................... 39 7. Lay-Away Sales .............................................................................................................................. 39 Sales Price..................................................................................................................................................... 40 1. Exclusions ....................................................................................................................................... 40 2. Expenses Passed Through to the Customer ........................................................................ 41 Reporting Methods .................................................................................................................................... 42 Chapter 5: Classifications ........................................................................................... 43 Classifications Generally .......................................................................................................................... 43 1. Classification 1............................................................................................................................... 43 2. Classification 2............................................................................................................................... 44 3. Classification 3............................................................................................................................... 44 4. Classification 4............................................................................................................................... 48 5. Classification 5............................................................................................................................... 48 6. Antique Malls, Flea Markets, Gun Shows, Etc....................................................................... 48 7. Transient Vendors ........................................................................................................................ 49 8. Miscellaneous Industry Specific Classifications................................................................... 49 Retailer vs. Wholesaler ............................................................................................................................. 57 1. Retail Sales...................................................................................................................................... 57 2. Wholesale Sales............................................................................................................................. 58 3 | P ag e |
 Enlarge image | 3. Sales for Resale ............................................................................................................................. 59 4. Wholesaler to Wholesaler Sales ............................................................................................... 60 5. Retailer to Retailer Sales............................................................................................................. 61 Tax Rates....................................................................................................................................................... 61 Chapter 6: Filing Requirements .................................................................................. 64 Filing the Return ......................................................................................................................................... 64 1. Payments......................................................................................................................................... 64 2. Electronic Filing ............................................................................................................................. 64 3. State-Level and Municipal-Level Filings ................................................................................. 65 4. Consolidated Returns .................................................................................................................. 66 5. Single-Member LLC Filing ........................................................................................................... 68 Filing Period ................................................................................................................................................. 68 Filing Due Dates .......................................................................................................................................... 69 1. Due Dates........................................................................................................................................ 69 2. Filing Extension ............................................................................................................................. 70 3. Estimated Assessment ................................................................................................................ 70 Final Returns ................................................................................................................................................ 71 1. Filing Requirements for Final Returns .................................................................................... 71 2. Tax Clearance................................................................................................................................. 72 3. Events Not Resulting in a Final Return ................................................................................... 73 Overpayments............................................................................................................................................. 73 Penalties........................................................................................................................................................ 74 1. Penalties and Penalty Rates ...................................................................................................... 74 2. Penalty Waivers ............................................................................................................................. 75 Interest .......................................................................................................................................................... 77 Assessments ................................................................................................................................................ 77 1. Assessment Following an Audit................................................................................................ 77 2. Estimated Assessment ................................................................................................................ 78 Statutes of Limitations.............................................................................................................................. 78 4 | P ag e |
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1. Assessments................................................................................................................................... 78
2. Refunds............................................................................................................................................ 79
3. Extensions....................................................................................................................................... 79
Record Maintenance and Retention ..................................................................................................... 80
Chapter 7: Sourcing and Distribution.......................................................................... 81
Sourcing ........................................................................................................................................................ 81
1. In-State Taxpayers other than Video Programmers, Mobile Telecommunications
Providers, and Classification 4 Contractors.................................................................................... 81
2. Out-of-State Taxpayers other than Video Programmers, Mobile
Telecommunications Providers, and Classification 4 Contractors .......................................... 81
3. Taxpayers with both In-State and Out-of-State Locations other than Classification 4
Contractors............................................................................................................................................... 82
4. Contractors..................................................................................................................................... 82
5. Video Programmers ..................................................................................................................... 83
6. Mobile Telecommunications Service Providers................................................................... 84
Distributions ................................................................................................................................................ 85
1. In-state Taxpayer Distributions ................................................................................................ 85
2. Municipal-Level Business Tax Collections from In-state Taxpayers .............................. 85
3. Fees Levied Under Tenn. Code Ann. § 67-4-710.................................................................. 86
4. Taxpayers Without Licenses or Locations ............................................................................. 86
5. Audited Taxpayers........................................................................................................................ 86
Chapter 8: Exemptions and Exclusions ....................................................................... 87
Exempt Sales of Services .......................................................................................................................... 87
1. Medical, Dental, and Allied Health Services.......................................................................... 88
2. Legal Services................................................................................................................................. 89
3. Educational Services .................................................................................................................... 89
4. Services Rendered by Nonprofit Membership Organizations ........................................ 90
5. Domestic Services Provided in Private Households........................................................... 91
6. Nonprofit Educational and Research Agencies ................................................................... 91
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7. Services by Religious and Charitable Organizations .......................................................... 92
8. Accounting, Auditing, and Bookkeeping Services ............................................................... 93
9. Public Utilities ................................................................................................................................ 93
10. Banking and Related Functions ........................................................................................... 96
11. Insurance Services .................................................................................................................. 97
12. Operators of Residential and Nonresidential Buildings.............................................. 98
13. Lessors of Real Property ........................................................................................................ 99
14. Veterinary Services .................................................................................................................. 99
15. Architecture, Engineering, and Land Surveying Services ........................................... 100
16. Services Provided by Farmers to Other Farmers ......................................................... 101
Other Miscellaneous Exemptions ....................................................................................................... 101
1. Services Sold for a Lump Sum ................................................................................................ 101
2. Services for Affiliated Entities .................................................................................................. 102
3. Internet Services.......................................................................................................................... 102
Taxable Sales by Providers of Exempt Services .............................................................................. 102
Persons/Entities ........................................................................................................................................ 103
1. Radio and Televisions Stations ............................................................................................... 104
2. Providers of Direct-to-Home Satellite Services.................................................................. 105
3. Publishers or Printers of Newspapers and other Periodicals ....................................... 105
4. Qualified Blind Persons and Disabled Veterans................................................................ 105
5. Manufacturers ............................................................................................................................. 107
6. Persons with Taxable Sales < $10,000.................................................................................. 113
7. Persons Making Casual and Isolated Sales ......................................................................... 114
8. Taxpayers Responsible for Other Privilege Taxes ............................................................ 115
Exempt Sales.............................................................................................................................................. 115
1. Qualified Amusement Activities ............................................................................................. 115
2. Agricultural Sales ........................................................................................................................ 116
3. Sales of Intangibles .................................................................................................................... 116
4. Wholesaler to Wholesaler ........................................................................................................ 117
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5. Sales or Rentals of Real Property........................................................................................... 117
6. Sales of Items Donated to Religious and Charitable Institutions................................. 119
7. Freight & Delivery Charges ...................................................................................................... 119
Exclusions ................................................................................................................................................... 119
Chapter 9: Deductions .............................................................................................. 121
Overview ..................................................................................................................................................... 121
1. Cash Discounts ............................................................................................................................ 121
2. Returned Items............................................................................................................................ 121
3. Trade-In Allowances................................................................................................................... 122
4. Repossessed Goods................................................................................................................... 122
5. Subcontractor Payments.......................................................................................................... 125
6. Sales of Services Delivered to a Location Outside Tennessee ...................................... 126
7. Sales of Tangible Personal Property in Interstate Commerce ...................................... 127
8. School to Student Sales ............................................................................................................ 128
9. Bad Debts...................................................................................................................................... 128
10. Miscellaneous Federal and State Excise Taxes ............................................................. 129
11. Accommodation Sales .......................................................................................................... 130
12. Patronage Dividends............................................................................................................. 131
13. Public Warehousing and Storage – Leases..................................................................... 132
14. Motor Vehicle Rentals – Refundable Deposits .............................................................. 132
15. Funeral Directors – Cash Advances .................................................................................. 132
Chapter 10: Credits................................................................................................... 133
Overview ..................................................................................................................................................... 133
Personal Property Taxes ........................................................................................................................ 133
1. Personal Property Taxes Assessed During Audit .............................................................. 134
2. Taxes Paid on Property Leased or Rented .......................................................................... 134
3. Providers of Video Programming Services.......................................................................... 135
4. Special School District Taxes ................................................................................................... 135
5. Property Transferred to a Government Entity................................................................... 136
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 Enlarge image | Privilege Taxes........................................................................................................................................... 136 Chapter 11: Industry-Specific Guidance .................................................................... 137 Contractors ................................................................................................................................................ 137 1. Overview........................................................................................................................................ 137 2. Reporting Sales and Progress Payments............................................................................. 137 3. Deemed Location........................................................................................................................ 137 4. In-State Contractors................................................................................................................... 138 5. Out-of-State Contractors .......................................................................................................... 142 6. Subcontractors ............................................................................................................................ 144 7. Speculative Builders................................................................................................................... 146 Agriculture .................................................................................................................................................. 146 1. Agricultural Commodity Brokers ........................................................................................... 146 2. Agricultural Exemptions ........................................................................................................... 147 Mobile Telecommunications Providers ............................................................................................. 147 1. Registration and Reporting...................................................................................................... 148 2. Sales of Phones and Accessories from Outside the State.............................................. 149 3. Personal Property Tax Credit .................................................................................................. 149 4. Sales of Internet Access ............................................................................................................ 149 Performance Entities............................................................................................................................... 150 1. In-state Performance Entities ................................................................................................. 150 2. Out-of-State Performance Entities ........................................................................................ 151 3. Are Touring Artists Transient Vendors? ............................................................................... 151 Traveling Photographers........................................................................................................................ 151 Lottery Commissions .............................................................................................................................. 152 Funeral Directors...................................................................................................................................... 152 1. Unit Price ....................................................................................................................................... 152 2. Itemization .................................................................................................................................... 153 3. Cash Advances............................................................................................................................. 153 Cemeteries and Memorial Gardens ................................................................................................... 154 8 | P ag e |
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Municipal Airports.................................................................................................................................... 154
Leased Departments ............................................................................................................................... 154
Commission Agents ................................................................................................................................. 155
Vending Machines .................................................................................................................................... 155
Antique Malls, Flea Markets, Craft Shows, Antique Shows, Gun Shows, and Auto Shows 155
1. Fee in Lieu of Business Tax...................................................................................................... 156
2. Businesses Selling Antiques at Least 5 Days Per Week................................................... 157
Transient Vendors.................................................................................................................................... 157
1. Temporary Premises ................................................................................................................. 157
2. Transient Vendor License Fee................................................................................................. 158
3. Transient Vendors and Business Tax.................................................................................... 158
Food Trucks................................................................................................................................................ 159
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Chapter 1: Introduction
History
The Tennessee General Assembly passed the “Business Tax Act of 1971” (the “Act”) as a
replacement to a local property tax (commonly referred to as an “ad valorem tax”) imposed
on business inventories. However, the Tennessee State Constitution required that inventory
be “taxed according to its value,” and thus, Tennessee courts ruled that the Act could not be
applied in lieu of the ad valorem tax but instead had to be applied in addition to the ad
valorem tax.
Because this was not the intent of the General Assembly, in 1971, the General Assembly
held a Limited Constitutional Convention to amend Article II, Section 28 of the Tennessee
State Constitution. This amendment stated the General Assembly “may levy a gross receipts
tax on merchants and businesses in lieu of ad valorem taxes on the inventories of
merchandise held by such merchants and businesses.” The amendment became effective in
1973.
As described by the Tennessee Court of Appeals in 1979, the General Assembly desired this
shift from a local ad valorem tax to a gross receipts tax, in part, because of following tax
disparity:
It is our opinion that one of the purposes of the Constitutional Amendment of 1973
was to prevent repressive taxation whereby unsold inventories of merchants, who
most likely had to borrow funds at substantial interest rates to obtain those
inventories, would be taxed on an ad valorem basis while such inventories
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remained unsold in these merchants' hands...
The Act eliminated this disparity by allowing merchants to pay the business tax (a tax on
gross sales) in lieu of the ad valorem tax. At the time of enactment, the business tax was
comprised of two parts – a county-level tax and a city-level tax. In its original form, the
appropriate local governmental body had to adopt the tax. Additionally, the local
governmental body administered the tax and remitted a portion of the tax collected to the
Department of Revenue (the “Department”).
Beginning January 1, 2010, in accordance with Public Chapter 530, 2009 Acts, the
Department assumed responsibility for administering and collecting the business tax. All
businesses subject to the tax were to file tax returns with, and remit the tax to, the
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Department. However, the general structure of the tax remained the same under the 2009
amendment.
Effective January 1, 2014, in accordance with Public Chapter 313, 2013 Acts the structure of
the business tax changed. Significantly, Public Chapter 313 changed the county tax to a
uniform state-level tax. While the Department still distributes the state-level tax to the
counties where a taxpayer performs business, counties no longer adopt or impose the tax.
Local municipalities, however, still must adopt a municipal-level tax.
Finally, in 2016, the Revenue Modernization Act (the “RMA”) made the most recent
substantial change to the business tax statutes by codifying substantial nexus (see Chapter
2 of this Manual for more information). After passage of the RMA, the Department updated
sixteen different business tax rules and regulations, including three rules repealed in their
entirety.
Brief Business Tax Overview
The business tax statutes are found in Tenn. Code Ann. § 67-4-701 through Tenn. Code Ann.
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§ 67-4-730 and the business tax rules and regulations are found inENN T.COMP .R. & EGS R.
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1320-4-5-.01 through TENN .COMP .R.& EGSR. 1320-4-5-.61.
The business tax is a privilege tax on the privilege of doing business by making sales of
tangible personal property and services within Tennessee and its local jurisdictions. While
anyone doing business in the state is subject to the state-level business tax, unless
specifically exempt, each municipality must adopt the tax to impose it within its city limits.
The business tax applies to a taxpayer’s gross sales (see Chapter 4 for more information on
what constitutes “gross sales”). Taxpayers multiply the gross sales derived from taxable sales
per location by the appropriate state and local tax rates to calculate the amount of tax owed
per location. There are several different business tax rates. The rates are determined based
on the taxpayer’s “dominant business activity” (see Chapter 5 for more information on
Classifications) and whether the taxpayer is a wholesaler or a retailer (see Chapter 5 for
more information on retailer/wholesalers).
In general, all sales of tangible personal property and services made in Tennessee will be
subject to the business tax. However, there are several exceptions and exemptions
discussed throughout this Manual.
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Nature of the Business Tax
As stated above, the Tennessee business tax is imposed on the privilege of doing business in
the state of Tennessee. Unlike sales tax, which principally applies to retail sales of tangible
personal property and certain specifically listed services, business tax applies to all taxable,
non-exempt sales of services and sales of tangible personal property. Business tax applies at
both the retail and wholesale sales. Businesses may invoice the business tax as a separate
item and pass it on to its customer, though this amount is included in the sales tax and
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business tax base.
1. State-Level and Municipal-Level Taxes
Business tax is comprised of two separate but complementary taxes: a state-level tax and a
municipal-level tax. Generally, every entity making sales of tangible personal property and/or
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services in Tennessee is subject to the state-level tax. Entities may be subject to the
municipal-level tax if they have a business location in a municipality that has enacted the tax.
The sections below provide a high-level overview of when a business is subject to business
tax (see Chapter 2 of this Manual for a more detailed discussion of when a business is
subject to business tax by having “nexus” with the state and Chapter 7 for a more detailed
discussion on how the tax revenue is distributed).
State-Level Tax
Every person doing business in Tennessee with a physical location or place of business in the
state is subject to the state-level business tax unless specifically exempt. For business tax
purposes, “person” is defined as an “individual, firm, partnership, joint venture, association,
corporation, estate, trust, business trust, receiver, syndicate, or other group or combination
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acting as a unit.” The term “person” does not include the United States of America, the State
of Tennessee, or any political subdivision of the two; electric membership cooperatives or
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utility districts.
A person without a physical location or place of business in Tennessee will be subject to the
state-level business tax if that person has substantial nexus (see pg. 19) in the state and
performs any of the following activities:
Sells tangible personal property that is shipped or delivered to a location in this
state;
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Sells a service that is delivered to a location in this state (see Chapter 4 for more
information on services);
Leases tangible personal property that is located in this state; or
Makes sales as a natural gas marketer to customers located within this state through
the presence in this state of the seller's property, pipeline capacity, or through the
presence in this state of the seller's representatives acting on behalf of the seller to
solicit orders, provide customer service, or conduct other activities in furtherance of
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such sales in this state.
Municipal-Level Tax
Each municipality, by passing a resolution or ordinance, may elect to levy the municipal-level
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business tax on any business activity conducted within its borders. Currently, 215
municipalities impose the business tax. Unlike with the state-level business tax, a person
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must have a physical location, place of business, or other location in a municipality to be
subject to the municipal-level business tax. If a taxpayer’s business is located in a
municipality that has enacted business tax, the taxpayer is required to pay both the state-
level and municipal-level business tax.
Please see Chapter 11 for special rules that apply to cable, telecom, and other specific
industries. The taxpayer should contact the municipality or the county assessor if there is
any question that the business may not be inside city limits.
A list of cities imposing business tax is available HERE on the Department’s website.
If a taxpayer’s business location is not included on the list, the taxpayer may still be subject
to municipal-level business tax. Many areas in Tennessee are governed by and/or part of
adjoining incorporated cities. For example, Antioch, Tennessee is not a city on the list,
however it is part of Metropolitan Nashville, and the Nashville city business tax is due.
Additionally, a county may have a multi-tiered, municipal-level business tax system. For
example, Davidson County has a general services district and an urban services district. The
city of Nashville is part of the Davidson County urban services district. Taxpayers can
determine if their business is part of an urban services district if they are located in the
urban services district for property tax purposes.
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Application
1. Doing Business
Business tax is a privilege tax levied upon the privilege of doing business in the state of
Tennessee. Business is defined as “any activity engaged in by any person, or caused to be
engaged in by the person, with the object of gain, benefit, or advantage, either direct or
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indirect.”
Business does not include:
Occasional and isolated sales (see Chapter 4) by someone not normally engaged in
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the business of selling the type of property being sold; or
Utilization of a property management company to manage vacation lodging for
overnight property rentals by an individual property owner. However, business tax
still applies to the rental of the property. The property management company would
be responsible for filing. See the section titled Sales or Rentals of Real Property in
Chapter 8 of this manual for more information .
However, business does include any other activity of the individual property owner that is
subject to the business tax.
2. Imposition
Business tax is imposed on a business’s gross sales of tangible personal property and
services. The vocations, occupations, businesses, or business activities listed in Tenn. Code
Ann. §§ 67-4-708(1)-(5) are taxable privileges subject to Tennessee’s state-level business tax.
Tenn. Code Ann. §§ 67-4-708(1)-(4) detail the taxable privileges subject to Tennessee’s
municipal-level business tax.
For information on vocations, occupations, businesses, or activities subject to business tax,
please see Chapter 5 of this Manual. For more information on sales and services that are
excluded from business tax and exempted sales, services, or entities, please see Chapter 8
of this Manual.
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3. Business Tax Classifications
An entity’s business tax classification determines the rate of tax that will apply. Businesses
choose their classification for each of their locations based on the “dominant business
activity” of the location. “Dominant business activity” is the activity that produces the most
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taxable income for the business location.
There are five major business tax classifications as well as a separate category for antique
malls, flea markets, transient vendors, and the like. Some classifications have subcategories
that are discussed in more detail in Chapter 5. Business tax classifications are found in Tenn.
Code Ann. § 67-4-708. Only one classification is allowed per business location.
The business tax classifications each contain several business activities that businesses must
choose to categorize as their dominant business activity. As the classifications increase in
number from Classification 1 up to Classification 5, the types of business activities change in
character from activities that meet basic needs such as the provision of food for home
preparation in Classification 1 to the relatively small subset of industrial loan and thrift
companies in Classification 5.
Businesses engaged in the business activity of selling tangible personal property that is not
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listed in any other section of Tenn. Code Ann. § 67-4-708 file under Classification 2.
Businesses engaged in the sale of services not otherwise specified file under Classification
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3.
A detailed analysis of the business tax classifications is available in Chapter 5 of this Manual.
4. Retailer vs. Wholesaler
Businesses must also determine if they are primarily engaged in the business of making
retail sales or wholesale sales. The determination of whether a business is a retailer or
wholesaler is made on a location-by-location basis. This is important because the business
tax rate differs for retailers and wholesalers at a given location. Generally, a business is a
retailer if 50% or more of taxable gross sales are retail sales and a wholesaler if more than
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50% of taxable gross sales are wholesale sales. For more information on retailers and
wholesalers, please see Chapter 5 of this Manual.
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Chapter 2: Who is Subject to Tennessee Business Tax?
Historical Context
As covered in Chapter 1, the Tennessee business tax has undergone numerous statutory
changes to adapt to modern business practices and e-commerce. One of the most important
changes is to the application of “nexus,” which describes the connection that must be
present before a taxing jurisdiction has the right to impose a tax on a business. An entity
must have some contact or connection with a state before the state may constitutionally levy
a tax. The question becomes, at what point is that connection sufficient to subject a person
to taxation in the state?
1. Pre-2014 Tax Periods
For periods beginning on or before January 1, 2014, Tennessee law provided that making
sales by engaging in any vocation, occupation, business, or business activity listed in the
business tax statutes is a privilege on which each county or incorporated municipality, or
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both, may levy a privilege tax.
Furthermore, TENN .COMP .R.& EGSR. 1320-04-05-.28(1) (2000) (“Rule 28”) stated that the
business tax applies to each place, location, or outlet in the state from which business is
carried on.
Therefore, the Tennessee business tax applied to a person who made sales or performed
services at a place of business or other location in Tennessee.
During this period, the Department considered a taxpayer that did not have a physical place
of business in Tennessee, but that operated through a warehouse or other location in
Tennessee, whether or not the warehouse or other location is owned by the taxpayer, to
have a business location where its sales were sourced. This was based onENN T.COMP .R.&
REGS. 1320-04-05-.14 (“Rule 14”). Rule 14 states that:
“[S]ales of tangible personal property and services by a licensed wholesaler or
retailer from a central warehouse or other distribution point other than his principal
place of business shall be subject to the appropriate wholesale or retail tax, and
persons making such sales shall be liable for the business tax for that location.”
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Accordingly, the Department imposed business tax on sales of tangible personal property
made from a warehouse or other location in Tennessee at which a taxpayer maintained the
tangible personal property sold.
The Department also utilized the “sufficient local incidence” test. The United States Supreme
Court coined the term “sufficient local incident” to illustrate when a business’s in-state
activity rose to the level to contribute to the establishment and maintenance of an in-state
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market. This level of activity was sufficient to satisfy U.S. Constitutional requirements.
In Westinghouse Electric Corp. v. King, 678 S.W.2d 19 (Tenn. 1984), the Tennessee Supreme
Court established as the relevant question of whether a taxpayer is subject to the business
tax as whether there is a “sufficient local incident” upon which to base the tax. It concluded
that a taxpayer who had marketing offices within the state and technical engineers
performing work within the state had “sufficient local incident” to Tennessee such that its
receipts from its sales to Tennessee customers were subject to business tax.
In Boeing Equipment Holding Company v. Tennessee State Board of Equalization, 1987 WL 15202
(Tenn. Ct. App., August 7, 1987), the Tennessee Court of Appeals found an out-of-state
taxpayer subject to business tax even though it had no offices or employees in Tennessee.
To take advantage of an ad valorem tax exemption for inventories located in the state, the
taxpayer argued it was subject to business tax based on the presence of tangible personal
property leased to persons in Tennessee. The court found the taxpayer had a “sufficient
local incident” based on the taxpayer owning property in Tennessee and receiving income
from leases on that property. It concluded that the taxpayer “engaged in the ‘local business
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of renting [property] located in this state.’”
The Westinghouse andBoeing casesboth suggested that a taxpayer need not have an office or
physical business location in Tennessee to be subject to business tax.
2. Periods Beginning on or after January 1, 2014
The Tennessee General Assembly clarified the application of the business tax as applied to
out-of-state businesses with the “Uniformity and Small Business Relief Act of 2013” (the
“Act”).
Effective for periods beginning on or after January 1, 2014, the law was amended to state the
following:
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[T]he making of sales by engaging in any vocation, occupation, business, or business
activity listed described, or referred to in § 67-4-708(1)-(5)” (the classifications section
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of the business tax statute) is subject to the state-level business tax.
[T]he making of sales by engaging in any vocation, occupation, business, or business
activity listed, described, or referred to in § 67-4-708(1)-(4)” (the classifications section
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of the business tax statute) is subject to the municipal-level business tax.
The Act also added that:
[A]ny person engaged in any vocation, occupation, business, or business activity
listed, described, or referred to in § 67-4-708(1)-(5) without establishing a physical
location, outlet, or other place of business in the state” is subject to the state-level
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business tax but exempt from the municipal-level business tax.
For purposes of the state-level business tax, to be engaged in business in this state
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includes performing a service that is received by a customer in this state.
Thus, for periods beginning after January 1, 2014, a taxpayer need not have a
location in Tennessee to be subject to the state-level business tax but must have a
physical location to be subject to the municipal-level business tax.
Present Law
A business entity located in the state will be subject to the state-level business tax if its gross
receipts sourced to all of its locations within a county are $10,000 or more, and it is not
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specifically exempt from business tax. An entity is also subject to the municipal-level
business tax if it is in a municipality that has enacted the tax and its gross receipts sourced
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to its locations within the municipality are $10,000 or more. (See Chapter 7 for more
information on sourcing). Please note, there are provisions that apply to
telecommunications and cable providers, vending machine operators, and overnight lodging
rentals. These provisions are discussed later in this Manual.
A business entity that is located outside of the state will be subject to the state-level business
tax if it has:
Substantial nexus with the state;
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Is engaged in this state in one of the activities listed under Tenn. Code Ann.§ 67-4-
717(a); and
Its gross receipts within a county are $10,000 or more.
As stated in Chapter 1, the business tax is comprised of a state-level tax and a municipal-
level tax. Out-of-state business entities are exempt from the municipal-level business tax.
While the business tax is comprised of a municipal-level and state-level tax,
the county in which a business is located is relevant for sourcing and nexus
purposes.
1. Substantial Nexus
A business must have substantial nexus with this state to be subject to the business tax. The
Revenue Modernization Act (“the RMA”) codified the substantial nexus standard in 2015. It
became effective for tax years beginning on or after January 1, 2016. Substantial nexus is:
Any direct or indirect connection of the taxpayer to this state such that the taxpayer
can be required under the Constitution of the United States to remit the tax imposed
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under this part.” Such connections include, but are not limited to, the following:
The business is organized or commercially domiciled in Tennessee;
The business owns or uses its capital in Tennessee;
The business has systematic and continuous business activity in Tennessee that
has produced gross receipts attributable to customers in Tennessee;
The business has a “bright-line presence” in Tennessee, which applies when any
of the following metrics are met:
o Total Tennessee business receipts during the tax period exceed the
lesser of $500,000 or 25% of the business’s total receipts everywhere
during the tax period;
o The business’s average value of real and tangible personal property
owned or rented and used in Tennessee during the tax period exceeds
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the lesser of $50,000 or 25% of the average value of all the business’s
total real and tangible personal property; or
o The total amount of compensation paid by the business in Tennessee
during the tax period exceeds $50,000 or 25% of the business’s total
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compensation pay by the business.
Businesses formed and operating in Tennessee will always have nexus in this
state. The question of nexus applies to out-of-state businesses with a limited
connection to the state.
Foreign entities must have effectively connected income with a United States trade or
business, as determined by the Internal Revenue Code (“IRC”), to have substantial nexus in
this state. If a business treated as a foreign corporation under the IRC has no effectively
connected income, it also does not have substantial nexus in Tennessee.
Effective for tax periods beginning January 1, 2016, the RMA’s substantial nexus standard
expands the number of businesses that might have nexus in Tennessee. Businesses that
would have been subject to the business tax before the RMA (and the substantial nexus
definition) will continue to be subject to the tax even if they do not meet any of the bright-
line tests. However, under the substantial nexus definition, some out-of-state businesses
that previously were not subject to business tax may now be subject to the tax. In other
words, the nexus provisions in existence pre-RMA are still in effect, RMA simply expanded
upon those provisions.
It is not required that a taxpayer have bright-line presence to have
substantial nexus with Tennessee. A taxpayer may have substantial nexus
with Tennessee with lesser amounts of property, payroll, and receipts in
Tennessee if it has any connection with the state that requires it to remit tax
under the United States Constitution, such as performing services in the
State.
2. Activities Engaged in this State
In addition to having substantial nexus, a business must also be engaged in one of the
activities in Tenn. Code Ann. § 67-4-717(a) before being subject to the business tax. This
section states that a business “engaged in this state” in any “vocation, occupation, business,
or business activity set forth as taxable under § 67-4-708(1)-(5), the classifications section of
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the business tax statute, with or without establishing a physical location, outlet, or other
place of business in the state, shall be subject to the tax.” The phrase "engaged in this state"
shall include, but not be limited to, any of the following:
The sale of tangible personal property that is shipped or delivered to a location in
this state;
The sale of a service that is delivered to a location in this state; or
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The leasing of tangible personal property that is located in this state.
3. Nexus in Tennessee – Other Tennessee Taxes
As mentioned above, nexus describes a connection that must be present before a taxing
jurisdiction has the right to impose a tax on an entity’s activity. Determining whether a
taxpayer has nexus in Tennessee for business tax is a different process than the
determination of whether a taxpayer has nexus for Tennessee sales and use tax and
franchise and excise tax. However, all businesses located in this state have nexus for sales
and use tax, franchise and excise tax, and business tax.
Sales and Use Tax
Out-of-state dealers engaged in the following activities are considered to have nexus in this
state:
Use of employees, agents, or independent contractors to solicit sales in Tennessee;
Use of third parties in Tennessee to conduct substantial business activities in
Tennessee;
Maintaining inventory in Tennessee and using in-state independent contractors to
fulfill Tennessee retail sales of that inventory;
In-state promotional activity by company personnel, including participation in trade
shows;
Physical Tennessee business presence of a subsidiary that is acting as an agent of
the out-of-state dealer or that is conducting activities in Tennessee on behalf of such
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a dealer (e.g., a retail store that takes returns of purchases made online from
parent);
Use of company-owned trucks or use of contract-carriers acting as an agent for the
seller;
Maintaining a store, office, warehouse, showroom, or other place of business in
Tennessee;
Leasing or renting tangible personal property in Tennessee;
Repairing, installing, or assembling tangible personal property in Tennessee or the
use of an agent or independent contractor to perform those services in Tennessee;
Providing telecommunication services to subscribers located in Tennessee;
Providing any taxable service in Tennessee; and
Use of an in-state party to route customers to the out-of-state dealer (commonly
known as “click-through nexus”).
Pursuant to the Wayfair decision, out-of-state dealers with no physical presence in
Tennessee that make sales that exceed $100,000 to customers in this state during the
previous tax year also have substantial nexus in Tennessee for sales and use tax purposes.
For more information on sales and use tax nexus requirements, see the Department’s Sales
and Use Tax Manual.
Franchise and Excise Tax
A taxpayer without a physical presence in the state may have substantial nexus in the state
for franchise and excise tax purposes if it meets the bright-line presence definition of
substantial nexus. A taxpayer meets the bright-line presence standard for substantial nexus
for franchise and excise tax if a taxpayer has:
At least $50,000 of property or payroll in the state;
At least $500,000 of receipts in the state; or
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At least 25% of its total property, payroll, or receipts in Tennessee.
A taxpayer that does not meet the bright-line presence standards may also have substantial
nexus in the state if its contact with the state is sufficient. For example:
A business engaged in systematic and continuous business activity in the state that
has produced receipts attributable to Tennessee customers will have substantial
nexus with the state.
For more information on nexus for franchise and excise tax, see the Department’s Franchise
and Excise Tax Manual.
4. Establishing a Location, Outlet, or Other Place of Business
All persons that are subject to the state-level business tax and have a physical location,
outlet, or other place of business within a municipality in this state shall also be subject to
the municipal-level business tax. Persons that do not have a physical location, outlet, or
other place of business within a municipality in this state shall not be subject to the
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municipal-level business tax.
Persons engaged in the business of selling tangible personal property or services from a
central warehouse or distribution point other than their principal place of business are liable
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for business tax at that location. For example:
A furniture store is principally located in Nashville, Tennessee. The Nashville location
is advertised on its website, the taxpayer lists this address on its registration
documents, and this is where the showroom is located. The business also has a
warehouse located in Murfreesboro, Tennessee. As new furniture models are
introduced, the taxpayer occasionally holds “warehouse sales” whereby the
warehouse is opened to the public to display and sell the overstock merchandise.
The taxpayer, therefore, should register and pay business tax for its Murfreesboro
location as well.
In the case of an audit, auditors will consider several factors when determining whether a
taxpayer has established a location, outlet, or other place of business in Tennessee
including:
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The amount of time a person has engaged in business in Tennessee;
The regularity in which a person engages in business in Tennessee;
Whether the business holds itself out as having a location in Tennessee;
Taxable receipts generated within a jurisdiction;
Whether or not employees of a business are located in this state;
Whether or not the business has Tennessee payroll receipts in its franchise and
excise tax apportionment factor;
Whether the business intends to operate at a location in Tennessee on a more than
temporary basis; and
Whether or not a taxpayer leases or owns property in Tennessee.
This is not an exhaustive list of factors. Each business is unique; thus, an auditor may use
other facts or circumstances to determine whether a seller of tangible personal property or
a service provider has established a location. For example:
A California information technology (“IT”) consultancy firm (“CA IT Company”) enters a
2-year contract with a Memphis, Tennessee business. The contract is valued at
$5,000,000 dollars and the CA IT Company will have a team of 20 consultants
working full-time from the Memphis business’s headquarters. The consultants will
have designated parking spaces, designated office spaces, security access to the
headquarters building, and access to the internet network. The CA IT Company has
information on its website that it’s performing work in numerous states and cities,
including Memphis, Tennessee. Under these circumstances, the California IT
Company has likely established a business location in Memphis, Tennessee and
should register and pay both state-level and municipal-level Tennessee business tax.
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Chapter 3: Registration and Licensing
Registration
Every person subject to state-level and/or municipal-level business tax must register with the
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Department of Revenue (the “Department”) before engaging in business in the state.
The Department registers businesses under one consolidated business tax account. For
businesses with multiple locations, the Department will register each business location, both
in state and out-of-state (if applicable) by assigning separate profile identifications under the
consolidated account to reflect business tax activity at each location. Providing information
for each location is necessary to account for variations in dominant business activity and to
ensure the proper distribution of funds to cities and counties. For example, a business set
up as an LLC may have multiple subsidiaries that each have different dominant business
activities. Taxpayers may review this account information by logging into their Tennessee
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Taxpayer Access Point (“TNTAP”) account.
Taxpayers may have both in state and out-of-state locations with taxable receipts. Please see
Chapter 7 for more information on sourcing sales receipts.
1. In-State Businesses
Businesses with a Tennessee location may register for business tax directly with the
Department or through the county clerk in the county where the business is located.
Businesses located in a city that has enacted the municipal-level business tax may register
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directly with the Department or through the appropriate city official.
When a taxpayer registers directly with the Department, the taxpayer does not have to
communicate with the county clerk to alert the county clerk of the registration. The county
clerk receives the data transmitted by the taxpayer when the taxpayer registers with the
Department. The same is true when a taxpayer registers through TNTAP, or with the county
clerk. Upon registration, both the county clerk and the Department receive the taxpayer’s
registration information.
Industrial loan and thrift companies located in Tennessee must register directly with the
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Department. Industrial loan and thrift companies are not required to obtain a business
license or register with a city or county.
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Businesses may register with the Department through TNTAP.
Multiple In-State Locations
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Businesses with multiple locations must register and remit tax for each location. As stated
above, the taxpayer will have one consolidated account with a specific identifier for each
individual location. If the business is not located in Tennessee, it must register directly with
the Department. Taxpayers who extend operations into other counties or cities without
establishing an office, headquarters, or other place of business generally do not have to
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register in such counties. Please see Chapter 2 for more information on activities or actions
the Department considers when determining if a business has established a location.
2. Out-of-State Businesses
Businesses that do not have a Tennessee location but are still subject to the business tax
must register directly with the Department through TNTAP.
Business License
In addition to registering, generally every in-state business subject to state-level or
municipal-level business tax must also obtain a business license before engaging in business
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in this state. Businesses meeting specific gross sales thresholds may forego obtaining a
standard business license in favor of a minimum activity license.
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Businesses must display each respective business license at each of their locations. The
licenses vary based upon gross sales thresholds, which are as follows:
Standard business license: More than $10,000 in gross sales;
Minimum activity license: Between $3,000 and $10,000 in gross sales; and
Businesses with less than $3,000 in gross sales do not have to obtain a business
license. Either a minimum activity license or a standard license may be obtained.
Businesses choosing to have a standard business license must file a business tax return with
the Department and remit tax for that location. The minimum tax is $22 for each location -
$44 if located in a city as both city and state tax are due.
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The Department does not issue business licenses. These licenses are issued by the
appropriate county clerk or city official. Businesses must contact local county clerks and city
officials if there are issues in obtaining a business license.
1. Standard Business License
Taxpayers with more than $10,000 in Tennessee gross sales must apply for a standard
business license. Each standard business license is $15. Each license is valid for 1 year and
expires 30 days after the due date of the taxpayer’s return. When the taxpayer files the
return and pays the business tax due, the county clerk and/or appropriate city official will
automatically renew the license at no additional cost.
How to Obtain a Standard Business License
In-State Businesses
Businesses obtain a standard business license from the county clerk of the county in which
the business is located. Businesses located in a municipality that has enacted the municipal-
level business tax must also obtain a standard business license from the appropriate city
official.
Multiple In-State Locations
A business with multiple locations is required to get a standard business license by
registering with the county and/or city for each location. Businesses with multiple locations
that fall within the minimum activity license range must also obtain such a license for each
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location. Each minimum activity license is subject to the $15 fee.
Out-of-State Businesses
Although out-of-state businesses must register with the Department and pay the state-level
business tax, business licenses are generally not required nor issued by the state. If a
business license is not required, the out-of-state business is not required to pay a $15 fee.
Out-of-state contractors with more than $50,000 in gross sales annually in a city or county
must obtain a business license in that city or county. Please see the section on the following
page titled Contractors.
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2. Minimum Activity License
The General Assembly created the minimum activity license to ease the tax compliance
burden on small businesses. A business is required to apply for a minimal activity license
from the appropriate county and/or municipality for each location at which its gross sales
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are more than $3,000 but less than $10,000. Each time a business applies for a minimal
activity license, it must pay a required $15 fee to each county and, if applicable, city.
Businesses with gross sales of $3,000 or less may obtain a minimal activity
license but are not required to do so.
3. Transferring Licenses
Generally, businesses may not transfer their business license to a different taxpayer or to a
different location owned by the same taxpayer. However, a taxpayer may transfer its
business license to a different location within the same municipality one time per tax year
without obtaining a new business license. The taxpayer must notify the appropriate county
clerk and city official of this change at least 5 days prior to the last day of business at the
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prior location.
4. Contractors
Special registration and licensing rules apply to contractors. For business tax purposes, a
contractor has a “deemed location” in a county and/or municipality based not only on
domicile or physical location, but also where the contractor has taxable sales of more than
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$50,000 for work performed in the jurisdiction.
The contractor will need to correctly determine the jurisdiction of each job to correctly file as
city and county, and districts for metropolitan governments. When the charges billed exceed
$50,000 for work performed in a deemed location, during the tax period, the contractor is
required to register for business tax and pay the one-time standard business license fee of
$15 for that location to the county and municipality, if within a city’s limits. Taxable sales of
more than $50,000 received during the tax period will be reported on the return for the
deemed location.
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Taxable sales of $50,000 or less for compensation from contracts in a county and/or
municipality other than the contractor’s place of domicile or location must be reported on
the return for the county and/or municipality of domicile or location.
Therefore, all taxable receipts for work done in any county will be subject to the state tax.
However, where those sales are sourced, and which county is apportioned the tax still
depends on whether work is done in a deemed location.
For example:
A Tennessee contractor who normally works in Wilson County is hired to repave I-24
between downtown Nashville and Clarksville and completes the work in one
calendar year. The contractor should register for business tax where the contractor
is receiving gross income prior to beginning work. In this case, the contractor should
register for business tax, obtain business licenses, and pay license fees in
Metropolitan Nashville, Davidson County, Cheatham County, the City of Pleasant
View, Robertson County, the City of Coopertown, Montgomery County, and the City
of Clarksville. The revenue should be allocated to these jurisdictions in a manner that
reflects the amount of work completed in each jurisdiction, e.g., revenue per number
of paved miles.
Closing a Business
Any person liable for any tax, penalty, or interest levied under the business tax who:
Sells the person’s business or stock of goods;
Changes the legal structure of the business (i.e., from sole proprietor to corporation,
corporation to limited liability company, etc.); or
Closes the business
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must file a final return and payment within 15 days of selling or closing the business.
For example:
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If a contractor finishes a job in a city with no prospect of another job in the same city
and would like to close the business tax account in that jurisdiction, the contractor
should notify the Department and file a final return.
A taxpayer who ceases business activity but does not properly terminate
will still be liable for the applicable minimal business tax.
Businesses holding a minimum activity license should contact the county clerk and city
recorder’s office to advise them the business is no longer operational.
Taxpayers closing their account should also contact the Department. Most account closures
can be handled by calling the Department at (800) 342-1003 (Nashville-area and out-of-state:
(615) 253-0600).
1. Successor Liability
The person’s successor, successors, or assignees, if any, must withhold enough of the
purchase money to cover the taxes, interest, and penalties due and unpaid until the former
owner can produce a receipt from the Commissioner of Revenue showing that the taxes
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have been paid, or a certificate stating that no taxes, interest, or penalties are due.
If the purchaser of a business or stock of goods fails to withhold the purchase money as
indicated, the purchaser will be personally liable for the payment of the taxes, interest, and
penalties accruing and unpaid on account of the operation of the business by any former
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owner or operator.
The amount of the purchaser’s liability for payment of such taxes, interest, and penalties
cannot exceed the amount of purchase money paid by the purchaser to the seller in good
46
faith and for full and adequate consideration in money or money’s worth.
“Purchase money” includes cash paid, purchase money notes given by the purchaser to the
seller, the cancellation of the seller’s indebtedness to the purchaser, the fair market value of
property or other consideration given by the purchaser to the seller. It does not include
indebtedness of the seller either taken or assumed by the purchaser when a tax lien has not
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been filed.
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The purchaser shall have no liability for taxes, penalties, and interest if the Department of
Revenue releases the former owner, owners, or assigns from the original liability for such
taxes, interest, or penalty through payment of the amount due, and settlement with the
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Department.
For example:
Assume that a purchaser receives, in good faith and without knowledge of any false
statement therein, an affidavit from the seller at the time of the purchase. The
affidavit states under oath the amount of such taxes, interest, and penalty due and
unpaid by the seller to the Department through the date of purchase, or a statement
from the seller that there are no due and unpaid taxes, interest, and penalty. The
purchaser in good faith withholds and sets aside from the purchase money to be
paid to the seller in an amount sufficient to pay the amount of taxes, penalty, and
interest shown to be unpaid by the seller’s affidavit.
If that purchaser tenders a copy of the seller’s affidavit by registered or certified mail
to the Department’s Collection Services Division, the purchaser will be released from
any liability, in excess of that which is shown on the affidavit, for taxes, penalty, and
interest unpaid by the previous owner, owners, or assigns.
That will not be the case, however, if the Commissioner notifies the purchaser of the
correct tax liability at the correct return address provided by the purchaser within 15
days of receipt of the affidavit.
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Chapter 4: Determining Gross Sales
Gross Sales
The business tax is based on a business’s gross taxable sales (also referred to as “gross
receipts”) per location. A business’s gross sales are comprised of all the business location’s
sales without any deduction whatsoever of any kind or character, unless specifically
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provided by Tennessee law. Gross sales are multiplied by the appropriate classification
rate to calculate the amount of tax owed per location.
Generally, all sales of tangible personal property and services made in Tennessee will be
subject to business tax. However, there are several specified exemptions and deductions.
For more information on exemptions, see Chapter 8 of this Manual. For information on
deductions, please see Chapter 9 of this Manual.
Taxable Sales
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Sales include the furnishing of any things or services taxable under the Business Tax Act.
To qualify as a sale for business tax purposes, there must be a transfer of title and/or
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possession in exchange for consideration.
Qualifying transfers may include:
Exchanges;
Barters;
Leases or rentals;
Conditional transfers;
Fabrication where raw materials are furnished by the purchaser;
Furnishing, repairing, or servicing tangible personal property consumed on the
premises of the person furnishing, repairing, or servicing the tangible personal
property; and
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Transfers of possession of tangible personal property where the seller retains title as
security for payment of the price.
Taxable sales do not include:
Sales specifically exempt or excluded under the Business Tax Act (see Chapter 8 for
more information on specific exemptions and exclusions).
Casual and isolated sales by persons who are not engaged in the business of selling
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tangible personal property or furnishing any services subject to business tax.
Sales of tangible personal property or services not normally sold by a wholesaler to a
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retailer if property has been used by the wholesaler prior to sale.
Transfers of tangible personal property from one wholesaler to another wholesaler
or from one retailer to another retailer where the amount paid by the transferee to
the transferor does not exceed the transferor's cost including freight in and storage
costs, and transportation costs incurred in the transfer from the transferor to the
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transferee.
1. Casual and Isolated Sales
As mentioned above, casual and isolated sales are not subject to business tax. For business
tax purposes, a sale is considered casual and isolated when the sale is made by persons who
are not engaged in the business of selling tangible personal property or furnishing services
subject to business tax.
A sale is not considered a casual and isolated sale if the sale is of tangible personal property
or taxable services and:
Purchased for resale by persons who hold themselves out as engaged in business
although sales may be few and infrequent;
Sold for use or consumption by a manufacturer, processor, wholesaler, or jobber
engaged in the business of distributing personal property or furnishing services
subject to business tax;
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Sold by persons regularly engaging in sales of tangible personal property at antique
malls, antique shows, flea markets, craft shows, gun shows, and auto shows; or
Sold regularly by gun shows, antique shows, craft shows, auto shows, flea markets,
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or antique malls themselves.
In Hermitage Memorial Gardens Mausoleum and Memorial Chapel, Inc. v. Dunn, 541 S.W.2d
147 (1976), the Tennessee Supreme Court analyzed the business tax liability of a
business that operated memorial gardens and cemeteries and derived more than half of
its revenue from the sale of burial lots, which is not subject to business tax. The Court
held that business tax statute does not limit the incidence of tax to those entities whose
dominant business activity is one of the activities enumerated in Tenn. Code Ann. § 67-4-
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708. Instead, all entities who make sales by engaging in any of the activities
enumerated in Tenn. Code Ann. § 67-4-708 are subject to tax regardless of whether their
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primary business activities are taxable. It concluded that the mausoleum’s other sales
of tangible personal property and services were taxable and that the mausoleum owed
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business tax on those sales.
2. Sales of Services
Generally, each person making sales of services is subject to business tax as a Classification
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3 taxpayer (see Chapter 5 for an in-depth discussion of Classifications). Services include
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every activity, function, or work engaged in by a person for profit or monetary gain. Please
note, although sales of services are generally subject to business tax, there are 16 categories
of services that are exempt from business tax that are discussed further in Chapters 5 and 8
of this Manual.
Sales of Services and Tangible Property
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Services do not include sales of tangible personal property. A person exempt from paying
the tax on sales from services rendered is still liable for tax on the sales of tangible personal
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property. Persons engaged in the business of selling tangible personal property are liable
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for business tax even if they refer to their business transactions as services. For example:
In Auto Glass Co. of Memphis v. Gerregano, the Tennessee Court of Appeals
determined a company in the business of selling and installing automotive glass and
making repairs to damaged automotive glass should file under Classification 1(B) as
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a person engaged in making sales of glass, for business tax purposes. Although the
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majority of the company’s sales transactions included glass (tangible personal
property) and installation of glass (a service), the Appellate Court determined
Classification 1(B) was the correct classification, rather than Classification 3, because
the sale of glass, not the installation, was the major source of the company’s taxable
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gross sales.
Services for Affiliated Entities
Services provided to an affiliated business entity at cost with no markup are not included
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in the definition of taxable services. As such, services provided by a taxpayer to an
affiliated business entity are excluded from gross sales when calculating business tax.
An affiliated entity is:
An entity in which the taxpayer has more than a 50% ownership interest;
An entity that has more than a 50% ownership interest in the taxpayer; or
An entity in which a second entity has more than a 50% ownership interest in the
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second entity that has more than a 50% ownership interest in the taxpayer.
Sale of a Group of Services
If exempt services are sold at the same time as taxable services and/or tangible personal
property, the otherwise exempt services will only be exempt if they can be purchased
separately and are separately itemized on the invoice.
If a group of services is sold together for one lump sum, and the services are not individually
sold, the services will be categorized under the Standard Industrial Classification Index of
1972 (“SIC”), including all supplements and amendments that most appropriately describes
the group of services as a whole. The most recent amendment to the 1972 SIC was done in
1987, thus the 1987 SIC should be used. For example:
A company offers a suite of services that includes bookkeeping, payroll, legal,
management billing, human resources, and public relations for a lump sum. A
customer cannot choose which individual services it will receive. The cost includes all
of the services together. Although legal services are exempt, the company’s services
will most closely fall under SIC Index number 8741, Management Services.
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If the SIC does not fall under one of the exempt service categories, then the lump sum for
the group of services will be taxable. This is true even if some of the services offered in the
group of services would be exempt if sold separately. Therefore, in the example above,
because management services are not included in one of the exempt service categories, the
lump sum for the suite of services is subject to the business tax.
If services are sold together and cannot be purchased separately, they should be categorized
together and only exempted if the entire group falls under one of the exempt service
categories.
Sales of Software
For business tax purposes, sales of software are treated as sales of services. Sales of
software are not considered sales of intangible (or tangible) personal property.
The Department relies on the SIC Index to evaluate whether a service is exempt from
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business tax. Generally, the Department also considers the SIC Index to determine the
Classification of a taxpayer’s business activities.
Software creation and subsequent sales of that software are considered sales of services
under the SIC Index. The 1987 SIC identifies businesses that provide “Computer
Programming, Data Processing, and Other Computer Related Services” (Industry Group No.
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737) are part of Major Group 73, “Business Services.”
Industries in Group No. 737 include, in pertinent part:
7371: Computer Programming Services, such as custom applications software
programing, custom computer programs or systems software development, and
custom software programming
7372: Prepackaged Software, including application software, games, and operating
systems
7373: Computer Integrated Systems Design, consisting of developing or modifying
computer software and packaging or bundling the software with computer hardware
to create and market an integrated system
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Sale of Services to State or Local Governments
Services provided to Tennessee state and local governments should be classified as retail
sales for Tennessee business tax purposes. Wholesale and retail sales of services subject to
Tennessee business tax under Classification 3 of Tenn. Code Ann. § 67-4-708 are taxable at
different rates. As such, it is important to determine whether a taxpayer’s sales of services
are wholesale or retail sales under Tennessee’s business tax statutes. For example:
A taxpayer that provides temporary staffing services to various businesses, such as
manufacturers and government agencies is classified as a Classification 3 service
provider. This taxpayer’s sales of staffing services to manufacturers would be
classified as wholesale sales, and its sale of staffing services sold to the government
agencies would be classified as retail sales.
3. Sales of Intangible Personal Property
Taxpayers who buy and sell intangible personal property or real property as part of their
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normal business activities are not liable for business tax on these sales.
“Tangible personal property” is defined as “personal property that may be seen, weighed,
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measured, felt or touched, or is in any other manner perceptible to the senses.” The
definition specifically excludes “stocks, bonds, notes, insurance or other obligations or
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securities.”
Examples of non-taxable intangibles include:
Royalties
Franchise fees
Broadcast rights
Licensing of copyrights
Transfer of virtual currency
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Renewable Identification Numbers (“RINs”)
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4. Installation Sales
Charges for the installation of tangible personal property in connection with a sale of
tangible personal property are subject to business tax if the property continues to be
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personal property after installation.
Property Ordinarily Removed
Personal property is tangible personal property sold and attached to real property but
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ordinarily removed by the owner or tenant.
Examples of personal property include:
o Air conditioning window units;
o Curtain and drapery rods; and
o Gasoline pumps and tanks.
The person making the sale of personal property is responsible for the tax regardless of
whether the property is installed by the person selling the property or if another person
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acting on his behalf installs the personal property.
Tax should be computed based on the dominant business activity of the person
making the sale of the personal property.
Taxpayers making charges for installing personal property apart from the sale of the
tangible personal property shall be taxed under Classification 4 of the business tax.
For example:
o A taxpayer purchases flooring and the installation of flooring from a home
improvement store. The home improvement store subcontracts with
individuals to install the flooring. When the home improvement store pays
business tax, the store may deduct the amounts paid to the subcontractors.
The subcontractors must be licensed, and the home improvement store
must provide the Department with the subcontractors' information on
Schedule C.
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Property Not Ordinarily Removed
Charges made for installing tangible personal property which becomes a part of real
property, and which is not ordinarily removed by the owner or tenant, such as plumbing,
electrical wiring, etc., are be deemed to be made by a contractor, and the person installing
such property should file and pay the business tax as a contractor.
For more information on business tax for contractors, please see Chapter 11 of this Manual.
5. Sales to Employees
Sales to employees are included in gross sales for business tax purposes. If no specific
charge was made to the employee, then either the sales price or the cost of the property or
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service furnished is included in gross sales.
6. Installment and Credit Sales
Taxpayers making conditional, charge, or installment sales must report the total selling price
of such sales and pay the appropriate business tax due in the reporting period in which the
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contracts of sale are entered. See Chapter 9 related to bad debts and repossessions.
7. Lay-Away Sales
Lay-away, lay-by or will-call sales are considered taxable sales for business tax purposes.
Lay-away sales should be included in the business tax base for the taxable period in which
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the delivery of the property is made. If the property is returned to inventory because of
nonpayment for the merchandise and any previously made payments are forfeited because
the sale was not completed, the amounts forfeited should be included in the business tax
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base at that time. For example:
Store A is a calendar year taxpayer (tax year ends 12/31). Store A makes a layaway
sale to a customer in October of 2018 for $500 worth of merchandise. Store A
receives $100 payments in October, November, and December of 2018 from the
customer. The customer makes no more payments, and the merchandise is returned
to inventory in March due to nonpayment in March of 2019.
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o The $300 in payments Store A received should be reported for business tax
during the 2019 tax year.
Sales Price
For business tax purposes, “sales price” is defined as the total amount paid for the tangible
personal property or services rendered without any deduction of the cost of property sold,
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cost of materials used, labor or services costs, or other expenses. Freight, delivery, or other
like transportation charges are subject to business tax if title to the property being
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transported passes to the vendee at the destination point.
1. Exclusions
The following items are not included in the sales price ifthey are separated on the taxpayer’s
invoice or bill of sale or if they are billed separately to customers:
Finance charges;
Carrying charges;
Time price differential;
Interest from credit extended on sales of tangible personal property under
installment sales contracts, conditional sale contracts, or other contracts providing
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deferred payments of the purchase price; and
Other charges where additional consideration is given by the purchaser for the
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privilege of making deferred payments.
Sales price does not include:
Advertising costs paid by a seller to an auctioneer for purpose of advertising an
auction. These advertising costs are not included in the sales price when no portion
of the payment is retained as profit by the auctioneer, and when the payment has
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been placed in escrow or a trust account by the auctioneers on behalf of the seller.
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Any amount reasonably allocated as a cost of providing a service when services are
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sold to an affiliated business entity.
Additional consideration received by a motor dealer from a lender for the sale or
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assignment to the lender of a chattel lease or conditional sales contract.
Freight or other transportation charges when title to the property being transported
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passes to the customer at the point of origin.
2. Expenses Passed Through to the Customer
Expenses that are passed through the to the customer are not included in the sales price in
limited circumstances. InAabakus, Inc. v. Huddleston, the Tennessee Court of Appeals
examined the definition of sales price when addressing the business tax liability of a human
resource support service. The Court concluded that the fees the agency earned providing
personnel management services to small businesses were subject to business tax. The Court
also held that expenses that simply passed through the agency were not subject to business
tax because they were funds that the agency was required to pay over to third parties on its
clients’ behalf and the agency was simply acting as a paying agent.
Example
Company A is a limited liability company with its principal place of business in Tennessee.
Company A contracts with businesses (“customers”) to provide human resource vendor
management services. Company A then contracts with third-party staffing agencies
(“suppliers”) to meet its customers’ workforce needs. Company A compiles all the suppliers’
invoices for each customer and sends each customer a consolidated invoice. Customers pay
the invoiced amount to Company A, and Company A pays suppliers on each customer’s
behalf. Company A receives an administrative fee typically equal to four percent of its
customer’s consolidated invoice.
Company A is subject to Tennessee business tax on the administrative fees that it
retains as compensation.
Company A is not subject to Tennessee business tax on the amounts it receives from
customers that are transferred to suppliers and not ultimately retained by the
Company A. The invoice payments Company A receives, less Company A’s
administrative fees, are funds that Company A is required to pay over to third
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parties, the suppliers, on its customers’ behalf for wages, payroll taxes, insurances,
and other employment related charges that are simply passed through Company A.
Reporting Methods
Wholesalers and retailers generally report business tax due on sales for the period in which
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the sale is made. However, contractors report business tax on a cash basis.ENN T.COMP .R.
& R EGS. 1320-04-05-.09(2) states that progress payment charges billed pursuant to a contract
and received by a contractor and any charges for renting or leasing equipment to others for
use in constructing, or making improvements or additions, or repairing buildings or other
structures on real property when the equipment is operated by the lessor are subject to
business tax.
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Chapter 5: Classifications
Classifications Generally
Businesses subject to Tennessee business tax must be classified to determine the correct
amount of business tax due. Business tax rates vary based on the type of business and, in
many cases, whether the business sells at wholesale or retail.
Each taxpayer is classified by its “dominant business activity” pursuant to Tenn. Code Ann. §
67-4-708 on a per location basis. “[D]ominant business activity” is defined as “the business
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activity that is the major and principal source of taxable gross sales.” In other words, the
business classification is based on the activity that generates the largest portion of a
business’s taxable sales.
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A taxpayer’s classification determines its tax rate. There are five different classifications for
taxable activities as well as a separate category for antique malls, flea markets, and the like.
A taxpayer must choose only one classification per location. Taxpayers should look to the
Standard Industrial Classification Index of 1987 (“SIC”) to aid in determining their business
tax classification.
1. Classification 1
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Classification 1 activities are subdivided into five distinct groups:
Classification 1(A) includes sales of food and beer for home preparation and
consumption (except for delicatessens and candy at retail) and food brokerage
services.
Classification 1(B) includes sales of lumber, building materials, tools, builders’
hardware, paint and glass, electrical supplies, roofing materials, farm equipment,
plumbing, heating and air conditioning equipment, and other basic lines of
hardware, and sales by service station operators (except for sales under
Classification 1(D)).
Classification 1(C) includes sales of hay, grain, feed, fertilizer, seeds, bulbs, nursery
stock, and other farm, lawn, and garden supplies and tools. Products produced by
farmers sold directly from the farm are not included in Classification 1(C).
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Classification 1(D) includes sales of gasoline, diesel fuel, and motor oils at retail.
Classification 1(E) includes sales of gasoline and diesel fuel at wholesale.
2. Classification 2
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Classification 2 activities include the sale of:
Motor vehicles
Clothing (excluding custom, made-to-order items)
Home furnishings (excluding antiques)
Prescription drugs
Prepared food, (e.g., cooked food meant to be consumed on or off the premises)
Coal, wood, ice, fuel oil, and liquefied petroleum gas
Cut flowers
Advertising specialties
This classification also includes a “catch-all” for the sale of any tangible
personal property that is not specifically classified. Therefore, taxpayers
selling products not listed in any other classification will be Classification 2.
3. Classification 3
Classification 3 includes the sales of more specialized items of tangible personal property.
These include, but are not limited to:
Delicatessens and candy
Made-to-order clothing, i.e., custom-made clothing
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Antique furniture, furnishings, and art objects
Artwork
Books, magazines, stationery (including office supplies and writing supplies),
accounting and legal forms, office forms and supplies, pens and pencils, school
supplies, and writing supplies
Sporting goods and equipment, bicycles, bicycle parts, and accessories
Jewelry
Tobacco products
Toys, games, and hobby kits
Cameras, film, and other photographic supplies
Fireworks
Hearing aids
Luggage
Artist paints and supplies
Non-prescription eye-ware
Pet food
Above-ground swimming pools (in-ground swimming pools are considered
improvements to real property)
Pawn shops
For a complete list of items, please see Tenn. Code Ann. § 67-4-708(3).
Classification 3 also includes the sale of services.
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Sale of Services
Unlike sales and use tax law, the sales of all services are subject to business tax unless
specifically exempt. Classification 3 provides 16 different exempt services, which utilize the
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SIC descriptions to define the service, from business tax. Although discussed in more detail
later in Chapter 8 of this Manual, below is a brief list of exempt services.
Exempt Services
Receipts derived from the sale of the following services are exempt from business tax:
Accounting, auditing, and bookkeeping services;
Architecture;
Banks, building and loan associations, mortgage bankers, securities, brokers,
investment companies, and other similar organizations;
Camps and trailer parks where charges are made only for rental of real property.
Persons who rent trailers to transients or sell tangible personal property or make
separate charges for specific services furnished are not exempt;
Services performed by charitable and religious organizations;
Domestic services performed in private households;
Educational services offered by elementary and secondary schools, colleges,
universities, professional schools and junior colleges, library and information
centers, correspondence schools, vocational schools, and specialized non-degree
granting schools;
Services furnished by educational nonprofit research agencies;
Engineering;
Services furnished by insurance companies and holding companies;
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Land surveying;
Legal services;
Lessors of agricultural, forestry, mining, oil, public utility, and airport properties;
Medical, dental, and allied health services to human beings, except services of
persons engaged in making dentures and artificial teeth;
Nonprofit membership organization services that are for the promotion of the
interests of the members;
Operators of residential and non-residential buildings other than hotels, motels, and
rooming houses;
Public utilities as defined in Tenn. Code Ann. § 65-4-101; and
Veterinary services.
No business license is needed, and no tax is due, unless the business is also making sales
of tangible personal property and/or other taxable services. Even if a taxpayer qualifies for
one of these exemptions, it still must register and pay business tax on any sales that do not
qualify for the exemption (e.g., a chiropractor that sells food supplements and ergonomic
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devices, etc.).
Audit Note: Taxpayers should be aware that in the case of a business tax
audit, if the business sells a group of services for a lump sum, the taxpayer
is not allowed to segregate out nonexempt services. If the business sells the
services together and the services cannot be purchased separately, they
should be categorized together and only exempted if the entire group falls
under one of the exempt service categories.
For more information on exempt services, please see Chapter 8 of this manual.
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4. Classification 4
Classification 4 activities include all persons contracting, performing a contract, or engaging
in the following:
Constructing or improving real property (e.g., constructing, building, erecting,
repairing, grading, excavating, drilling, exploring, testing, or adding to any building,
highway, street, sidewalk, bridge, culvert, sewer, irrigation or water system, drainage,
or dredging system);
Installing tangible personal property;
Providing exterminating services;
Selling livestock, poultry, or other farm products not exempted under Tenn. Code
Ann. § 67-4-712 (discussed in more detail in Chapter 8 of this Manual); and
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Receiving commissions from the sale of farm products belonging to others.
Classification 4 does not include landscaping and lawn care services – these services fall
under Classification 3. See the subsection titled Landscapers in the section titled
Miscellaneous Industry Specific Classifications in this chapter.
5. Classification 5
Classification 5 has two subparts:
Classification 5(A) includes industrial loan and thrift companies certified and licensed
under title 45, chapter 5. For a current listing of these companies, see the website for
the Department of Financial Institutions; and
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Classification 5(B) includes natural gas marketers.
6. Antique Malls, Flea Markets, Gun Shows, Etc.
Antique malls, flea markets, craft shows, antique shows, gun shows, and auto shows are not
included under one of the five specified classifications. Instead, any county and/or
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municipality may impose a fee on such businesses by resolution or ordinance. If the fee is
imposed ($1per booth per day), it must be paid directly to and retained by the county or
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municipality. This fee is in lieu of any business tax that would have otherwise been due.
The per day fee does not apply to a business that sells antiques at least five days a week
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from a permanent location. Such business will be subject to business tax as a Classification
3 vendor. This also applies to antique malls with separate booths but one common cash
register. Under these circumstances, only the mall operator is subject to the business tax on
all receipts from that location.
7. Transient Vendors
Transient vendors are also excluded from the business tax but are subject to a $50 fee paid
directly to the county and/or municipality for each 14-day period they are licensed to sell
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their goods. For example:
A seller of tangible person property based in Kentucky comes to Nashville,
Tennessee for a weeklong trade show, where it will display and sell its merchandise.
The Kentucky seller will have to obtain a transient vendor license directly from the
local city recorder or county clerk and pay a $50 fee.
Please see Chapter 11 for more in-depth analysis of transient vendors.
8. Miscellaneous Industry Specific Classifications
Home Healthcare Providers
Businesses engaged in home health services providing non-medical personal care services
to seniors and other people with physical, intellectual, and developmental disabilities are
Classification 3.
Non-medical personal care services include, but are not limited to, homemaker services,
monitoring for safety (including providing reminders to take prescription medication),
companionship, grocery shopping, meal preparation, hospital sitter services, 24-hour care,
light housekeeping, household laundry, bath and grooming assistance, and transportation.
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Landscapers
Businesses engaged in landscaping activities such as planting, mulching, mowing, and the
like are subject to business tax under Classification 3. However, businesses engaged in
installing irrigation systems and hardscapes (such as patios, retaining walls, ponds, or other
similar structures) are subject to business tax under Classification 4. Businesses engaged in
both activities are classified based upon their dominant business activity.
Storage Unit Operators
The rental of storage units is exempt under Tenn. Code Ann. § 67-4-708(3)(C)(xii) as a service
provided by an operator of a residential or nonresidential building, and as such, is not
subject to the business tax. TENN. COMP. R. & REGS. 1320-04-05-.41 further clarifies that the
rental of real property is not taxable.
However, if warehousing and storage services are provided, those services are subject to tax
under Classification 3 (see the explanation below). Also, if the storage unit business sells
tangible personal property, such as boxes, it should be registered and paying business tax
on those sales, even if otherwise only leasing space.
Warehousemen
Warehousemen are subject to business tax as Classification 3 service providers. SIC Major
Group 42 includes warehousing. Industry number 4226 is "special warehousing and storage,
not elsewhere classified" and includes "warehousing and storage of special products, not
elsewhere classified, such as household goods..." TENN. COMP. R. & REGS. 1320-04-05-.38
further clarifies that “warehousing and storage of any tangible personal property belonging
to others for a charge or fee are rendering services and are taxable under the Business Tax
Act.” Such services may involve activities such as handling, securing, and storing goods.
Note that warehousing does not include the lease of designated space within a warehouse
with no other services provided.
Software Programmers and Consultants
Software programmers and consultants are subject to business tax as Classification 3 service
providers. Even though prewritten software is treated as tangible personal property for sales
and use tax purposes, there is no provision in the business tax to deem it tangible personal
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property. (Custom software is separately and expressly subject to sales and use tax.) Thus,
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regardless of whether sales of software and services necessary to the sale of software are
taxed as part of the sales price of tangible personal property for sales tax, software vendors
would fall within Classification 3 for business tax as service providers. This is also consistent
with their SIC Classification.
House Painters
House Painters making improvements to real property are subject to business tax as
Classification 4 service providers.
Electrical Inspectors
Electrical inspectors are subject to business tax as Classification 3 service providers. While
Classification 4 includes references to testing in the SIC descriptions, SIC code 1731
(electrical work) does not include electrical inspectors.
Home Warranty Companies
Services related to insurance provided by insurance carriers or insurance agents are exempt
from business tax under Tenn. Code Ann. § 67-4-708(3)(C)(xi). Home warranty companies
offer extended warranties, or warranty insurance, on items of tangible personal property
within a home. The SIC indicates that a seller of home warranties is considered an insurance
carrier. Major Group 63 is described as “carriers of insurance of all types” and includes
Industry Number 6351 Surety Insurance. One of the examples listed under 6351 is Warranty
Insurance, Home. Therefore, sales of home warranties are services exempt from business
tax.
Photographers
Photographers are subject to business tax as Classification 3 service providers. Although
customers may purchase photographs from the photographer upon completion of the
service or may receive photographs on a disc from the photographer, it has been
determined that the photographer is primarily offering a service. This is reiterated by the
SIC, which categorizes photographers under Major Group 72 (Personal Services).
Real Estate Management Companies
If a taxpayer sells or manages real estate it owns, the taxpayer is not subject to business tax
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on sales or rental income. However, taxpayers selling and managing real estate for others
are subject to business tax under Classification 3 as providers of taxable services.
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Management fees are also subject to tax. Managers of short-term rentals and overnight
lodgings are liable for tax on the total amount collected for the rental.
For information on property management companies, see the section titled Sales or Rentals
of Real Property in Chapter 8 of this manual.
Farrier Suppliers
The sales of farrier supplies (e.g., horseshoes) are subject to business tax as Classification 2,
under the catch-all provision as taxpayers making sales of “[t]angible personal property not
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specifically listed or described elsewhere[.]”
Farriers
Farriers are subject to business tax as Classification 3 service providers if the services the
farriers provide are their dominant taxable business activity.
Dentists
Services performed by dentists are exempt from business tax under Tenn. Code Ann. § 67-4-
708(3)(C)(i). However, sales of tangible personal property by a dentist, such as electric
toothbrushes, dental water jet oral irrigators (i.e., Waterpik), teeth whitening products,
mouth wash, etc., are subject to business tax as Classification 2, under the catch-all
provision. Note that the definition of tangible personal property excludes “any materials,
substances or other items of any nature inserted or affixed to the human body by duly
licensed physicians or dentists or otherwise dispensed by them in the treatment of
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patients.”
Radon Testing
Radon testing is subject to business tax under Classification 3, service providers. While the
Classification 4 description does have language that includes the word “testing” and
“building,” radon testing is testing the air quality in the building, not the building itself.
Music Lessons, Tutoring, Day Cares/Pre-Ks
Individuals providing music lessons and private tutoring and day cares/pre-Ks are subject to
business tax as Classification 3 service providers.
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There is an exemption for "[e]ducational services offered by elementary and secondary
schools, colleges, universities, professional schools and junior colleges, library and
information centers, correspondence schools, vocational schools and specialized nondegree
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granting schools."
Day cares and pre-Ks are not exempt because they are not elementary or secondary schools
or one of the others listed. Likewise, individuals who provide instruction of some sort, e.g.,
individual private tutors and individual piano teachers do not meet the definition of a school
within the statute and are not an establishment within the SIC code. However, an actual
music school would qualify for the exemption.
Veterinarians
Services furnished by persons engaged in the practice of veterinary medicine, dentistry or
surgery are exempt from business tax under Tenn. Code Ann. § 67-4-708(3)(C)(xiv). Sales of
services involving the boarding and lodging of animals, if sold by veterinarians, are also
exempt from business tax. However, veterinarians are liable for business tax on their sales
of grooming services and their sales of animal food and medicine, collars, leashes, and any
other tangible personal property sold by them.
Veterinarians should determine their dominant taxable sales for classification purposes. If
most of a veterinarian’s taxable sales are sales of pet food or grooming, they should pay
business tax on all taxable sales as Classification 3 service providers. If most a veterinarian’s
taxable sales are of animal medications, they should pay business tax on all taxable sales as
Classification 2 sellers.
Licensed Clinical Social Workers
Psychotherapy services provided by licensed clinical social workers are exempt from
business tax under Tenn. Code Ann. § 67-4-708(3)(C)(i) as medical or allied health services.
Sales of these services are classified under SIC Code 8049 as sales of exempt services
provided by health practitioners not elsewhere classified. Licensed clinical social workers
remain liable for business tax on taxable sales.
Massage Therapists
Massage services provided by licensed massage therapists are exempt from business tax
under Tenn. Code Ann. § 67-4-708(3)(C)(i) as medical or allied health services. These sales
would be treated by SIC code 8049 as sales of exempt services provided by health
practitioners not elsewhere classified. However, like other medical service providers,
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massage therapists may become liable for business tax if they make other types of sales that
do not fall within this exemption.
Acupuncturists
Acupuncturists are exempt from business tax under Tenn. Code Ann. § 67-4-708(3)(C)(i) as
medical or allied health services. Such sales would be treated by SIC code 8049 as sales of
exempt services provided by health practitioners not elsewhere classified. However, like
other medical service providers, acupuncturists may become liable for business tax if they
make other types of sales that do not fall within this exemption.
Botox Injections
Botox injections are exempt from business tax under Tenn. Code Ann. § 67-4-708(3)(C)(i) as
medical or allied health services. In general, Botox injections must be administered by a
licensed medical professional. According to the state medical board, there is one exception
to the rule. If the injections are administered in a doctor’s office under the supervision of a
licensed doctor, they can be administered by anyone that the doctor has trained. However,
because the second scenario must occur in a doctor’s office under a doctor’s supervision,
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either scenario would qualify as medical or allied health.
Electrolysis and Laser Spot/Scar Removal
Electrolysis and laser spot/scar removal are exempt from business tax under Tenn. Code
Ann. § 67-4-708(3)(C)(i) as medical or allied health services. Electrolysis must be administered
by an electrologist licensed by the Tennessee Electrolysis Health Department board, and
laser spot/scar removal must be administered by a licensed medical professional. Such sales
are treated under SIC code 8049 as sales of exempt services provided by health practitioners
not elsewhere classified.
Microdermabrasion
There are different levels of microdermabrasion services. Estheticians can administer
cosmetic microdermabrasion; in which case it is not an exempt medical or allied health
service. Instead, such services are subject to business tax as Classification 3, service
providers.
However, licensed medical professionals administer medical grade microdermabrasion,
which is administered in a doctor’s office and supervised by a doctor. When
microdermabrasion is provided by a licensed medical profession or in a doctor’s office, it is
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exempt from business tax under Tenn. Code Ann. § 67-4-708(3)(C)(i) as medical or allied
health services. See also SIC code 8049.
Chiropractors
Chiropractors are exempt from business tax under Tenn. Code Ann. § 67-4-708(3)(C)(i) as
medical or allied health services. They are also specifically listed under SIC code 8041. Like
other medical service providers, chiropractors may become liable for business tax if they
make other types of sales that do not fall within this exemption.
Advertising Agencies
The SIC defines advertising agencies and advertising consulting services as “establishments
primarily engaged in preparing advertising (writing copy, artwork, graphics, or other creative
work) and placing such advertising in periodicals, newspapers, radio and television, or other
advertising media for clients on a contract or fee basis.” Services provided by advertising
agencies are generally subject to business tax as Classification 3 sales of services.
Advertising Agencies Purchasing Media on Behalf of Clients
The amounts that an advertising agency receives for rendering services to plan, budget for,
facilitate the purchase of, and verify media placement for the agency’s client are subject to
business tax. Additionally, any commissions received by the advertising agency from the
media outlet for facilitating sales of media placement to the agency’s client are also subject
to business tax.
However, any amounts that an advertising agency receives from a client that the agency
uses to purchase media placement from a media outlet, including newspapers, magazines,
billboards, television, radio, and online sites (e.g., social media ads, web banners, pop-up
ads, links to webpages, etc.), are not subject to business tax. The media placement is not a
cost of property sold, cost of materials used, labor or service costs, or other expenses of the
advertising agency in providing its advertising materials or services.
Therefore, the charge for the cost of the media placement is not part of the sales price of the
advertising agency’s sale of its advertising services or tangible personal property.
Additionally, the advertising agency does not hold itself out as a seller or provider of media
placement. Instead, the media outlet is the provider of media placement and retains control
of the media.
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Advertising agencies commonly negotiate to purchase media placement on behalf of their
clients. Agencies may charge clients for services and the cost of the media placement in
different ways.
For example:
An agency may charge its client only the same amount for which the media
placement was purchased. For example, an agency purchases media placement
from a media outlet for $1,000, and the agency charges its client $1,000 for the
media placement.
An agency may charge its client a lump sum service fee that includes charges for its
services to facilitate the purchase of the media placement and the cost of the media
placement. For example, an agency purchases media placement from a media outlet
for $1,000, and the agency charges its client a lump sum of $1,200 for the media
placement. The agency uses $1,000 of that amount to pay the media outlet and it
retains $200 as a service fee.
An agency may separately itemize its service fee and the cost of the media
placement in the amount that it charges its client. Using the same scenario as the
previous example, the invoice the agency gives its client has separate itemized
amounts for media placement for $1,000 and a service fee for $200.
A media outlet may charge the advertising agency a lump sum fee that includes the
cost of the media placement and a commission paid to the advertising agency. The
advertising agency then charges its client the same lump sum. Once paid over to the
media outlet, the media outlet will then pay the commission to the advertising
agency. For example, an agency charges its client a lump sum of $1,200 for the
media placement. The agency pays the entire $1,200 to the media outlet, and the
media outlet writes a commission check to the agency for $200.
Regardless of which way an advertising agency charges its client for the media placement,
the portion of the amount charged that the agency uses to pay the media outlet for the
media placement is not subject to business tax. In other words, the net amount that the
media outlet keeps is not taxable. In each of the examples above, the $1000 that the agency
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receives from its client for the cost of the media placement is not subject to business tax.
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To determine the amounts subject to business tax, an auditor may review
the agreements between advertising agencies, clients, and media outlets.
Retailer vs. Wholesaler
Classifications 1-3 each have separate rates for wholesalers and retailers. If a business
qualifies as a wholesaler, then it will be subject to the business tax at the wholesale rate
for its classification on all its taxable gross sales. Likewise, if a business qualifies as a
retailer, then it will be subject to the business tax at the retailer rate for its classification
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on all its taxable gross sales.
1. Retail Sales
A retail sale is any sale that is not a wholesale sale. In retail sales, the purchaser is generally
the end-user of the product or service. For example:
ABC Company sells sporting goods equipment directly to end-users/consumers.
These sales are considered retail sales.
Retail sales include sales to contractors because contractors are considered the end-user of
the product. A retailer is any person whose taxable gross sales are at least 50% retail
sales.109 Taxable gross sales refer to Tennessee sales, therefore, sales made in other states
are disregarded in determining whether a business is a retailer. For example:
Acme Corporation (“Acme”) is located in Kentucky, where it has 10 retail stores. Acme
also has a distribution center located in Tennessee, where it sells exclusively to Bravo
Corporation (“Bravo”), a related business. Bravo has 5 retail stores in Tennessee.
Acme generates 70% of its total gross receipts from retail sales in Kentucky, and 30%
of its gross receipts from wholesale sales in Tennessee. Although more than 50% of
its total sales are retail sales, such retail sales are not taxable gross sales for
Tennessee business tax purposes and thus do not apply when determining whether
Acme is a retailer or wholesaler. In this case, Acme is a Tennessee wholesaler and
subject to business tax on its sales to Bravo.
Taxpayers should carefully note who their customers are and how the customers use the
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products or services sold. For example, contractors, hospitals, and rest homes are
considered end-users of products they purchase for use in providing their respective
services. Thus, sales to such entities are retail sales.
Packaging
TENN .COMP .R. & EGSR. 1320-04-05-.10 makes it clear that sales of returnable packaging to
everyone (“to either retailers or to anyone else”) are retail sales. However, the rule, when
addressing sales of nonreturnable packaging, states only those sales to retailers are retail
sales. Therefore, sales of nonreturnable packaging to anyone other than retailers are
wholesale sales.
Sale of Services to Federal, State, Local Governments, or Non-Profit Entities
Services provided to the federal government, Tennessee state and local governments, or
non-profit entities should be classified as retail sales for Tennessee business tax purposes.
2. Wholesale Sales
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A wholesale sale includes the following:
A sale to a retailer for resale;
A sale of industrial materials for future processing that become component parts
of a product that is for resale;
o For example, a Tennessee aluminum smelter sells ingots (pieces of metal)
to a Tennessee auto parts maker.
Sales of tangible personal property to the State or other government agencies
or to other institutions exempt from paying sales and use tax under Tenn.
Code Ann. § 67-6-322 (sales of services to governmental or exempt agencies or
institutions are sales at retail); or
A sale by a franchised motor vehicle dealer to a manufacturer or distributor of
motor vehicles or an obligor under an extended service contract of parts or
repair services, or both, necessary for repairs performed by the dealer under the
manufacturer’s, distributor’s, or obligor’s warranty, and includes a manufacturer
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or distributor of the motor vehicle.
A wholesaler is any person whose taxable gross sales are more than 50% wholesale
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sales. An example of a wholesale sale is as follows:
Paper manufacturer sells its paper to a business-to-business office products
company. The business-to-business office products company sells the paper directly
to businesses that use the paper in daily operations. Because the business-to-
business office product company is reselling to end-users, the office products
company is a retailer. As such, the sale to a retailer for resale is a wholesale sale.
Packaging
There is a special regulation that applies to sales of packaging. All sales of returnable
packaging, regardless of the purchaser, are retail sales. Additionally, all sales of
nonreturnable packaging to retailers are retail sales. However, all sales of packaging
materials to anyone other than a retailer (i.e., manufacturers, wholesalers, distributors,
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resellers) are wholesale sales.
3. Sales for Resale
The term “resale” is defined as “a subsequent, bona fide sale of the property, services, or
taxable item by the purchaser,” and a “sale for resale” is defined as “the sale of the property,
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services, or taxable item intended for subsequent resale by the purchaser.” Sales for
resale may be taxable depending on the underlying facts of the transaction.
The price charged by the vendor for tangible personal property or services or the quality of
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such property or services is immaterial in determining whether a sale is one for resale.
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The determinative factor is the customer’s treatment of his purchase.
Sales for resale include:
Sales of tangible personal property or taxable services made by a dealer to an out-of-
state vendor who directs that the dealer act as the out-of-state vendor’s agent to
deliver or ship tangible personal property or taxable services to the out-of-state
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vendor’s customer, who is a user or customer;
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Sales where a supplier of materials, supplies, equipment, and services makes
tangible personal property or services available for further processing as a
component part of a product to legitimate dealer engaged in and reselling or leasing
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such property or services to a user or consumer; and
Sales to a manufacturer or processor for future processing, manufacture, or
conversion into articles of tangible personal property for resale where such
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industrial materials become a component part of the finished product.
When Sales for Resale are Considered Wholesale Sales
Sales of tangible personal property and services to a retailer who may make further
distributions from a central warehouse or other distribution point to others for resale are
considered wholesale sales.
4. Wholesaler to Wholesaler Sales
Sales made by one wholesaler to another wholesaler (or sales by one retailer to another
retailer at cost) are excluded from the definition of sale and thus are not subject to the
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business tax. This exemption applies even if the sale includes a markup.
Taxpayers, therefore, must determine if their customer is a wholesaler or retailer.
Examples
Paper manufacturer sells its paper to a business-to-business stationery company, a
paper distributor. The business-to-business stationery company sells the paper
directly to businesses, retail stores or printers, that offer the stationery to end-users.
Because the business-to-business stationery company is reselling to a reseller, they
are making a wholesaler-to- wholesaler sale and the transaction between the paper
manufacturer and the business-to-business stationery company, a paper distributor,
is not subject to business tax.
Pharmaceutical drug manufacturer sells its products to a distribution company that
sells said pharmaceuticals directly to hospitals who provide patient care. Although
the sale from manufacturer to distributor appears to be a wholesaler-to-wholesaler
sale, it is not because TENN .COMP .R. & EGSR. 1320-04-05-.20 states the hospitals are
users and consumers of products sold to them for use in providing healthcare
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services. Therefore, it is a taxable wholesale sale by the pharmaceutical drug
manufacturer and a retail sale by the distribution company.
Wholesaler A sells products (100%) to Wholesaler B who sells these products to
Retailers (70%) and Consumers (30%). 70% of Wholesaler A’s sales are exempt
wholesale to wholesale sales and 30% are taxable wholesaler to retailer sales subject
to the wholesale rate. Wholesaler A must be aware of its customers’ business
activities.
5. Retailer to Retailer Sales
Retailer to retailer sales are generally subject to business tax. However, transfers of tangible
personal property from a retailer to another retailer for consideration that does not exceed
the cost of the tangible personal property including freight and storage costs, and
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transportation costs incurred is not defined as a sale and is not subject to business tax.
These type sales are often accommodation sales. For example:
A customer at a car dealership in Nashville wants a black car with black interior. The
Nashville dealership only has a white car with black interior. However, the dealership
finds the car at a Memphis dealership. The Memphis dealership sells the car to the
Nashville dealership at cost plus transportation. Both dealerships are retailers, but
because the sale was made at cost plus transportation, it is not considered a sale for
business tax purposes.
Tax Rates
Each person subject to the business tax as a Classification 1-4 or 5B taxpayer must pay at
least $22 per year per location. If the taxpayer does not have a location within the state, it
must pay a minimum tax of $22 for all its activity in the state. This minimum tax applies
to every person registered in the state, even if no business activity is carried on.
Contractors are required to have a registration in the jurisdiction of their
domicile. If all a contractor’s sales in other jurisdictions in this state exceed
the $50,000 threshold amount and the contractor had no sales in its
domicile jurisdiction, then the contractor must pay the minimum $22 tax in
its domicile.
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Each taxpayer must pay business tax according to its classification at the rates below:
Classification 1A, 1B, 1C retailer – 1/10 of 1% (0.001);
Classification 1A wholesaler – 1/40 of 1% (0.00025);
Classification 1B and 1C wholesaler – 3/80 of 1% (0.000375);
Classification 1D retailer – 1/20 of 1% (0.0005);
Classification 1E wholesaler – 1/32 of 1% (0.0003125);
Classification 2 retailer – 3/20 of 1% (0.0015);
Classification 2 wholesaler – 3/80 of 1% (0.000375);
Classification 3 retailer – 3/16 of 1% (0.001875);
Classification 3 wholesaler – 3/80 of 1% (0.000375);
Classification 4 – 1/10 of 1% (of the compensation under the contract or of the
gross commissions, margins, or fees) (0.001);
Classification 5A – 3/10 of 1% of gross income of the business (interest income,
earned discounts, earned lease rentals, commission fees, past due charges,
contract earnings, collection charges, loan service fees, late fee income) (0.003);
and
Classification 5B – 1/50 of 1% (0.0002).
If the taxpayer is an operator of coin-operated machines, it is required to pay a
minimum tax of $22 only for its principal place of business. Each Class 5A taxpayer
must pay a minimum tax of $450 per year but will not be required to pay any more than
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$1,500 per year.
Municipal-Level Tax Rate
Any municipality that elects to levy the municipal-level business tax after January 1, 2014, or
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that elects to change the rate of the tax must do so at the same rates listed above.
However, if a municipality elected to levy the municipality business tax prior to this
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date, then it may continue to levy the tax at its existing rate. See the Department’s
website for a current list of municipalities that levy a municipal level business tax.
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Chapter 6: Filing Requirements
Filing the Return
Every person making sales in Tennessee by engaging in any vocation, occupation, business,
or business activity listed in Tenn. Code Ann. § 67-4-708(1)-(5) is subject to business tax and
must file an annual return, Form BUS 428. Tennessee has a consolidated filing requirement
for business tax purposes. This means that every location of the taxpayer should be included
on the same return.
1. Payments
Taxpayers subject to business tax must file their returns and tax payments together. Failure
to remit the required tax payment with the return will cause the tax to become delinquent.
Minimum Business Tax
All entities registered to do business in Tennessee under a standard business license must
pay at least the minimum business tax.
The minimum tax for taxpayers in Classifications 1 through 4 is $22.
The minimum tax for taxpayers in Classification 5A is $450, and the maximum tax for
taxpayers in classification 5A is $1,500.
For coin-operated vending machines, only the principal place of business is subject
to the minimum tax.
2. Electronic Filing
Business tax returns must be filed electronically through the Tennessee Taxpayer Access
Point (“TNTAP”), and the appropriate taxes must be paid to the Department of Revenue (the
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“Department”).
To file a business tax return online, follow the steps below:
Login to TNTAP.
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Select the “Business Tax” link. (Note: If you do not see your account, you can gain access
to your account by contacting the Department's Taxpayer Services Division
Click “File Return.”
Upload a CSV file on this first screen. If you do not use CSV files, click “Next.”
Upload any supporting documents. Click “Next.”
You will see all locations available to file along with their respective city and county.
Select the location ID and enter gross sales at that location.
Note: If you are a Class 4, or Class 3 cable provider, your location may only be for the
city tax and you will enter your sales on line 7, not line 1.
Enter in your sales for all locations and then click “Next.”
Finally, make a payment and submit your return.
3. State-Level and Municipal-Level Filings
Taxpayers Subject to State-Level Business Tax
Taxpayers subject to the state business tax must file a return with the Department.
Taxpayers Subject to Both State and Municipal-Level Business Tax
Taxpayers with a location within the limits of a Tennessee municipality that has enacted the
municipal-level business tax must file two returns for that location—one return for the
municipal-level business tax and one return for the state-level business tax.
Taxpayers with locations outside of the limits of any Tennessee city, or inside the limits of a
city that has not enacted business tax, must file one business tax return for that location for
the state-level tax.
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Taxpayers with No Physical Location in Tennessee
Taxpayers who enter Tennessee to conduct business activities but who do not have a
physical location, outlet, or other place of business in Tennessee, and who generate gross
sales of $10,000 or more in any Tennessee county, must file a business tax return for the
gross receipts received in counties where gross receipts were $10,000 or more.
4. Consolidated Returns
Taxpayers with multiple business locations file a consolidated business tax return for all
business locations. The consolidated return is a return that is filed under one account,
regardless of how many locations the business has in Tennessee.
When a taxpayer files a consolidated tax return, each location’s return information must be
complete before the return is submitted. Taxpayers can choose to have one person submit
the return on behalf of all locations, or taxpayers can identify different employees or tax
professionals to report the information for each individual location in TNTAP.
After all locations are reported, someone must submit the return on behalf of all locations.
Otherwise, the return will not be submitted to the Department. Any person authorized to
enter location filing details may also complete the final submission step for the business. All
locations must be complete without errors to submit the return. Ideally, the last person to
complete their location details should also complete the final submission. If the final
submission is after the due date, the entire balance (sum of all locations) is subject to
penalty and interest.
Filing Example for a Business with Multiple Locations
To have multiple individuals file for different locations for a single business in TNTAP, use the
following steps. These steps can be repeated regardless of the number of locations a
business has.
The business in this example has 3 locations. Each location is filed by a different person:
TNTAP User 1 is responsible for filing location 1; TNTAP User 2 is responsible for filing
location 2; and TNTAP User 3 is responsible for filing location 3.
TNTAP User 1:
o Log into TNTAP.
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o Go to the account and select the period you wish to file.
o Select the Location ID hyperlink for location 1.
o Enter the location 1 filing details.
o Select the “Save Draft” button.
o Select the “Finish Later” button, and then enter your password as
confirmation. At this point the location details for location 1 are saved.
TNTAP User 2:
o Log into TNTAP.
o Since TNTAP User 1 has entered details to this return, you need to edit the
existing saved return. To do so, select the “Submissions” Tab, and then in the
“Draft Submissions” section select the return hyperlink.
o In the “I Want To” section, select the “Edit Submission” hyperlink.
o Select the Location ID hyperlink for location 2.
o Enter the location 2 filing details.
o Select the “Save Draft” button.
o Select the “Finish Later” button, and then enter your password as
confirmation. At this point the location details for location 2 are saved.
TNTAP User 3:
o Log into TNTAP.
o Since TNTAP User 2 has entered details to this return, you need to edit the
existing saved return. To do so, select the “Submissions” Tab, and then in the
“Draft Submissions” section select the return hyperlink.
o In the “I Want To” section, select the “Edit Submission” hyperlink.
o Select the Location ID hyperlink for location 3.
o Enter the location 3 filing details.
o Select the “Save Draft” button.
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o Select the “Finish Later” button, and then enter your password as
confirmation. At this point the location details for location 3 are saved.
Final Submission Step:
o Now that all the location details are entered, the return is ready to be
submitted.
o Select the “Next” button.
o The summary of all locations is displayed. Select the “Submit” button.
o Enter your password to act as your signature.
o The confirmation page is displayed. The return has been successfully
submitted.
5. Single-Member LLC Filing
Single-member limited liability companies (“SMLLC”) should register as separate entities
from their corporate owner for business tax and file and remit the taxes on the business
activity conducted by the SMLLC. Additionally, the SMLLC must obtain the appropriate
business license(s) (see Chapter 3 for more information on when to acquire a business
license).
If an auditor discovers a SMLLC that is not properly registered as a separate
entity from the corporate owner for business tax, the auditor may properly
register the SMLLC prior to completing the audit.
Filing Period
The filing period for the business tax return is based on the taxpayer’s fiscal year. Unlike a
calendar year return, a fiscal year return covers 12 consecutive months. The fiscal year
th
begins on the first day of any month other than January and ends on the last day of the 12
st th
month following (e.g., July 1 through June 30 of the next calendar year). A company with a
st st
fiscal year that begins on January 1 and ends on December 31 operates on a calendar year
basis.
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If a due date for a return falls on Saturday, Sunday, or a legal holiday, the due date is
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automatically extended until the next business day. Tennessee law states that whenever
the due date for filing the return occurs on a weekend or a legal holiday for federal tax
purposes, the Commissioner of Revenue may extend the due date to the next business day.
For example:
Typically, calendar year tax returns are due on April 15. For the tax period ending
December 31, 2017 (calendar year 2017), April 15, 2018, fell on a Sunday. Therefore,
the calendar year 2017 returns were considered timely if they were filed on or before
Monday, April 16, 2018, which was the next business day following the weekend.
Filing Due Dates
1. Due Dates
th
Business tax returns are due on the 15 day of the fourth month following the end of the
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taxpayer’s fiscal year. For example:
Businesses whose fiscal year ends on December 31 must file and pay their business
th
taxes on or before April 15 of the following year.
An electronic return is considered timely filed if it was:
Transmitted on or before the due date;
Transmitted on or before the due date and subsequently accepted; or
Rejected by the Department because of a validation rule, corrected by the taxpayer,
and retransmitted within a ten-day grace period or “perfection period.”
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The perfection period is a period of ten calendar days. The perfection period begins on
the day after the date of first transmission of an electronic return that is rejected by the
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Commissioner. Another perfection period occurs after the rejection of a return for failure
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to meet a validation test.
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2. Filing Extension
The Department may, upon a showing of good cause, grant one extension, of not more than
30 days, for a person liable for the business tax to file that person’s tax return and pay the
tax shown to be due.
Requests for such extensions:
Must be made in writing;
Must state why the extension is desired;
Must be signed; and
Must be submitted before the delinquent date of the return and tax.
Interest, as provided in Tenn. Code Ann. § 67-1-801, will be added to the amount of tax due,
beginning from the statutory due date until the date the tax is paid. No penalty will be
assessed if the return is made, and the full amount of taxes are paid on or before the
extended due date.
Any return and payment made after the extended due date will be subject to penalty and
interest from the original statutory due date without regard to the period allowed by the
extension.
3. Estimated Assessment
If a taxpayer has an open business tax account, it must file a return even if it did not
have any gross receipts for the tax period. If a taxpayer does not file a return:
An estimated assessment as a delinquency will be posted to the taxpayer’s TNTAP
account; and
A notice will be sent to the taxpayer.
The estimated tax assessment is based on the best information available to the Department,
and the taxpayer bears the burden of showing by clear and cogent evidence that the
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assessment is incorrect. This is typically accomplished by filing a completed return for the
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tax period in question. If unresolved (i.e., the taxpayer continues to fail to file a return), the
assessment will go to the Collection Services Division for collection.
If a taxpayer receives an estimated assessment, they should log into their
TNTAP account and file a return and pay the applicable tax, even if they are
reporting $0 sales. This will resolve the estimated assessment.
Final Returns
A true final return is the last return filed by an entity that no longer has business or financial
activity in the state. Not all returns marked as final by taxpayers are true final returns.
Taxpayers registered for business tax and holding a standard business license received from
a city recorder or county clerk are legally obligated to file a final return and pay business tax
to the Tennessee Department within 15 days after the close of business. This obligation
stands regardless of the amount of income earned during the tax year. Even if no income
was earned, minimum tax amounts must be paid. Taxpayers that close one or more, but
not all, of their business locations are not required to file a final return.
1. Filing Requirements for Final Returns
A final return must be filed by a taxpayer within 15 days after selling or quitting its business.
A final return must also be filed, and a new license obtained, if a taxpayer changes its
business location within a municipality more than once in a fiscal year. Until a final return is
filed, the taxpayer will be required to continue to file yearly returns and pay at least the
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minimum tax for that location.
If a taxpayer closes a location but has other locations remaining in business, it must close
the location in TNTAP. The taxpayer will report any tax amounts owed by the closed location
on its regularly filed annual return.
Closing a TNTAP Account
To close a TNTAP account, taxpayers must submit a “Close Account” request by completing
the following steps:
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Log in to TNTAP.
Select the hyperlink for your business tax account.
Select the hyperlink for “Close Account” under the “I Want To” section and indicate
which location(s) are closing and when the locations are closing.
If a taxpayer’s business is not registered for business tax but had a minimal activity business
license, the taxpayer is not required to file a return or pay taxes to the Department.
However, these taxpayers must contact the county clerk or city recorder to ensure the
proper authority is aware the taxpayer’s business has closed.
If a business is subject to real and/or personal property tax, taxpayers must contact local
county or city property tax assessor’s offices for instructions on paying final property taxes
for their businesses.
2. Tax Clearance
Certificate of Tax Clearance
A Certificate of Tax Clearance declares that all tax returns administered by the Department
have been filed and all liabilities have been paid. Certificates of Tax Clearance are issued to
both terminating and ongoing businesses.
The Department may grant Certificates of Tax Clearance for terminations, withdrawals,
reinstatements, rescissions, authorizations, and good standing. Businesses often request a
Certificate of Tax Clearance to confirm they are in good standing with the Department to
complete a large business transaction involving another entity.
To receive a Certificate of Tax Clearance when shutting down a business, a business must file
all returns to date and a final business tax return through the date of liquidation or the date
the business ceased operations in Tennessee. Furthermore, all outstanding business tax
payments must be made.
A checked “final” box on a return is deemed a request for tax clearance for termination and
withdrawal. When the Department receives a return marked final, the Department may:
Automatically issue a Certificate of Tax Clearance;
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Automatically issue a Certificate of Tax Clearance denial letter that explains any
shortcomings and instructs the business to call the Department’s Taxpayer Services
Division to get the matter resolved so the tax clearance can be issued; or
Position the taxpayer for an audit.
The Department’s Taxpayer Services Division issues the certificate after the Department
reviews the account and determines all tax liabilities are satisfied. The Department mails the
certificate to the business’s mailing address, unless otherwise specified. The clearance is
valid for 45 days from the date of issuance.
Please remember to contact the Secretary of State to properly dissolve the
business. The Secretary of State will deny the dissolution or withdrawal
documents if the clearance is not received. The same Certificate of Tax
Clearance may be issued for several reasons and does not automatically
signify that business has terminated.
3. Events Not Resulting in a Final Return
Taxable entities incorporated, domesticated, qualified, or otherwise registered to do
business in this state but that are inactive in this state, or whose charter, domestication
qualification, or other registration is forfeited, revoked, or suspended without the entity
being properly dissolved, surrendered, withdrawn, cancelled, or otherwise properly
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terminated are not relieved from filing a return and paying the business tax.
Overpayments
When a taxpayer has multiple tax type accounts, an overpayment to one tax type account
may be used to pay/offset a tax liability on another account. Taxpayers should notify the
Department if they do not consent to this payment reallocation. Please note, however, that it
is not the Department’s responsibility to allocate payments to various accounts to avoid
penalties or interest from accruing.
The received date of the overpayment should be the date the overpayment occurred (when
the return was filed creating the overpayment or when the payment was received
overpaying the tax liability). The overpayment may be used to pay/offset any tax liability
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before payment of the computed penalty and/or interest liability. Overpayments may also
be considered payments when an auditor computes penalties and interest.
Penalties
A penalty is imposed for the late filing of a tax return and for late payment of taxes owed to
the state. When a taxpayer fails to submit a timely return and penalties and/or interest are
applied, the penalties and interest become part of the tax due. The Commissioner of
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Revenue may for good cause waive the payment of penalty on any tax due.
1. Penalties and Penalty Rates
Delinquency Penalty – Filing or Paying Late
If a taxpayer does not file its return, files late, or does not timely pay the tax due, a
delinquency penalty will be assessed. The penalty is computed at a rate of 5% per month, or
any portion of a month, from the due date until the date taxes are paid.
The maximum penalty is 25% of the tax amount due.
The minimum penalty is $15, regardless of the amount of tax due.
Negligence Penalty
Taxpayers are expected to file returns with all required schedules and disclosures and pay
the applicable tax based on Tennessee law. Failure to do so may result in the Department
assessing a penalty if the Department determines such failure is due to negligence.
Negligence includes, but is not limited to, any failure to make a reasonable attempt to
comply with the law.
A taxpayer’s failure to report and pay the total amount of taxes due may result in the
imposition of a penalty in the amount of 10% of the underpayment, if the Department
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determines such failure is due to negligence.
Fraud Penalty
Fraud includes any deceitful practice or willful device resorted to with the intent to evade the
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tax. If the Department determines a failure to report and pay tax is due to fraud, a penalty
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of 100% of the underpayment will be imposed against the taxpayer. Imposition of this
penalty is in lieu of all other penalties imposed by the Department, except penalties for
dishonored check or money order payments and penalties imposed in accordance with the
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Tax Enforcement Procedures Act.
2. Penalty Waivers
The Commissioner is authorized to waive, in whole or in part, penalties that are not the
result of gross negligence or willful disregard of the law, if such penalties fall within any of
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the good and reasonable causes for waiver set forth in the law. Thus, the Commissioner
does not have the authority to waive properly imposed fraud penalties. Interest may not
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be waived under any circumstances, as specifically provided in Tennessee law.
If a taxpayer fails to pay the full amount of tax due, the following circumstances would be
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good and reasonable causes for the waiver of penalty:
The taxpayer incurred a deficiency because of the taxpayer’s good faith reliance on
the incorrect interpretation of a law or regulation that was, at the time, unclear and
misleading.
The taxpayer incurred a deficiency because the taxpayer relied on factual, but not
legal, misrepresentations made by business associates of the taxpayer, of which the
taxpayer had no reason to doubt or question.
The taxpayer incurred a deficiency because the taxpayer made a factual mistake, but
after discovering the mistake, voluntarily and without demand from the Department,
remitted the amount of the deficiency plus accrued interest.
If the taxpayer’s late filing and payment of tax is no more than 30 days after the due date,
the following circumstances would be good and reasonable causes for the waiver of the
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penalty:
The return was timely mailed but was not timely received or not received at all, and
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the taxpayer provides evidence that it was mailed as required.
The delinquency was caused by an intervening providential cause that occurred
before the filing and payment due date, such as a disabling injury, illness, or death of
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the taxpayer, a member of the taxpayer’s immediate family, or the exclusive
preparer of the taxpayer’s returns.
The delinquency was caused by the unavoidable absence of the taxpayer or the
exclusive preparer of the taxpayer’s returns.
The delinquency was caused by the destruction by fire or other casualty of the
taxpayer’s place of business or business records.
The taxpayer proves that it requested the proper tax forms from the Department in
a timely manner, but they were not sent to the taxpayer in time for the taxpayer to
complete and file the return by the due date.
The taxpayer proves that the taxpayer personally visited an office of the Department
before the filing due date to get information or assistance to properly complete a tax
return, but through no fault of the taxpayer, was unable to get information or help.
The delinquency was caused by the taxpayer’s failure to include payment with its
timely filed return, if the taxpayer promptly provides payment when notified by the
Department and satisfactorily demonstrates that the payment omission was due to
an inadvertent oversight or error.
The delinquency is discovered only when the taxpayer voluntarily pays the tax, but
the Department is legally unable to enforce collection (e.g., the collection would be
barred by the statute of limitations or the lack of jurisdiction).
The taxpayer timely filed and paid the tax for at least the two-year period preceding
the due date of the delinquent return and payment, and the delinquency was not
caused by a willful disregard of the law or gross negligence.
The Department may also waive a penalty for good and reasonable cause, even if the cause
for the deficiency/delinquency does not match one of the above circumstances. But to do so,
the taxpayer must show it acted in a reasonably prudent manner. The taxpayer must also show
that the deficiency/delinquency was not caused by a willful disregard of the law or gross
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negligence.
Any taxpayer that believes it has good and reasonable cause for waiver of any penalty
assessed should petition the Commissioner in writing by selecting the “Petition for Penalty
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Waiver” in their TNTAP account. A Petition for Waiver of Penalty Form is also available on the
Department’s website under the General Forms section.
Interest
Interest applies to any taxes not paid by the date required by law, even if the Department
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grants a filing extension. The Department calculates the interest rate each July 1 using a
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statutorily imposed formula.
The Department is prohibited by law to waive interest. Tenn. Code Ann. § 67-
1-803(a)(2) states that the Commissioner’s authority to waive penalties may
under no circumstances extend to interest.
All delinquent or deficient tax payments, either administered or collected by the
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Commissioner, begin accruing interest from the date delinquent or deficient until paid.
For tax periods prior to the date of assessment, interest accrues at the prevailing
rate in effect on the date of the tax assessment, regardless of the tax period
involved.
For periods subsequent to the date of assessment, interest accrues at the prevailing
rate in effect on the date of the accrual of such interest.
Assessments
1. Assessment Following an Audit
The Audit Division will issue the taxpayer a Notice of Proposed Assessment if an auditor,
after reviewing the taxpayer’s books and records, determines the taxpayer underpaid
business tax. Taxpayers can work with the Audit Division to resolve issues in the assessment.
Taxpayers also have the right to request an informal conference with the Commissioner, or
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the Commissioner’s designee, to discuss proposed assessments. The Notice of Proposed
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Assessment becomes a Final Assessment on the 31 day after the assessment was issued,
unless the taxpayer requests an informal conference.
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A taxpayer wishing to contest the Final Assessment without making a payment must file suit
in chancery court within 90 days. However, if the taxpayer requests an informal conference
within 30 days of the date of the Notice of Proposed Assessment, the 90-day period is halted
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until the conference decision is issued. The 90 days continues after the decision is issued
(please note: the 90 days does not restart, thus if the taxpayer requested a conference on
day 30, the day after the conference decision is issued will be day 31 for the 90-day count).
The Department has published the Taxpayers’ Bill of Rights and information
about the informal conference process on the Department’s website.
2. Estimated Assessment
If a taxpayer fails to file a business tax return or files a false or fraudulent return, the
Department may issue a Notice of Proposed Assessment based upon the best information
available to the Department. This type of assessment is commonly referred to as an
estimated assessment.
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The assessment may be made at any time and is not barred by the statute of limitations.
Tenn. Code Ann. § 67-1-1501(c) provides that the tax assessed under Tenn. Code Ann. § 67-1-
1501(b) may be collected within the period of limitations provided for in Tenn. Code Ann. §
67-1-1429. Therefore, the Commissioner has six years from the date that any assessment is
made to collect a levy or begin a court proceeding to collect such an assessment. For
example:
If the Department assessed a taxpayer for business tax on June 30, 2020, the
Department would have until June 30, 2026, to collect or make a levy or begin court
proceedings to collect the assessment.
Statutes of Limitations
1. Assessments
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The statute of limitations for a business tax assessment is three years from December 31 of
the year in which the return was filed. This means the Department may only assess
additional tax within this period. Assessments may be made at any time if a return is not
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filed, or if a false or fraudulent return is filed with the intent to evade taxation.
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2. Refunds
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The statute of limitations for refund claims is three years from December 31 of the year in
which the payment was made. If a taxpayer makes business tax payments and fails to claim
the payments on its return, it will lose the right to claim those payments after three years
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from December 31 of the year in which the tax return was filed.
Refund Determinations
The Department must decide on a refund claim within six months of the receipt of the claim.
If the Department does not decide within six months following the receipt of the claim, the
claim is deemed denied. If the Department denies the claim for refund, the taxpayer may
request an informal conference or file a lawsuit for refund in chancery court within one year
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from the date that the claim for refund was filed.
The following are examples of barred refund claims:
A taxpayer filed its 2014 business tax return with payment of $3,000 on April 15,
2015. The return and the payment became barred after December 31, 2018.
On March 20, 2018, a taxpayer made a payment of $10,000 for the 2017 tax period.
However, the 2017 return was not filed until April 15, 2021. On the return, the
taxpayer computed a tax liability of $100.00 and requested a refund of $9,900. The
overpayment of $9,900 qualifies for a refund, because the return/request was made
within 3 years of December 31 in the year in which the payment was made.
Using the same facts as directly above, except taxpayer does not file the 2017
return on April 15, 2021 – instead, it files the return and requests the refund on
April 15, 2022. In this case, the refund would be barred because the return
requesting the refund was filed beyond the 3-year period.
For purposes of the statute of limitations, the Department considers extension payments to
have been made as of the statutory due date or extended due date of the return.
3. Extensions
The Department may enter into a written agreement with the taxpayer to extend the
statutory period of limitations upon assessment of taxes payable to, or refundable by, the
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Department. The Department will provide the taxpayer with a standardized form when
extending the statute of limitations during an audit. The waiver form extends both the
period for making assessments and the period for requesting refunds.
The taxpayer and the appropriate Department official must sign the waiver agreement
before it will be considered a fully executed agreement. Both parties must sign the extension
form before the statute of limitations period has expired. The form cannot be ‘back-dated’
and signed after the expiration of the statute by either party. Audits will have to be adjusted
for expired periods if the waiver is not signed by both parties before the expiration of the
statute of limitations. Taxpayers should make a copy of the signed form before returning the
form to the auditor.
Record Maintenance and Retention
Any return, if it is open under the statute of limitations, is subject to either a field audit or an
office audit. Taxpayers must establish and maintain records that show the gross amount of
Tennessee sales tax liability and the amount of gross receipts subject to business tax. The
Department has the authority to request these records to determine the correct amount of
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a business’s tax liability.
If a taxpayer keeps electronic records, it must provide the records to the Department in a
standard record format upon request. The Department will use the best information
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available if a taxpayer does not maintain appropriate records.
Taxpayers must keep records of business transactions for a minimum of three years from
December 31 of the year in which the associated business tax return was filed and
must include:
A daily record of all cash and credit sales including those under a finance or
installment plan;
A record of the amount of all merchandise purchased including bills of lading,
invoices, and purchase orders;
A record of all exclusions, deductions, and exemptions allowed or claimed; and
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A true and complete yearly inventory of the value of stock on hand.
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Chapter 7: Sourcing and Distribution
Sourcing
The term sourcing refers to where a specific taxable sale/transaction is considered to take
place. Sourcing determines where the collected tax is ultimately distributed (i.e., which
county or city receives the distribution). Generally, the sourcing of taxable sales made by
taxpayers and the distribution of the state-level and municipal-level business taxes collected
depends on the type and location of the taxpayer.
1. In-State Taxpayers other than Video Programmers, Mobile
Telecommunications Providers, and Classification 4 Contractors
If the taxpayer is in the state of Tennessee, its sales are sourced to the county and/or
municipality where it has a physical location. If an in-state taxpayer does business anywhere
else in the state without establishing a place of business in that locality, those sales will also
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be sourced to the county and/or municipality where it has a physical location. There are,
however, special rules that apply to specific businesses such as contractors, and video
programmers, that are discussed in more detail below. If the municipality where the
taxpayer is located has not elected to levy the municipal-level tax or if the taxpayer is located
outside of any municipality limits, no municipal-level tax will be due.
If the taxpayer’s activities extend into another county or municipality to the extent that the
taxpayer establishes an additional location, the taxpayer will also source sales from that
location to the additional county or municipality. Please see Chapter 2 for additional
information on how to determine if a business has established a location.
2. Out-of-State Taxpayers other than Video Programmers, Mobile
Telecommunications Providers, and Classification 4 Contractors
Sales from a taxpayer without a Tennessee location are sourced to the state and reported
on the state Location ID. Such sales are apportioned to the state, and 100% of the state
business tax collected on such sales will be distributed to the stategeneral fund. Out-of-
state taxpayers are generally exempt (as discussed in Chapter 2 of the Manual) from the
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municipal-level tax.
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3. Taxpayers with both In-State and Out-of-State Locations other than
Classification 4 Contractors
Businesses with established locations in Tennessee that also make taxable sales from
locations outside of the state should source the sales made from or attributed to the
business’s in-state location to the applicable city/county. Sales made from or attributed to the
business’s out-of-state location should be sourced to the state. This means that the business
should register for county, and if applicable, city account(s) for its sales made from its in-state
location and for a state account for its sales made from its out-of-state location.
For example:
Company A sells uniforms from three different locations in Tennessee: the city of
Nashville (within the urban services district of Davidson County), Spring Hill, and
Franklin. It also has a Kentucky location and a Virginia location that make sales of items
to Tennessee customers that it delivers in its own trucks.
Company A must register each of its Tennessee locations with and obtain a business
license from the Nashville, Franklin, and Spring Hill city officials and the Davidson,
Williamson, and Maury County clerks. It must also file returns for each location and
pay the appropriate city and state taxes.
Additionally, Company A must register its Kentucky and Virginia locations with the
Department (it will have one state account for all its out-of-state locations) and file a
state tax return and pay the appropriate state tax based on its total Tennessee sales
made from the Kentucky and Virginia locations. It will not get business licenses for
these locations.
4. Contractors
If an in-state or out-of-state contractor has sales of more than $50,000 in a county or more
than $50,000 in a municipality, then those sales are sourced to the county and/or
municipality where the contract work was performed. These are considered deemed
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locations and are treated the same as a physical location. If the municipality where the
work was done has not elected to levy the tax, then those sales will not be subject to the
municipality tax.
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If an in-state contractor has sales of $50,000 or less in a county or incorporated municipality,
then those sales are sourced to the county and/or municipality of the contractor’s domicile.
If sales of $50,000 or less are earned in an area outside of an incorporated municipality’s
limits, then those sales will not be subject to the municipality tax.
The tax collected from all such sales is distributed as described for in-state taxpayers to the
locations where the sales are sourced.
If the contractor does not have a Tennessee domicile and has sales of $10,000-$50,000 in a
county, then those sales are sourced to the state, and the state business tax is distributed to
the state general fund. In such cases, the contractor is not subject to the municipality
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business tax.
5. Video Programmers
If the taxpayer provides video programming services (as defined in Tenn. Code Ann. § 67-6-
102 provided below), all its sales from taxable sales of services and tangible personal
property are sourced to the county and/or municipality where the services or tangible
personal property were received by its customer. This is true, even if the taxpayer does not
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have a physical location in that locality. The tax is distributed as described for in-state
taxpayers, with the county and municipality portions going to the counties and
municipalities where the sales are sourced.
“Video programming services” is defined as programming by “a television broadcast station
and shall include cable television services sold by a provider authorized pursuant to title 7,
chapter 59, wireless cable television services (multipoint distribution service / multichannel
multipoint distribution service) and video services provided through wireline facilities located
at least in part in the public rights-of-way without regard to delivery technology, including
Internet protocol technology.” “Video programming services” does not include any of the
following:
Digital products transferred electronically, including, but not limited to, software,
ringtones, and reading materials such as books, magazines, and newspapers;
Audio and video programming services provided by a commercial mobile service
provider as defined in 47 U.S.C. § 332(d) ;
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Audio and video programming services provided as part of, or incidental to, Internet
access service, such as, but not limited to, video capable email, provided, that the
services are not generally considered comparable to programming provided by a
television broadcast station; and
Direct-to-home satellite television programming services.
6. Mobile Telecommunications Service Providers
Mobile (cellular) telecommunications service providers (“providers”) who provide mobile
telecommunications services to customers in Tennessee must source sales from such sales
to the customer’s primary place of use in accordance with the Mobile Telecommunications
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Sourcing Act. Note that this special sourcing rule only includes sales of mobile
telecommunications services. Sales of cellular equipment (e.g., cell phones, chargers,
accessories, etc.) are sourced to the taxpayer’s location where the sales were made.
For Example:
Company X sells mobile telecommunications services, cellphones, and accessories.
During the tax year, Company X sold $15,000 of cellphones and accessories from its
Chattanooga store location. Company X also made $240,000 in mobile
telecommunications services sales to customers with a place of primary use in the
following cities in Hamilton County: $85,000 in Chattanooga, $50,000 in East Ridge,
$25,000 in Red Bank, $5,000 in Soddy-Daisy, and $75,000 in the unincorporated area
of Hamilton County.
The $15,000 in sales of cellphone and accessories made from the Chattanooga store
are sourced and reported for both the city and county under the Classification 2
under the store Location ID.
The mobile telecommunications services are sourced and reported using the
Classification 3 rate as follows:
o $85,000 under the Chattanooga Location ID;
o $50,000 under the East Ridge Location ID;
o $25,000 under the Red Bank Location ID; and
o $240,000 under the Hamilton County Location ID.
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Because the mobile telecommunications services sold to customers with a place of
primary use in the city of Soddy-Daisy is less than $10,000, no business tax is
reported to Soddy-Daisy. However, the $5,000 is included in sales reported to
Hamilton County. The provider is still required to have a minimal business activity
license for the city of Soddy-Daisy.
For more information on sales of services, see Chapter 4 of this manual.
Distributions
1. In-state Taxpayer Distributions
State business tax collections from in-state taxpayers are distributed as follows:
$7.00 per return will be paid to the county clerk in the county in which the taxpayer
has a physical location; then
5% of the remaining collections will be paid to the county clerk in the county where
the taxpayer has a physical location; then
43% of the remaining collections will be paid into the State’s general fund; then
1.125% of the remaining collections will be paid to the Department of Revenue to
cover administration and collection expenses; then
The remaining collections will be paid to the county in which the taxpayer has a
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physical location.
2. Municipal-Level Business Tax Collections from In-state Taxpayers
Municipality business tax collections from in-state taxpayers are distributed as follows:
$7.00 per return will be paid to the appropriate city official in the municipality in
which the taxpayer has a physical location; then
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5% of the remaining collections will be paid to the appropriate city official in the
municipality in which the taxpayer has a physical location; then
43% of the remaining collections will be paid into a fund held by the State to be used
for purposes of the municipality in which the taxpayer has a physical location; then
1.125% of the remaining collections will be paid to the Department to cover
administration and collection expenses; then
The remaining collections will be paid to the municipality in which the taxpayer has a
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physical location.
3. Fees Levied Under Tenn. Code Ann. § 67-4-710
The fees, penalties, and interest levied by a county or municipality for the exercise of
privileges of antique malls, flea markets, craft shows, antique shows, gun shows, auto shows,
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and transient vendors will be retained by the county or municipality that levied the fee. An
amount equal to 5% of the proceeds of the fee will be paid to the county clerk, if fees are
collected by the county, or to the municipal business tax official, if fees are collected by the
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municipality.
4. Taxpayers Without Licenses or Locations
The tax, interest, and penalties collected from taxpayers without licenses under Tenn. Code
Ann. § 67-4-723(a) or established physical locations, outlets, or other places of business in
any county or municipality in Tennessee are earmarked and allocated in entirety to the
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state’s general fund.
5. Audited Taxpayers
As previously stated in this chapter, when the Department audits a taxpayer’s books and
records and discovers that the taxpayer owes additional tax, penalty, or interest, 100% of the
tax, penalty, or interest assessed because of the audit will be earmarked and specifically
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allocated to the state’s general fund.
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Chapter 8: Exemptions and Exclusions
Exempt Sales of Services
Generally, sales of services are subject to the business tax. However, Tenn. Code Ann. §
67-4-708(3)(c)(i-xvi) lists 16 types of services that are excluded from taxation. To qualify as
exempt, sales of services must fit the description of the statutorily exempt service provided
in the Standard Industrial Classification Index of 1972 (“SIC” or “SIC Index”) and any
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supplements and amendments (which was updated in 1987 and should be used).
Therefore, taxpayers should use the SIC Index to determine if a certain service qualifies for
the exemption.
The SIC Index classifies business establishments by the type of economic activity they
perform; SIC classifications are based on the “primary” or “predominant” activity of the
subject industries. Not all business types are included in the SIC Index; rather, the SIC Index
classifies only those types of business establishments representing a significant part of the
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economy.
The following 16 services are exempt from business tax:
Medical, dental, and allied health services to human beings, including convalescent
and rest home care, but excluding services by persons engaged in the business of
making dentures and artificial teeth;
Legal services; Educational services offered by elementary and secondary schools,
colleges, universities, professional schools and junior colleges, library and
information centers, correspondence schools, vocational schools, and specialized
non-degree-granting schools;
Services rendered by nonprofit membership organizations operating on a nonprofit
membership basis for the promotion of the interest of the members;
Domestic services performed in private households;
Services furnished by nonprofit educational and research agencies;
Services by religious and charitable organizations;
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Accounting, auditing, and bookkeeping services;
Public Utilities as defined in Tenn. Code Ann. § 65-4-101;
Banking services including brokerage and investment services;
Insurance services;
Operation of residential and nonresidential buildings except hotels, motels, and
rooming houses;
Leasing of agricultural, airport, forest, mining, oil, and public utility property;
Veterinarian services;
Architectural, engineering, and land surveying services; and
Services provided by farmers to other farmers for the planting or harvesting of
agricultural products or for the preparation, improvement, or maintenance of land
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used to produce agricultural products.
Although services by the above entities are exempt from business tax, these entities may
be liable for business tax if they make other types of sales that do not fall within this
exemption.
1. Medical, Dental, and Allied Health Services
The sales of medical, dental, and allied health services to human beings (SIC Major Group 80),
except services of persons making dentures and artificial teeth, are exempt from business tax.
This exemption includes, but is not limited to, services offered by:
Licensed medical professionals
Dentists
Licensed massage therapists
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Assisted living facilities
Acupuncturist
Audiologists
Chiropractors
Optometrists
Podiatrists
These entities may be liable for business tax if they make other types of sales that do not fall
within this exemption.
For example, sales of tangible personal property, such as electric toothbrushes or
teeth whitening products, by a dentist are subject to business tax.
2. Legal Services
Establishments headed by members of the bar and primarily engaged in offering legal advice
or services are exempt from business tax as legal services according to Industry Group 8111
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of the SIC. Exempt legal services do not include court reporter services, nor do they
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include services that are not provided by an attorney.
3. Educational Services
Certain educational services are exempt from business tax. These services are exempt if
offered by organizations providing academic or technical instruction. Educational services
offered by libraries, student exchange programs, and curriculum development programs
are also exempt educational services.
Exempt educational services include services offered by:
Elementary and secondary schools
Colleges
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Universities
Professional schools
Junior colleges
Libraries and information centers
Vocational schools
Specialized non-degree granting schools (e.g., pilot school, driving school,
finishing school)
Educational services offered by the following entities are not exempt from business tax:
Schools for the instruction of beauticians, cosmetologists, and barbers;
Schools providing job training for the unemployed, underemployed, handicapped,
and persons with job market disadvantage due to a lack of education, job skill, or
experience;
Individuals providing music lessons or private tutoring services;
Daycares; and
Pre-Kindergarten programs.
4. Services Rendered by Nonprofit Membership Organizations
Services rendered by nonprofit membership organizations operating on a nonprofit
membership basis for the promotion of the interest of the members are not subject to
business tax. If nonprofit membership organizations make sales of food, beverages, or other
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tangible personal property, these sales are subject to business tax.
Nonprofit membership organizations are delineated as such by federal law and include:
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Business associations
Professional membership organizations
Labor unions
Civil, social, and fraternal associations
Political organizations
Religious organizations
5. Domestic Services Provided in Private Households
Domestic services performed in private households are exempt from Tennessee business
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tax. Private households that qualify for this exemption may employ individuals as
cooks, laundresses, maids, sitters, butlers, personal secretaries, managers of personal
affairs, and outside workers such as gardeners, caretakers, and other maintenance
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workers.
This exemption does not include:
Services performed by businesses that hold their services out to the general public,
such as home care companies.
Services performed in the households of farming establishments, amusement, and
entertainment services, or babysitting and other day care services.
6. Nonprofit Educational and Research Agencies
Services furnished by nonprofit educational and research agencies are exempt from
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business tax. According to the SIC Index, educational and research agencies are
organizations performing noncommercial research that operate primarily on funds from
endowments, contributions, and grants. These services are classified in Industry 8733 titled
Noncommercial Research Organizations within Industry Group 873 titled Research,
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Development, and Educational Research in the SIC Index.
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Services furnished by organizations that perform commercial research are not exempt
under this section.
The following research activities are exempt from business tax as nonprofit educational and
research agencies:
Archeological expeditions
Biological research
Economic research
Medical research
Scientific research
Sociological research
7. Services by Religious and Charitable Organizations
Neither the SIC Index, the Tennessee Code, nor the Tennessee courts have defined the term
“charitable organization” for the purposes of Tennessee business tax. The Tennessee
Supreme Court stated that when a statute does not define a term, it is proper to look to
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common usage to determine the term’s meaning. Black’s Law Dictionary (8th ed. 2004)
defines the term “charitable organization” as a “tax-exempt organization that:
Is organized and operated exclusively for religious, scientific, literary, educational,
athletic, public-safety, or community-service purposes;
Does not distribute earnings for the benefit of private individuals; and
Does not participate in any way in political candidate campaigns or engage in
substantial lobbying.”
The Department uses the above criteria to determine whether a taxpayer is classified as a
charitable organization and exempt from business tax.
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8. Accounting, Auditing, and Bookkeeping Services
Businesses primarily engaged in furnishing accounting, bookkeeping, and auditing services
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are exempt from business tax. These businesses may use data processing techniques as
part of providing their services. However, businesses that are primarily engaged in providing
data processing services are not included under this exemption. Businesses providing
income tax preparation services without accounting, auditing, or bookkeeping services are
not included under this exemption.
The following services are included under this exemption:
Accounting services
Auditing services
Bookkeeping and billing services
Services by certified public accountants
Payroll accounting services
9. Public Utilities
Public utilities, as defined in Tenn. Code Ann. § 65-4-101(6)(A), are exempt from business
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tax.
“Public utility” means every individual, copartnership, association, corporation, or joint stock
company, its lessees, trustees, or receivers, appointed by any court whatsoever, that own,
operate, manage or control, within the state, any interurban electric railway, traction
company, all other common carriers, express, gas, electric light, heat, power, water,
telephone, telegraph, telecommunications services, or any other like system, plant or
equipment, affected by and dedicated to the public use, under privileges, franchises,
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licenses, or agreements, granted by the state or by any political subdivision thereof.
Public utilities do not include:
Corporations, agencies, or instrumentalities owned by the United States;
Counties, municipal corporations, or other subdivisions of Tennessee;
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Corporations, agencies, or instrumentalities of the state;
Corporations or joint stock companies where more than 50 percent of the voting
stock or shares are owned by the United States, the state of Tennessee, or by any
other nonutility in Tenn. Code Ann. § 65-4-101(6)(A)(i)-(iii);
Cooperative organizations, corporations, or associations not organized or doing
business for profit;
Individuals or entities offering domestic public cellular radio telephone services
authorized by the federal communications commission;
Counties, municipal corporations, or subdivisions of states bordering Tennessee to
the extent that these entities distribute natural gas to retail customers within the
municipal boundaries and/or urban growth boundaries of a Tennessee city or town
adjoining the bordering state;
Any non-utilities acting jointly, in combination with, or through a joint agency or
instrumentality;
Nonprofit Corporations that own and operate wastewater systems primarily for the
use of the members of the corporation and which has received a written statement
of exemption from regulation as a public utility from the Tennessee public utility
commission prior to January 1, 2009;
Nonprofit homeowners’ associations or organizations; or
Interexchange carriers.
Motor Carriers
Transportation companies carrying or hauling passengers or cargo for a consideration are
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subject to business tax on all intrastate receipts. However, Tenn. Code Ann. § 67-4-
708(C)(ix) states that persons making sales of services or engaging in the business of the
public utility, as defined in Tenn. Code Ann. § 65-4-101, are exempt from the business tax.
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Public utility is defined in Tenn. Code Ann. § 65-4-101 as follows:
(6)(A) “Public utility” means every individual, copartnership, association, corporation,
or joint stock company, its lessees, trustees, or receivers, appointed by any court
whatsoever, that own, operate, manage or control, within the state, any interurban
electric railway, traction company, all other common carriers, express, gas, electric
light, heat, power, water, telephone, telegraph, telecommunications services, or any
other like system, plant or equipment, affected by and dedicated to the public use,
under privileges, franchises, licenses, or agreements, granted by the state or by any
political subdivision thereof.
Unfortunately, the business tax code does not define the term “common carrier.” Historically
trucking companies operated under specific operating authorities issued by the federal and
state government. Such operating authorities were referred to as a “common carrier
operating authority” or a “contract carrier operating authority.” The evolution of the trucking
industry rendered these distinctions superfluous; thus, federal and state regulations have
essentially removed these authorities and instead simply issue a motor carrier operating
authority. Because common carrier operating authorities are no longer issued, the
Department can no longer rely on operating authorities for purposes of administering the
business tax. Furthermore, as stated above, the business tax code does not define “common
carrier.” The Tennessee Supreme Court has stated that when a statute does not define a
term, it is proper to look to common usage to determine the term’s meaning.
A common carrier is defined as a “commercial enterprise that holds itself out to the public as
offering to transport freight or passengers for a fee. A common carrier is generally required
by law to transport freight or passengers, without refusal, if the approved fee is paid.”
Similar to the other services listed in Tenn. Code Ann. § 65-4-101(6), common carriers
generally operate to inure to the benefit of the public without the right to choose or
discriminate against any members of the public.
A contract carrier, however, is defined as “any carrier that is not a common carrier by law. A
private carrier is not bound to accept business from the general public.” Contract carriers
are also defined as “for-hire truck transportation to specific, individual shippers, based on
contracts.” If a transportation company is not a common carrier, the Department taxes it on
sales from transportation that is wholly intrastate according toENN T.COMP .RAND EGS R .1320-
04-05-.58. That means receipts for transport that both begin and end in Tennessee are
subject to business tax.
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Therefore, if a company offers its services to the public, it is a common carrier and is exempt
from business tax. Even if the company’s services are negotiated by contract, dedicated, and
certain vehicles are exclusive to a specific customer, the transportation services are exempt
if the company solicits additional business from the public in any way.
If a motor carrier only offers its service under continuing agreements with a person or
limited number of persons by dedicating motor vehicles to them for their exclusive use for a
continuing period and does not hold itself out to the public as soliciting additional
customers, it is not operating as a common carrier and all its intrastate receipts are subject
to business tax.
10.Banking and Related Functions
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Tennessee law specifically exempts from business tax services furnished by institutions
engaged in deposit banking or closely related functions, including:
Banking services provided by reserve banks, commercial banks, savings institutions,
credit unions, and foreign banks;
Fiduciary activities;
Services furnished by persons engaged in extending credit or lending money except
persons taxable under subdivision (5);
Services furnished by establishments engaged in the underwriting, purchase, sale, or
brokerage of securities on their own account or on the account of others;
Services furnished by exchanges, exchanged clearing houses, and other services
allied with the exchange of securities and commodities; and
Services furnished by investment trusts, investment companies, holding companies,
and commodity trading companies.
Major Group 61 (Non-depository Credit Institutions) of the 1987 SIC Index includes
establishments engaged in the business of extending credit in the form of loans, but not
engaged in deposit banking.
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State and Federal Credit Unions
State and federal credit unions are exempt from almost all forms of state taxation,
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including business tax. 12 U.S.C. § 1768 states that “Federal credit unions . . ., their
property, their franchises, capital, reserves, surpluses, and other funds, and their income
shall be exempt from all taxation now or hereafter imposed by the United States or by any
State, Territorial, or local taxing authority; except that any real property and tangible
personal property of such Federal credit unions shall be subject to Federal, State,
Territorial, and local taxation to the same extent as other similar property is taxed.”
Tenn. Code Ann. § 45-4-803 states that “[e]xcept for taxes on property and the credit union
fees provided by law, no tax levied by this state, whether privilege, excise, franchise, sales
or otherwise, shall be levied upon or be applicable to any credit union chartered under the
laws of this state unless and until the same tax may be legally levied upon and be
applicable to federally chartered credit unions in this state, in which case the tax shall be
levied upon and be applicable to all such state and federally chartered credit unions.”
Federal credit unions are exempt from all forms of state taxation, including business tax,
except for ad valorem taxation of real and personal property. In the United States Court of
Appeals case United States of America v. State of Michigan, 851 F.2d 803, 808-09 (6th Cir.
1988), the court determined that federal credit unions are federal instrumentalities and
enjoy the immunities of the federal government. State credit unions also are exempt from
all state taxation, including business tax, except for ad valorem taxation of real and
personal property.
Brokerage Fees or Commissions
Businesses that solicit or broker loans on behalf of and for the benefit of their customers
and other mortgage loan companies are included in Industry Group 616 as mortgage
bankers and brokers and are not exempt from business tax.
11.Insurance Services
Providers of insurance or insurance agents of any type selling or furnishing necessary
services related to insurance and insurance adjustors are exempt from business tax. See
Industry Group 641 titled Insurance Agents, Brokers, and Services within SIC Major Group
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64 This exemption also includes independent organizations and businesses that are engaged
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in the provision of insurance services, e.g., insurance research services, insurance loss
prevention services, and insurance claim adjusters not employed by insurance companies.
12.Operators of Residential and Nonresidential Buildings
Businesses primarily engaged in the operation of dwellings of apartment buildings, dwellings
other than apartment buildings, and nonresidential buildings are exempt from business tax.
See Industries 6512-6514 within SIC Industry Group 651 titled Real Estate Operators (except
Developers) and Lessors.However, businesses engaged in the operation of hotels, motels,
and rooming houses are not exempt from business tax.
Apartment Buildings
Apartment buildings are defined in the SIC Index as buildings containing five or more
housing units. See Industry 6513 titled Operators of Apartment Buildings within SIC Industry
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Group 651. This exemption includes apartment buildings, apartment hotels, residential
hotels, and retirement hotels. However, standard hotels, rooming and boarding houses,
camps, and other lodging places for transients are not included under this exemption.
Dwellings Other Than Apartment Buildings
Dwellings and residential buildings containing four or fewer housing units are considered
dwellings other than apartment buildings in the SIC Index. See Industry 6514 titled Dwelling
Operators, Except Apartments within SIC Industry Group 651. Operators of these buildings
are exempt from business tax.
Nonresidential Buildings
The following activities are exempt from business tax:
Operation of bank buildings;
Operation of insurance buildings;
Leasing of piers, docks, and associated buildings;
Operation of commercial and industrial buildings;
Property operation of retail establishments;
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Property operation of shopping centers; and
Ownership and operation of theater buildings.
13.Lessors of Real Property
Businesses primarily engaged in leasing real property, not classified elsewhere in the SIC are
exempt from business tax. See SIC Industry 6519 titled Lessors of Real Property, Not
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Elsewhere Classified within Industry Group 651. This exemption includes leases of the
following types of real property:
Agricultural property;
Airport property;
Forested property;
Property used for mining;
Property from which oil is extracted; and
Public utility property.
14.Veterinary Services
Veterinary medical services are exempt from the business tax. Veterinary services include
dentistry, surgery, and services involving the boarding and lodging of animals. SIC Industry
Group 074 is titled Veterinary Services and provides additional information on the veterinary
services included in the exemption. However, the veterinary services exemption does not
include sales of non-exempt goods or services. For example:
Veterinarian Y, in addition to his or her veterinary medical practice, sells pet foods
and medications to be administered at home by the owner. Veterinarian Y also
provides non-medical grooming services. Veterinarian Y must get a business license
and pay the business tax on sales from the food, medication, and non-medical
grooming services. Veterinarian Y’s sales of medical veterinary services would be
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considered exempt sales of services. The business tax classification will be
determined by whichever taxable item sold (pet food, medications, or grooming
services) makes up the largest portion of his or her taxable sales.
15.Architecture, Engineering, and Land Surveying Services
Engineering
Establishments primarily engaged in providing professional engineering services as defined
in Industry Group 871 of the SIC are exempt from business tax. Establishments providing
and supervising their own engineering staff on temporary contract to other firms are
included in this industry.
Businesses providing the following engineering services are exempt:
Ship, boat, tool, and machine designing;
Industrial, civil, electrical, and mechanical engineering services;
Marine engineering services; and
Petroleum engineering services.
Architecture
Businesses providing the professional architectural services listed below are exempt from
business tax.
Architectural engineering services
Architectural services
House designers
Land Surveying
Businesses that provide the professional surveying services listed below are exempt from
business tax.
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Photogrammetric engineering services
Land, water, and aerial surveying
16. Services Provided by Farmers to Other Farmers
Services provided by farmers to other farmers for planting or harvesting of agricultural
products or for the preparation, improvement, or maintenance of land used in the
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production of agricultural products are exempt from business tax.
Other Miscellaneous Exemptions
1. Services Sold for a Lump Sum
If exempt services are sold at the same time as nonexempt services and/or tangible
personal property, the exempt services will only be exempt if they can be purchased
separately and separately itemized on the invoice.
If a group of services are sold together for one lump sum and are not individually sold, the
services will be categorized under the SIC classification that most appropriately describes
the group of services as a whole. For example:
A company offers a suite of services that includes bookkeeping, payroll, legal,
management, billing, maintenance oversight, human resources, and public
relations services in one lump sum. A customer cannot pick and choose the
individual services it will receive. The cost includes all the services together. The
company’s services will most closely fall under SIC Index number 8741,
Management Services.
If the SIC of the group does not fall under one of the exempt service categories, then the
lump sum for the group of services will be taxable. Note that any actual pass-through
amounts (i.e., amounts transferred to a taxpayer with no mark-up that the taxpayer is
obligated to pay over to a third party on its client’s behalf) included in the amount received
by a taxpayer from its client should not be included in the amount taxed. Such pass-
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through amounts could include postage, insurance premiums, or certain taxes. This is
true even if some of the services offered in the group of services would be exempt if sold
separately. Therefore, in the example above, because management services are not
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included in one of the exempt service categories, the lump sum for the suite of services is
subject to the business tax.
Audit Note: A company that sells services for a lump sum may not separate
out exempt services from nonexempt services during an audit. If the
services are sold together and cannot be purchased separately, they should
be categorized together and only exempted if the entire group as a whole
falls under one of the exempt service categories.
2. Services for Affiliated Entities
Services provided to an affiliated business entity at cost without any markup are
excluded from the definition of services and thus are not subject to the business
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tax. If a taxpayer provides services to an affiliated business entity for a markup, the
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taxpayer will only owe business tax on the markup amount.
3. Internet Services
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Federal law prohibits states or any state division from imposing a tax on internet access.
Therefore, receipts that are attributable to the sale of internet services are not subject to
business tax. Telecommunication services that are sold by an internet service provider to
provide internet access are also exempt from business tax.
Audit Note: If an auditor discovers that a taxpayer has paid business tax on
internet access services during an audit, the taxpayer should be given a
credit or refund for the amount paid.
Taxable Sales by Providers of Exempt Services
Businesses primarily providing services exempt from business tax must still pay business tax
on sales of non-exempt tangible personal property and taxable services. These businesses
must obtain business licenses and report and pay the business tax on their taxable sales. For
example:
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Services provided by deposit banking institutions are exempt from business tax. ABC
Bank makes vehicle loans as part of its business activities. However, when a loan on
a vehicle goes into default, the bank will repossess the vehicle and then sell the
vehicle at auction. ABC Bank must get a business license and pay the business tax on
the sales of the vehicles. Because the bank sells new or used vehicles, the bank
would be a Classification 2 taxpayer.
Persons/Entities
Business tax does not apply to persons in the following circumstances:
Any person employed in the capacity of an employee or servant as distinguished
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from that of an independent contractor.
Any person primarily engaged in the manufacture of goods, wares, merchandise, or
other articles of value from a location or outlet subject to ad valorem taxation under
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other provisions of state law. See, for example, Letter Ruling 11-50.
Any person operating vending machines who exercise the option of paying the
gross receipts tax provided for in Tenn. Code Ann. § 67-4-506.
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Newspaper route carriers and newspaper peddlers.
Any institution operated for religious or charitable purposes, with respect to any
profits that are earned from the sale of items contributed to the institution or
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articles produced by the institution from contributed items.
A person who, as part of the normal business operations, buys and sells intangible
personal property. See, for example, Letter Ruling 17-05.
Persons conducting shows, displays, or exhibits sponsored by any nonprofit
organization of gun collectors. A person who regularly engages in business as a
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dealer in guns or who sells guns for future delivery is not exempt.
Any person residing or located in this state or any governmental entity, nonprofit
corporation, institution, or organization which has received, and is currently
operating under, a 26 U.S.C. § 501(c)(3) or (4) exemption from the Internal Revenue
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Service whose only taxable business activity during the tax period is conducted at
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the Tennessee state fair or at only one county fair and their affiliates.
Any person having sales of less than $10,000 within a county or incorporated
municipality is exempt from the tax and licensing provisions in Tenn. Code Ann. §§
67-4-704 and 67-4-723 with respect to sales sourced to the county or municipality
under Tenn. Code Ann. § 67-4-717. Any person subject to the tax imposed in Tenn.
Code Ann. § 67-4-717(a) and having sales of less than $10,000 in a county will be
exempt from the tax levied in Tenn. Code Ann. § 67-4-704 with respect to sales
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occurring in that county.
Persons or qualified businesses doing business from a location within an enterprise
zone. This exemption will only be allowed for five years from the date the business
is originally certified as a qualified business.
Persons making sales or rental of real property that belongs to them. Sales and
rentals of real property belonging to anyone other than the seller is subject to the
business tax, e.g., such as sales by real estate agents.
Movie theaters are exempt from business tax on all their gross receipts (sales of
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tickets and concessions). This does not extend to live production theaters.
Persons who drill, install and repair wells and are properly licensed, annually, with
the Department of Environment and Conservation are exempt from business tax on
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those services.
Out-of-state businesses or employees who are responding to state-declared
disasters are exempt from business, franchise, and excise taxes for the income and
receipts generated from business conducted in the state during the disaster
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response period.
1. Radio and Televisions Stations
Radio and television stations under the authority of the Federal Communications
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Commission are not liable for business tax. However, persons who operate cable
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television services are subject to business tax.
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2. Providers of Direct-to-Home Satellite Services
Providers of direct-to-home satellite television programming services are specifically
excluded from both the state-level and municipal-level business tax. This exclusion covers
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sales of the providers’ services as well as sales of any tangible personal property.
3. Publishers or Printers of Newspapers and other Periodicals
Publishers or printers of newspapers and other periodicals are considered manufacturers
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and are not liable for business tax. However, publishers or printers engaged in any other
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activity made taxable under the Business Tax Act are liable for tax on that activity.
Activities that are incidental to the manufacturing portion of the business are not subject to
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tax.
4. Qualified Blind Persons and Disabled Veterans
Affidavit Requirement
Any applicant who wishes to seek the benefits of a business tax exemption for qualified
blind persons or disabled veterans must file an affidavit accessible on the Department’s
website. The affidavit must be filled out completely and include the applicant’s position,
financial condition, and the source of the applicant’s income. The affidavit must be received
and reviewed by the Department prior to the issuing of the proper business license. Any
person making a false affidavit and procuring a free privilege license as a result commits
perjury and will be punished under the law.
Qualifying Blind Persons
Any person unable to see because of total blindness qualifies for the exemption if the
following conditions are met. The person:
Owns property of less than $2,500 after the deduction of encumbrances thereon;
Is doing business with a capital not exceeding $2,500;
Is residing within and being a citizen of Tennessee and of the county in which the
exemption is claimed; and
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Is the sole beneficiary of the business.
Any institution for the blind engaged in the training and employment of the blind of the state
likewise is exempt from the payment of the business tax without regard to property
qualifications.
Individuals must complete this affidavit to qualify for this exemption. Affidavit may be
accessed via this link.
Disabled Veterans
Certain disabled veterans are exempt from paying the business tax. To qualify for the
exemption, the individual must be:
A disabled veteran of any armed conflict in which the United States has engaged, a
former uniformed member of the armed forces, or a peacetime uniformed
member of the armed forces who was disabled while in regular service;
The owner of less than $5,000 of property after the deduction encumbrances
thereon;
In business with a capital stock of no more than $5,000;
A citizen and resident of Tennessee and of the county in which the exemption shall
be claimed; and
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The sole beneficiary of the business.
Only one of the exemptions described above may be claimed by any one person. Any
business for which the exemption is claimed will be conducted by the qualifying individual
personally or a member of that person’s immediate family who may be assisted by not more
than one person not a member of the family.
With respect to former members of the armed forces operating as peddlers, one vehicle is
considered as one place of business.
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5. Manufacturers
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Manufacturers are specifically exempt from business tax. To qualify for the exemption, a
taxpayer must meet each of the requirements listed below.
A business must qualify for the exemption on a per location basis.
The business must be engaged in one of the activities described under
Division D of the SIC Index or be otherwise primarily engaged in fabricating and
processing tangible personal property for resale and consumption off the
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premises.
More than 50% of the business’s gross receipts must be derived from
manufacturing.
The sales of the manufactured products must be made from the manufacturing
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location subject to ad valorem tax. Location includes any adjoining buildings and
any buildings on the same parcel of land that, combined, make up a manufacturing
campus.
If a business qualifies as a manufacturer, sales made from the qualified location of
items not manufactured at that location but incidental to the business’s manufacturing
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sales are also exempt. Furthermore, if installation of the manufactured product is
incidental to the sale of the manufactured product and is done by the manufacturer’s
employees, then the installation is also exempt.
The performance of installation services does not disqualify a business from the
manufacturing exemption. However, if the business charges separately for the installation
services and the amount received from those services is at least 50% of the business’s
gross receipts, then the business is not “primarily” engaged in manufacturing and thus
does not qualify for the exemption. For example:
Company A fabricates and installs structural steel. It does not sell anything else. The
customer will pay one single price when it purchases the steel, which it purchases
from the manufacturing facility. Company A will install the steel for no additional
charge. Company A would be considered exempt from business tax.
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Qualifying as a Manufacturer
For business tax purposes, a manufacturer is defined as someone who is in the business of
any of the activities listed in Division D of the SIC Index or individuals who otherwise qualify
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as manufacturers or processors of tangible personal property for resale.
The decision of whether a taxpayer is a manufacturer is made on a location basis for both
business tax and sales tax. Like business tax, locations that qualify as manufacturing
locations for sales tax purposes are ones where the business is primarily engaged in
fabricating and processing tangible personal property for resale and consumption off the
premises.
Therefore, businesses primarily engaged in fabricating or processing tangible personal
property for resale and consumption off the premises for sales tax purposes are exempt
from business tax on sales of their manufactured product (as well as activities incidental to
the manufacturing portion of the business) when made from the manufacturing location.
Classification of Select Businesses
While most of the activities listed under each of the SIC Index manufacturing groups are
clearly defined and easily understood, some are ambiguous. These activities are listed below.
Quarries:
o Generally, quarries are not considered manufacturers for business tax
purposes and are included in the SIC Index under Division B: Mining.
o Certain quarry locations are considered manufacturing locations for business
tax purposes if the taxpayer is primarily engaged in fabricating or processing
tangible personal property for resale and consumption off the premises at
that specific location.
o If the quarry location qualifies as a manufacturer for sales tax purposes, it is
also exempt from business tax on the sales derived from manufactured
product (as well as activities incidental to the manufacturing portion of the
business) made from that manufacturing location.
Dental Labs:
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o Dental labs are not manufacturers for business tax purposes.
o If the dental lab constructs artificial dentures, bridges, inlays, and other
dental restorations on specifications from dentists, then the lab is classified
under Division I: Services, Industry 8072.
o However, a person manufacturing, in a location other than a dental lab,
artificial teeth to be used as instruments by dentists and dental colleges is
grouped under Industry 3843 and thus is considered a manufacturer for
business tax purposes.
Recyclers:
o Generally, it is unlikely a recycler will be considered a manufacturer.
o If the recycler is assembling, breaking up, sorting, and wholesale distributing
scrap and waste materials, then it is grouped under Industry 5093 and is not
a manufacturer for business tax purposes.
o However, if it is doing something more to the scrap materials, then it may be
considered a manufacturer.
For example, if a recycler primarily recovers nonferrous metals and
alloys from scrap and dross, then it would be grouped under Industry
3341 and would be considered a manufacturer.
Cabinetry:
o Generally, a manufacturer of wood cabinets (e.g., kitchen cabinets, bathroom
vanities), whether they be for permanent installation or free-standing, is
considered a manufacturer under Industry 2434.
o If the cabinetry is custom built for individuals, then the fabricator is grouped
under Industry 5712 and would not qualify as a manufacturer for business
tax purposes unless the fabricator is also considered a manufacturer for
sales and use tax purposes.
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Malt Beverage Breweries:
o Generally, malt beverage breweries are considered a manufacturer under
Industry 2082.
o However, micro-breweries often have tap rooms where manufactured
malted beverages are sold to the general public for consumption on the
premises.
o If dominant sales are made at the tap room to the general public for
consumption on the premises, the brewery’s primary activity at that location
is retail trade. Such locations do not qualify for a manufacturer business tax
exemption because they do not meet the “more than 50% test.”
o If the dominant business activity is selling to wholesalers for resale, the
brewery is primarily engaged in manufacturing, and thus the location would
qualify for a business tax exemption.
Qualified Distributions Centers, Data Centers, and Pollution Control Facilities:
o As noted above, businesses that are otherwise primarily engaged in
fabricating and processing tangible personal property for resale and
consumption off the premises qualify as manufacturers. This is commonly
reflected by having a sales and use tax industrial machinery number.
o However, the industrial machinery sales tax exemption is also granted to those
buying exempt industrial machinery for qualified distribution centers, qualified
data centers, and pollution control facilities. These are generally contractors,
and they are not engaged in “the fabrication or processing of tangible personal
property for resale and consumption off the premises.” Therefore, they cannot
qualify for a business tax exemption on the premise that the location is also
exempt from sales tax.
Primarily Engaged in Manufacturing
To qualify as a manufacturer and receive the manufacturing exemption, a person must be
“primarily engaged” in manufacturing at a given location. This qualification is met if more
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than 50 percent of the manufacturer’s revenues at a given location are derived from
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manufacturing tangible personal property.
Several taxpayers manufacture goods and make nonmanufacturing sales from the same
location (e.g., sales of goods purchased to sell, goods manufactured by the taxpayer
elsewhere, and services, such as installation of the goods). To determine if a taxpayer
qualifies for the manufacturing exemption, auditors may separate a taxpayer’s gross sales
into two separate columns:
A column for sales of manufactured goods (this includes those that are installed by
the taxpayer, if the installation is included in the sale of the manufactured good); and
A column for all other sales (separately billed installation sales, sales of non-
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manufactured goods, etc.).
If installation is part of the sale of the manufactured good (i.e., the manufactured good and
installation of that good are sold for one price) and not a separate sale, then the SIC Index
classifies it as a manufacturing activity. The description in the SIC Index under the Division C:
Construction 3 heading states that “installation work performed as a service incidental to
sale by employees of an establishment manufacturing… prefabricated equipment and
materials is classified according to the primary activity in the Manufacturing…Division.” For
example:
Company B installs kitchens and makes all its sales from its manufacturing facility.
Customers sometimes buy new countertops from Company B. For this, Company B
makes and installs granite countertops. Some jobs include countertops, as well as
the installation of sinks, cabinetry, etc. that Company B purchases for resale. One
third of Company B’s receipts are from the manufacture and installation of the
countertops. Two thirds of the receipts are for the sale and installation of the
cabinets, sinks, etc., purchased for resale.
o Company B would not be considered an exempt manufacturer and would be
a contractor under classification 4 because less than 50% of Company B’s
receipts are from manufacturing.
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Sales Made from a Manufacturing Location
To be considered a manufacturing sale, the sale must occur from the taxpayer’s
manufacturing facility. The description in the SIC Code under the Division D: Manufacturing
heading states that “[f]abricating operations performed at the site of construction by
contractors are not considered manufacturing, but the prefabrication of sheet metal,
concrete, and terrazzo products and similar construction materials is included in the
Manufacturing Division.”
In some cases, the business may meet the qualifications of the manufacturing exemption at
the primary business location, but it may also perform installation work akin to contractor
work at other locations. For example:
An asphalt manufacturing plant that qualifies for manufacturing exemption at its
primary location lays asphalt for its customers at job site locations. Since the
taxpayer’s primary business location is not a Class 4 contractor, the taxpayer is not
required to register deemed locations in every jurisdiction where its sales exceed
$50,000. Other examples where this may occur include, but are not limited to truss,
structural steel, and granite countertop manufacturing locations.
Business tax applies to each individual location, and the exemptions from the business tax
also apply on a location-by-location basis. If the manufacturer makes sales from a separate,
nonmanufacturing location on a different plot of land then those sales will be subject to the
tax, even if the goods sold were manufactured by the taxpayer elsewhere. For example:
Company C fabricates cinder blocks for sale and sells masonry bricks that it
purchased for resale. Both products are stored and sold from a warehouse. Fifty-five
percent of its sales are of cinder blocks, and forty-five percent are of bricks.
o Company C would not be exempt from business tax because the products
were not sold from a manufacturing facility.
Auditing Manufacturers
If an auditor concludes that a business qualifies for the business tax manufacturing
exemption, then:
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All sales made at that location by the manufacturer (any nonmanufacturing sales
made at that location by the manufacturer are considered incidental to the
manufacturing sales) are exempt; and
The auditor does not need to further classify the business under Tenn. Code Ann. §
67-4-708, the classifications section of the business tax statute.
However, if the auditor determines that the business does not qualify for the manufacturing
exemption, then he/she should determine the business’s classification by determining the
dominant business activity.
Additionally, a business may not qualify for the manufacturing exemption if
nonmanufacturing sales account for more than 50% of the taxpayers’ sales made from that
location. For example:
A taxpayer manufactures tangible personal property and makes retail sales of
tangible personal property from the same location. The taxpayer’s retail sales
account for 60% of the total sales from that location. This taxpayer would be
considered a retailer and would not be considered a manufacturer at this location.
6. Persons with Taxable Sales < $10,000
Businesses with less than $10,000 in taxable sales sourced to a county are exempt from the
state-level business tax in that county, and businesses with less than $10,000 in taxable sales
sourced to a municipality are exempt from the municipal-level business tax in that
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municipality.
Minimal Activity License
Counties and municipalities that have enacted business tax will issue minimal activity
licenses to any persons exempt from business tax under Tenn. Code Ann. § 67-4-
712(d) if the persons have annual sales of more than $3,000 but less than $10,000
per year within the jurisdiction.
No person with sales of more than $3,000 but less than $10,000 per year can engage in
business in the jurisdiction without first obtaining the minimal activity license.
Persons with $3,000 or less in annual sales in any incorporated municipality or county may,
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but are not required to, have a minimal activity license. Any year a person’s gross receipts in
the jurisdiction are $10,000 or more, the person will be required to file a regular business tax
return for the tax year.
For more information on licensing, please see Chapter 3 of this manual.
7. Persons Making Casual and Isolated Sales
Business is defined as “any activity engaged in by any person, or caused to be engaged in by
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the person, with the object of gain, benefit, or advantage, either direct or indirect.”
Business does not include casual and isolated sales or sales made by a person not
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routinely engaged in business. As such, occasional, casual, and isolated sales are not
subject to the business tax.
Business tax also does not apply to sales of tangible personal property or services not
normally sold by a wholesaler and retailer and tangible personal property if the property has
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been used by the dealer prior to the sale.
A sporting goods store decides to renovate its sales floor and sell its used sales
fixtures (shelves, hangers, racks, etc.). Receipts from the fixture’s sale would not be
subject to business tax.
If persons hold themselves out as engaged in business, then they are still liable for sales of
tangible personal property or taxable services bought for resale although the sales may be
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few and infrequent.
Manufacturers, Processors, Wholesalers, or Jobbers
Manufacturers, processors, wholesalers, or jobbers engaged in the business of distributing
tangible personal property or furnishing services subject to business tax are not deemed to
be making casual and isolated sales when they sell such tangible personal property or
services to purchasers for use or consumption, notwithstanding the fact that such sales may
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comprise a small fraction of their total business.
Antique Shows, Flea Markets, Gun Shows, Auto Shows and Craft Shows
Persons regularly engaged in the recurring sale of tangible personal property at antique
malls, flea markets, craft shows, antique shows, gun shows and auto shows and antique
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malls, flea markets, crafts shows, antique shows, gun shows and auto shows regularly
engaged in the recurring sale of tangible personal property are not considered to be making
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casual and isolated sales. The businesses and persons making sales have the burden of
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proving their sales are actually casual and isolated and qualify for exemption.
8. Taxpayers Responsible for Other Privilege Taxes
The following businesses pay privilege taxes and are not subject to business tax on sales on
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which they pay privilege tax:
Bottlers and manufacturers of soft drinks;
Establishments selling mixed drinks or setups;
Gas, water, and electric companies;
Miscellaneous public utilities; and
Individuals who pay recordation tax.
Exempt Sales
1. Qualified Amusement Activities
Gross proceeds from admissions to amusement or recreational activities conducted,
produced, or provided by:
Nonprofit museums;
Nonprofit entities which operate historical sites and nonprofit historical societies,
organizations, or associations;
Organizations which have received and currently hold a 26 U.S.C. § 501(c) exemption
from the Internal Revenue Service; or
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Organizations listed in Major Group No. 86 of the SIC Index are exempt from
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business tax. This major group includes organizations operating on a membership
basis for the promotion of the interests of their members. Included are
organizations such as trade associations; professional membership organizations;
labor unions and similar labor organizations; and political and religious
organizations. This major group does not include business establishments operated
by membership organizations, which are classified according to their primary
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activity.
This exemption does not apply unless such entities, societies, associations, or organizations
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promote, produce, and control the entire activity.
2. Agricultural Sales
Tennessee gross sales of livestock, horses, poultry, nursery stock, and other farm products
direct from the farm are exempt from business tax, provided that those sales are made
directly by the producer, breeder, or trainer. When sales of livestock, horses, poultry, or
other farm products are made by any person other than the producer, breeder, or trainer,
they will be classified and taxed for business tax as Classification 4. Additionally, catfish
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farmers and tropical fish farmers are exempt from business tax.
3. Sales of Intangibles
Sales of intangible personal property, such as royalties, copyrights, stocks, bonds, notes,
and other securities, are not subject to the business tax. For business tax purposes,
“tangible personal property” is defined as “personal property that may be seen, weighed,
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measured, felt or touched, or is in any other manner perceptible to the senses.” Tangible
personal property does not include insurance, stocks, bonds, notes, or other obligations or
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securities.”
Non-taxable intangibles include:
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Renewable Identification Numbers;
Copyright licenses;
Franchise fees;
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Broadcast rights; and
Transfer of virtual currency.
Please note that a sale of software is not considered a sale of intangible property.
4. Wholesaler to Wholesaler
Sales made by one wholesaler to another wholesaler (or sales by one retailer to another
retailer at cost) are excluded from the definition of sale and thus are not subject to the
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business tax.
A wholesale sale or sale at wholesale is the “sale of tangible personal property or services
rendered in the regular course of business to a licensed retailer for resale, lease, or rental
as tangible personal property in the retailer’s regular course of business to a user or a
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consumer.” Wholesale sales are sales from a wholesaler to a retailer. Retailers are
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persons in the business of making sales at retail or any sales other than wholesale sales.
5. Sales or Rentals of Real Property
The short-term rental (180 consecutive days or less for business tax purposes) of vacation
lodging, including a person’s home, is subject to business tax.
Minimum Requirement for Filing and Registration
A provider of overnight rentals is required to register and file for business tax if its taxable
gross receipts are $10,000 or more in each jurisdiction in which it does business. That
means that a property owner or management company will not be subject to business tax
in any city and/or county where its total rental property receipts in that city and/or county
are not at least $10,000.
Property Management Companies
A “property management company” is defined as “a person who, for consideration,
manages a vacation lodging for an individual property owner that provides such lodging
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for a rental fee to consumers.”
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If the owner of the property uses a management company to provide overnight rentals of
vacation lodgings, then the management company, rather than the owner, must pay the
business tax on the gross receipts from the rentals. The gross receipt from the rental
includes all fees collected for the rental, as well as any other money that a consumer must
pay to rent the accommodations such as:
Non-refundable pet deposits;
Required cleaning fees; and
Property damage protection fees.
The property owner or property management company must register in the county and city
in which the property is located as a Classification 3 taxpayer. If no property management
company is used, the owner must pay the business tax. If the property management
company or property owner has multiple units within a jurisdiction, they will only need one
license.
For example, property management company A (“taxpayer”) has 14 rentals in Sevier
County. Five of the rentals are in Gatlinburg, three rentals are in Pigeon Forge,
three rentals are in Sevierville and the remaining are outside of a city jurisdiction.
The taxpayer needs one license from Sevier County, one license in Pigeon Forge,
and one license in Gatlinburg.
If a property owner conducts any other taxable activity or sales in the state, he will be
subject to the business tax on those specific receipts.
Trailer Parks or Camps
Persons operating trailer parks or camps where charges are made only for the rental of real
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property are exempt from the business tax. However, persons renting trailers to
transients for occupancy at the trailer park location for a period of 90 days or less, selling
tangible personal property, or making separate charges for specific services furnished are
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liable for business tax (such as electricity at the camp site).
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6. Sales of Items Donated to Religious and Charitable Institutions
Profits earned by institutions operated for religious or charitable purposes from the sale of
items donated to them—or from articles produced from items donated—are not subject to
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business tax.
7. Freight & Delivery Charges
Freight, delivery, or other similar transportation charges are subject to business tax if title to
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the property being transported passes to the vendee at the destination point. Deliveries
of tangible personal property and services to customers outside the state of Tennessee by a
person subject to the business tax or by a common carrier before the customer obtains
possession are exempt from the business tax.
Exclusions
In addition to the exemptions outlined above, the business tax also contains various
exclusions. Receipts of the following entities, persons, and activities are excluded in
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determining gross sales for the calculation of business tax:
Persons that are subject to gross receipts tax for engaging in the business of
operating as bottlers and manufacturers of soft drinks and soft drink substitutes in
Tenn. Code Ann. § 67-4-402;
Gas, water, and electric current companies;
Telephone and telegraph companies except providers of mobile telecommunications
services;
Theaters, motion pictures, and vaudeville shows;
Establishments selling mixed drinks or setups for mixed drinks;
Rental of films to theaters that are taxed under Tenn. Code Ann. § 67-6-212; and
Rental of films, transcriptions, and recordings to radio and television stations
operating under a certificate from the Federal Communications Commission.
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Various exclusions are also listed as exemptions above, this is specifically authorized inENN T.
COMP . R.& R EGS. 1320-04-05-.16(2), which states the “[a]ny other amounts attributable to the
exclusions authorized by the Business Tax Act, or rules and regulations pertaining thereto,
may also be excluded. (See TENN .COMP .R. & EGSR. 1320-04-05-.36).”
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Chapter 9: Deductions
Overview
The Tennessee business tax statutes and regulations allow taxpayers to make various
deductions that ultimately reduce their tax liability. Deductions differ from exemptions in
that they must be reflected on the business tax return as amounts deducted from total gross
sales. Most of these deductions are provided in Tenn. Code Ann. § 67-4-711.
1. Cash Discounts
Taxpayers may deduct cash discounts allowed and taken on sales from their business tax
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base. For example:
A taxpayer offers its vendors cash discounts on credit sales to accelerate collections.
The cash discount is indicated on the customer invoice as follows—2/10, net 30—
indicating that the customer will receive a 2% discount if it pays the invoice within 10
days; otherwise, payment is due within 30 days. On a $5,000 credit sale for which the
customer takes the cash discount, the discount is calculated as follows:
Gross credit sale $ 5,000
Less: cash discount $ (100) (gross credit sale X 2%)
Net credit sale $ 4,900 subject to business tax
All taxpayers that claim a cash discount, or any of the deductions outlined below from their
gross sales, must maintain invoices and other documents to substantiate their claims to
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such deductions; otherwise, the deductions will be disallowed.
2. Returned Items
Taxpayers may deduct from their gross sales proceeds from returned items, if refunded
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to the customer in cash or credit. If a taxpayer gives credit to a customer for items
that the customer voluntarily returns, or the taxpayer gives a credit or allowance to a
customer as an adjustment (or otherwise) for a given sale, whether or not the property is
returned, the amount of credit or allowance actually given or credited to the customer's
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account may be deducted from the gross sales subject to business tax. For example:
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A taxpayer sells an appliance to a customer for $250. The customer later returns
the appliance, stating that it is faulty, and requests a refund. The taxpayer issues
the customer a refund by crediting the customer’s credit card. The taxpayer may
deduct the sale proceeds for this returned item from its gross sales.
3. Trade-In Allowances
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Taxpayers may deduct the amount allowed as trade-in value for any article sold.
When an item of tangible personal property is taken in trade as a credit or partial payment
on the sale of new or used articles, business tax is calculated on the difference between the
sales price of the new or used article sold and any credit given for the used article accepted
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in the trade. For example:
A customer purchases a new car from the taxpayer for $30,000. As part of this
transaction, the customer trades in its used car for which the taxpayer gives the
customer a trade-in value of $9,000. The taxpayer will report on its business tax return
the gross sale of $30,000 and then take a deduction for the $9,000 trade-in value.
A credit will not be allowed for trade-ins unless the item traded is of a like kind and character
of that which is purchased and indicated as a trade-in by model and serial number, where
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applicable, on an invoice given to the customer.
4. Repossessed Goods
Taxpayers may sell items of tangible personal property, such as motor vehicles, and provide
financing for the sale with a security agreement. Under the security agreement, the taxpayer
retains a security interest in the property until it is paid in full. If the purchaser defaults on the
required payments, the dealer may repossess the property. When a taxpayer repossesses
property that is sold pursuant to the terms of a security agreement, the taxpayer may take a
deduction for the difference between the remaining amount due on the selling price of the
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repossessed property and $500.
Of the unpaid balance due on the repossessed property, only the amount that constitutes
principal is eligible for this deduction; amounts that constitute interest, carrying charges, or
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similar charges cannot be deducted. Also, amounts that constitute sales and use tax, late
fees, repossession fees, towing fees, or any other fees that are added after the original sale
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may not be deducted. Taxpayers claiming this deduction must maintain adequate
documentation to substantiate the sale and subsequent repossession of the item(s) in
question; this documentation should include the following:
Identity of the parties and items involved;
Dates of the sale and repossession;
Amount of original purchase price subject to business tax;
Terms of the security agreement (recourse/nonrecourse, repayment schedule);
Detailed list of amounts paid (including down payment, principal, and interest); and
Itemized list of charges that comprise the outstanding balance of the loan (including
the unpaid principal balance).
The repossession deduction is available only if the taxpayer holds the note or has transferred
the note with recourse to another entity. Recourse means that the entity receiving the note
(generally a financial institution) has the right to demand payment from the taxpayer that
made the sale. If the sales contract goes into default, the financial institution returns the
financed item to the dealer. The dealer is required to reimburse the finance company for the
unpaid portion of the loan and pay any other fees incurred by the purchaser, such as
additional interest, late fees, repossession fees, etc. If the taxpayer transfers the note without
recourse to another entity, neither the taxpayer nor the other entity would be entitled to claim
the deduction.
If a bank or other financial institution purchases a contract without recourse from a taxpayer,
relating to tangible personal property sold by the taxpayer under a security agreement or
other title-retained instrument, said bank/financial institution may not take any deduction or
credit for any unpaid balances remaining due on such contract following repossession of the
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property or any action to enforce the lien. In this instance, the taxpayer would not be
eligible for the deduction either.
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Audit Tip: The auditor should verify that the amount of the deduction does
not exceed the amount of gross sales originally reported from the sale. If a
previously financed amount is combined with a current sale on a security
agreement, only the amount that applies to the repossessed item qualifies
for the deduction.
Example – Repossession Deduction
A car is sold for $5,000 and financed by the taxpayer. The customer defaults on the note after
remitting a $500 down payment and an installment payment of $2,500 ($500 of this payment
is for interest). The taxpayer also charged the customer a $100 doc fee and business tax of
$15.30. On the taxpayer’s books, the customer’s account appears as follows:
Base price of automobile $ 5,000.00
Doc fee $ 100.00
Business tax $ 15.30
State sales tax $ 358.08
Local sales tax $ 44.00
State single article $ 44.00
Total sales price plus tax $ 5,561.38
Down payment $ 500.00
Installment payment $ 2,500.00 ($500.00 applied to interest)
Loan amount $ 5,061.38 (Total sales price less down payment)
Payment on principal $ (2,000.00) (Installment payment less interest)
Late fees $ 250.00
Towing fees $ 100.00
Balance owed per taxpayer's records $ 3,411.38
The repossession deduction permitted for business tax purposes is calculated as follows:
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Sales price (excluding sales tax) $ 5,115.30
Less: down payment $ (500.00)
Less: payment on principal $ (2,000.00)
Unpaid principal $ 2,615.30
Less: statutory deduction $ (500.00)
Repossession deduction $ 2,115.30
5. Subcontractor Payments
Contractors may deduct from their business tax base amounts actually paid during the
business tax period to a subcontractor that holds a business license, or who is licensed by the
state board for licensing contractors, for performing the activities described in Tenn. Code
Ann. § 67-4-708(4)(A):
Persons receiving compensation from rendering exterminating services, from
installing personal property, from constructing, building, erecting, repairing, grading,
excavating, drilling, exploring, testing, or adding to any building, highway, street,
sidewalk, bridge, culvert, sewer, irrigation or water system, drainage, or dredging
system, levee or levee system or any part thereof, railway, reservoir, dam, power
plant, electrical system, air conditioning system, heating system, transmission line,
pipeline, tower, dock, storage tank, wharf, excavation, grading, water well, any other
improvement or structure or any part thereof.
To claim this deduction, the contractor must complete Schedule C of the Business Tax Return,
which provides information such as the name, address, business license or contractor's license
number of the subcontractor, and the amount paid for subcontract work. In addition, the
contractor must also maintain in its records a copy of the subcontractor's business license or
license issued by the board for licensing contractors.
For example:
A contractor is building a new home for a client. The contractor entered into an
agreement with a well driller whereby the contractor would pay the well driller to
drill the well for the new home. Here, the contractor could complete Schedule C
and deduct the payments made to the well driller as the well driller is making
improvements to real property.
Taxpayers holding themselves out to their customers as the provider of a particular service for
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which the taxpayer then subcontracts with a third party to perform the labor, cannot take a
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deduction for the amount paid to the third-party subcontractor. For example:
A business contracts to repair tangible personal property. The business holds itself out
to its customers as the provider of the repair service. The business then subcontracts
with a third party to perform the labor. That business is selling a repair service to
consumers at retail and cannot deduct the amount paid to the third party.
6. Sales of Services Delivered to a Location Outside Tennessee
The deductibility of the sales of services to locations outside Tennessee has undergone
multiple changes. For periods prior to January 1, 2014, Tennessee law provided a business tax
deduction for “[s]ales of services substantially performed in other states.” Effective January 1,
2014, the language was amended to allow a business tax deduction for “[s]ales of services that
are received by customers located outside the state.”
Finally, for periods after January 1, 2016 (i.e., current law), taxpayers may deduct from their
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business tax base the sale of any service that is delivered to a location outside the state.
This language was amended as part of the Revenue Modernization Act.
Services Performed on Commission
Commissions derived from services performed in Tennessee on behalf of an out-of-state
business may not be deducted from business tax, as the commissions are derived from
services delivered in Tennessee. For example:
A Tennessee company is an independent distributor (“the distributor”) for a multi-level
marketing company that is located outside the state (“MLM”). The distributor does not
sell the MLM’s products, but rather the distributor receives commissions from the
MLM relating to sales of the MLM’s products that are made by the distributor’s sales
network, or “downline distributors,” who are located in Tennessee. Because the
distributor is delivering its service in Tennessee on behalf of the MLM, its commissions are
subject to Tennessee business tax.
A Tennessee telemarketing company (“the company”) solicits sales of various tangible
personal property from customers in states other than Tennessee. When the customer
places an order, the company submits the order to a warehouse located outside the
state. The out-of-state warehouse processes the order and collects the payment; the
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company does not maintain a stock of merchandise, nor does it take title or
possession of the products sold. In exchange for the company’s services, the company
receives a commission from an out-of-state supplier in exchange for the company
selling the supplier’s products. The commissions that the company receives from the out-
of-state supplier are deductible because none of the customers are located in Tennessee.
Examples – Deductible Service Sales
A Tennessee computer repair company repairs a computer in its Tennessee shop for
an Arkansas customer. After the repair is complete, the computer is shipped via
common carrier back to the customer. The repair sale is deductible.
A Tennessee web designer creates websites and advertisement templates in
Tennessee that are stored on the designer’s server in Tennessee. A California
customer pays the designer a monthly fee to remotely access and use the templates.
The software always remains on the Tennessee server. The sales from the web designer’s
services provided to the California customer are deductible.
However, if an out-of-state customer with an out-of-state billing address receives a service in
Tennessee (an over-the-counter sale), the sale is subject to the tax.
Example – Non-Deductible Service Sale
A Georgia trucking company has a truck that breaks down in Tennessee. A Tennessee
mechanic repairs the truck in Tennessee and sends the bill to the Georgia address of
the company. When the truck is repaired, the driver picks up the repaired truck from
the mechanic and returns the truck to Georgia. The repair service is subject to business
tax and is not deductible from the business tax base.
7. Sales of Tangible Personal Property in Interstate Commerce
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Taxpayers may deduct from their business tax base sales in bona fide interstate commerce.
Deliveries of tangible personal property and services to customers located in this state are
sales subject to the business tax, regardless of whether the property is subsequently
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transported outside the state. However, deliveries of tangible personal property or services
to customers outside this state by the taxpayer or a common carrier, before a customer
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obtains possession, are sales exempt from the business tax.
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Examples
A taxpayer receives commissions for custom artwork through their website from
customers located both within and outside the state. Once completed, the taxpayer
ships the commissioned artwork to its customers via common carrier. The taxpayer
may deduct the sales of commissioned artwork that are delivered to customers located
outside the state (the taxpayer may not deduct the sales to in-state customers).
A Tennessee car dealer sold a car to a customer that is an out-of-state resident. The
customer came to the dealer’s lot to purchase the car. After the purchase, the
customer took possession of the car and drove it off the lot. The customer utilized a
3-day affidavit to purchase the car exempt from sales tax. However, because the
customer took possession of the vehicle in Tennessee, the car dealer cannot deduct
this sale for business tax purposes.
8. School to Student Sales
The proceeds of the sale of school supplies and meals made to students and school
employees on campus at elementary and secondary schools may be deducted. However, sales
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of such items made by private independent contractors cannot be deducted. For example,
proceeds from selling school supplies sold by the school bookstore or meals sold in school’s
cafeteria are deductible if the bookstore or cafeteria are run and staffed by the school
employees.
9. Bad Debts
Taxpayers may deduct from their gross sales bad debts that arise from sales on which the
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taxpayer previously paid business tax. For the purpose of calculating this deduction, a “bad
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debt” is defined by federal statute. However, this amount must be adjusted to exclude the
following:
Interest;
Financing charges;
Sales or use taxes charged on the purchase price;
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Uncollectible amounts on property that remain in the possession of the seller until the
full purchase price is paid;
Expenses incurred in attempting to collect any debt; and
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Repossessed property.
The bad debts deduction may be taken on the Business Tax Return for the period during
which the bad debt is written off as uncollectible in the taxpayer's books and records and is
eligible to be deducted for federal income tax purposes. A taxpayer who is not required to file
federal income tax returns may also take the bad debts deduction for the period in which the
bad debt is written off as uncollectible in the taxpayer's books and records, if the taxpayer
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would be eligible for a bad debt deduction for federal income tax purposes.
If a taxpayer takes a bad debts deduction for business tax purposes and the debt is
subsequently collected in whole or in part, the amount collected will be subject to business
tax. The taxpayer must report the gross sales from the collection and remit the business tax
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due on the Business Tax Return filed for the period in which the collection is made.
If the amount of bad debts deduction exceeds the amount of gross sales for the period during
which the bad debt is written off, the taxpayer may file a refund claim and receive a refund,
pursuant to Tenn. Code Ann. § 67-1-1802. The statute of limitations for filing the refund claim
is measured from the due date of the Business Tax Return on which the bad debt could first
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be claimed.
10.Miscellaneous Federal and State Excise Taxes
In calculating the business tax, the taxpayer may take a deduction for the following taxes;
provided, that such deductions may be claimed only by the taxpayer who made direct
payment to the applicable governmental agency and, in addition, by all subsequent vendees of
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such taxpayer licensed to do business in the state:
Federal excise taxes imposed on beer, gasoline, motor fuel, and tobacco products;
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Tennessee gasoline tax;
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Tennessee motor vehicle fuel use tax;
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Tennessee tobacco tax;
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Tennessee beer taxes;
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Special tax on petroleum products; and
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Liquified gas tax.
The taxpayer may gather the information for deduction from their records or the records of
their subsequent vendees.
Additionally:
Tennessee sales and use taxes or liquor by the drink taxes that are required
to be passed on to the consumer should be excluded from the gross sales
reported on the business tax return, but such taxes passed on to the
consumer may be deducted from the gross sales reported, if such taxes are
included in gross sales on the business tax return.
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Tennessee bail bond taxes that are required to be collected by a bail
bondsman should be excluded from the gross sales reported on the business
tax return, but such taxes collected by the bail bondsman may be deducted
from the gross sales reported if such taxes are included in gross sales on the
business tax return.
This deduction does not apply to contractors’ use tax on materials the contractor purchases
to fulfill its contracts because the contractor is not permitted to directly pass this tax along to
its customers.
A detailed list of the various federal and state excise taxes (and associated tax rates) that can
be deducted for business tax purposes can be found on the Department’s website at
tn.gov/revenue.
11. Accommodation Sales
Sales receipts from a bona fide accommodation sale are not subject to business tax and may
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be deducted from the taxpayer’s gross sales in determining their business tax base, provided
that such sales have been included in the gross sales reported on the Business Tax Return.
An “accommodation sale” is an occasional and incidental sale for resale by a person
regularly engaged in the business of making sales of the type of property that is sold for
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resale to other persons similarly engaged in the business of selling such property. The
amount paid by the buyer to the seller for an accommodation sale may include additional
charges for the cost of freight, in storage costs, and transportation costs incurred in the
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transfer of the property from the seller to the buyer. For example:
Dealership A has a purchase order from a customer for a new vehicle with
customized specifications. However, Dealership A does not have a vehicle in stock
that meets the customer's requirements. Dealership B does have such a vehicle in
stock. Dealership B sells the vehicle to Dealership A at cost, which includes
transportation costs incurred by Dealership B. This transaction qualifies as an
accommodation sale, and Dealership B may deduct from its business tax base the
proceeds from the sale.
However, the amount paid by the buyer to the seller cannot exceed the amount paid by
the seller to their vendor in acquiring the property and any additional, permissible charges
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for costs incurred by the seller. For example:
Assume the same facts as in the previous example, except that Dealership B
charges Dealership A a markup of 20% in excess of Dealership B’s cost for the
vehicle. Because the selling price of the vehicle to Dealership A exceeds Dealership B’s
cost, the sale does not qualify as an accommodation sale and Dealership B may not
deduct the proceeds from the sale.
12.Patronage Dividends
The amount of cash and other patronage dividends declared by cooperative selling
associations or corporations, that are paid to or credited to a member's account from the
earnings of such association or corporation, may be taken as a deduction from gross sales for
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the tax period in which the distributions and credits are made.
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13.Public Warehousing and Storage – Leases
Taxpayers that operate a warehouse, but also lease space within the warehouse without
furnishing any services to the lessee of the space, may exclude the sales for such leases from
the gross sales subject to the business tax, or deduct them from the gross sales they are
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included in the gross sales reported on the Business Tax Return.
14.Motor Vehicle Rentals – Refundable Deposits
Deposits made by customers that are refundable when a motor vehicle, trailer, and/or similar
rentals are left at the destination, and that are actually refunded to the customer, may be
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deducted by the taxpayer from their gross sales in determining the business tax.
15.Funeral Directors – Cash Advances
In cases where a funeral director makes "cash advances" for opening graves, transportation,
newspaper notices, telephone calls and other similar services, and furnishes items such as
flowers and clothing, acting as an agent for their customer and making a charge for
reimbursement for the advances without adding any profit to the charges, such charges shall
be included in the gross sales of the funeral director but may be deducted on the Business Tax
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Return in calculating the business tax due and payable.
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Chapter 10: Credits
Overview
Tennessee law provides several credits against business tax liability. These credits are
generally found in Tenn. Code Ann. § 67-4-713.
The total business tax credits outlined below and available to a taxpayer in
Tenn. Code Ann. § 67-4-713 may not be used to offset more than 50% of the
taxpayer’s liability.
Personal Property Taxes
Personal property taxes properly paid under Tenn. Code Ann. Title 67, Chapter 5, Part 5, or
Part 13 may be taken as a credit against the total business tax liability of the taxpayer
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actually paying the personal property taxes. The following conditions apply:
Personal property taxes are allowable as a credit only to the extent that the property
is located at the place of business covered by the business tax return on which the
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credit is being claimed.
The property is taxed in the same city or county that the return is being filed.
Personal property taxes are allowable as a credit only for taxes paid either during the
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tax period covered by the return or prior to the due date of the return.
There is no credit available for payment of property taxes on real property.
Only the amount of personal property tax paid to the county will be used to
determine the credit for the state business tax purposes.
Only the amount of personal property taxes paid to the city will be used to
determine the credit for the city business tax purposes.
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1. Personal Property Taxes Assessed During Audit
Personal property taxes assessed pursuant to an audit and subsequently paid may be
taken as a credit either on the business tax return filed for the year in which the additional
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personal property tax was paid or on the return covering the immediately previous year.
If the credit is taken in the previous year, an amended business tax return must be filed for
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that year.
2. Taxes Paid on Property Leased or Rented
A taxpayer that leases personal property to a third party, but pays property tax on the
leased property, may take the credit on its business tax return filed for its business location,
if the leased property is located in the same jurisdiction that is receiving the taxpayer’s
business tax allocation. This would only apply if:
The property is leased to others by the taxpayer; and
The taxpayer paid personal property tax on the property.
In cases where a lease or rental agreement provides specifically for payment of personal
property taxes by the lessee or renter to the lessor or owner, personal property taxes paid
by the lessee to the lessor covering any period of time extending beyond June 1, 1971,
arising from assessments made against the lessor or owner may be taken as a credit
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against the business tax liability. The lessor may not take the credit authorized to the
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lessee pursuant to Tenn. Code Ann. § 67-4-713(a)(3).
Examples
Company C, located in Franklin, Tennessee, leases printers to multiple businesses
located in Brentwood and Franklin Tennessee. Company C pays the personal
property tax on the printers. Company C reports the receipts from all the leases on
its business tax return for the City of Franklin and Williamson County.
o Company C may take credits for the personal property tax it paid on the
printers located in Franklin for its city business tax and for the personal
property tax it paid to Williamson County for state business tax.
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o Company C may not take a credit for the Brentwood printers for its city
business tax but may do so for business tax sourced to the state.
Propane Dealer (“PD”) is in Chattanooga, Tennessee. PD leases propane tanks
throughout Tennessee and pays property tax on all the leased tanks. PD reports the
receipts from the leases of the tanks on its Chattanooga and Hamilton County
returns.
o PD may take a credit for the property tax it paid on the tanks in Chattanooga
for its city business tax.
o PD may also take a credit for state business tax for the property tax that it
paid to Hamilton County on the tanks located in Chattanooga, East Ridge,
Soddy-Daisy, and Red Bank.
o However, PD may not take a credit for any property tax that it paid outside of
Hamilton County.
3. Providers of Video Programming Services
Providers of video programming services, as defined in Tenn. Code Ann. § 67-6-102, are
allowed the personal property tax credit to the extent that:
The property is located in a jurisdiction where the taxpayer’s receipts are sourced
in accordance with Tenn. Code Ann. § 67-4-717; and
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The property is taxed by that jurisdiction.
4. Special School District Taxes
Personal property taxes paid pursuant to a special school district tax levied by a public or
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private act may be taken as a business tax credit. This credit only applies to special
school districts located in Gibson County and Carroll County.
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5. Property Transferred to a Government Entity
The amount of Tennessee personal property taxes that a person would normally owe except
that, pursuant to an agreement between the person and a local governmental or
instrumentality, the person’s personal property has been transferred to a local government
or instrumentality, may be credited against the business tax liability provided that:
The person shall be eligible for such credit only to the extent of the tax generated
from its receipts for services rendered by such person to an affiliated person.
Either person directly owns or controls 80% or more of the other, or 80% or more of
both persons is directly or indirectly owned or controlled by a common parent.
The provisions of this section are not affirmatively rejected by a two-thirds vote of
the legislative body of the county or municipality exercising jurisdiction over the
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governmental unit or instrumentality.
Privilege Taxes
A business tax credit may be taken for the pro rata portion of any of the following taxes paid:
Gross receipts tax for Production Credit Associations,
Beer taxes,
Privilege and excise taxes, and
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Property tax, extending past June 1, 1971, and repealed as of that date.
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Chapter 11: Industry-Specific Guidance
Contractors
1. Overview
For business tax purposes, a contractor is defined as a person engaged in the business of
contracting, performing a contract, or engaging in any of the activities or activities like the
following:
Receiving compensation from rendering exterminating services, installing personal
property, constructing, building, erecting, repairing, grading, excavating, drilling,
exploring, testing, or adding to any building, highway, street, sidewalk, bridge,
culvert, sewer, irrigation or water system, drainage or dredging system, air
conditioning system, heating system, transmission line, pipeline, tower, dock, storage
tank, wharf, excavation, grading, water well, or any other improvement, structure, or
part of thereof.
Contractors are Classification 4 taxpayers. Contractors are liable for business tax regardless
of whether their contracts are lump sum or cost-plus basis.
2. Reporting Sales and Progress Payments
Contractors report sales on a cash basis.ENN T.COMP .R. & EGSR. 1320-04-05-.09(2) states that
progress payment charges billed pursuant to a contract and received by a contractor and
any charges for renting or leasing equipment to others for use in constructing, or making
improvements or additions, or repairing buildings or other structures on real property when
the equipment is operated by the lessor are subject to business tax.
3. Deemed Location
For business tax purposes, a “deemed location” is a county and/or municipality where a
contractor is not domiciled or located but where the contractor earns taxable receipts of
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more than $50,000 for work performed in the jurisdiction.
Taxable receipts from contracts performed in each deemed location must be reported on
the return for the county and/or municipality where the work was performed. The taxable
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receipts for a deemed location are not reported on the return for the county and/or
municipality of domicile or location.
When the charges billed exceed $50,000 for work performed in a deemed location, the
contractor is required to register for business tax and pay the one-time standard business
license fee of $15 for that location. Taxable receipts of more than $50,000 received during
the tax period will be reported on the return for the deemed location.
Taxable receipts of $50,000 or less for compensation from contracts in a county and/or
municipality other than the contractor’s place of domicile or location must be reported on
the return for the county and/or municipality of domicile or location.
Therefore, all taxable receipts for work done in any county will be subject to the state tax.
However, where those receipts are sourced, and which county is apportioned the tax still
depend on whether work is done in a deemed location.
4. In-State Contractors
State-Level Tax
In-state contractors with less than $10,000 in taxable sales during a tax period are exempt
from business tax. However, if a contractor has more than $3,000 in sales in the county of
domicile, a contractor is required to obtain a minimal activity license in that county.
In-state contractors with less than $10,000 in taxable sales in their county of domicile or
taxable sales sourced to their county of domicile, but with more than $50,000 in taxable
sales in another county are exempt from business tax in their county of domicile. However,
these contractors are taxable in the county where they generated more than $50,000 in
taxable revenue. This other county is considered a “deemed location.” As such, the
contractor should acquire a standard business license in the county where over $50,000 in
sales was generated and a minimal activity license in the county of domicile (if more than
$3,000 in sales in the domicile county).
Contractors with more than $10,000 in taxable sales in their domicile county and more than
$50,000 in taxable sales in another county in the state are taxable in their domicile county
and in the other counties where they had more than $50,000 in taxable sales (“deemed
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locations”). These taxpayers should obtain standard business licenses in the domicile county
and counties where they have established deemed locations.
Municipal-Level Tax
In-state contractors with less than $10,000 in taxable sales within a municipality are exempt
from business tax in that jurisdiction. Contractors with less than $10,000 but more than
$3,000 in taxable sales within their domicile municipality should obtain a minimal activity
license for their domicile municipality.
In-state contractors with less than $10,000 in taxable sales in a domicile municipality but
with more than $50,000 in another municipality are exempt from business tax within their
domicile municipality and subject to business tax in the other municipality where they
generated more than $50,000 in taxable sales. These taxpayers should obtain a standard
business license in the municipalities where they have established deemed locations and a
minimal activity license in their domicile municipality (if more than $3,000 in sales in the
domicile municipality).
In-state contractors with more than $10,000 in taxable sales within their domicile
municipality or sourced to their domicile municipality and more than $50,000 in taxable
sales in another municipality are subject to business tax in both jurisdictions. These
contractors should obtain standard business licenses in their domicile municipality and
municipalities where they have established a deemed location.
Example 1
Johnson Erectors (“Johnson”) is domiciled in City of Clarksville in Montgomery County,
Tennessee. For the period beginning October 1, 2018, and ending September 30, 2019,
Johnson performed $3,500,000 in total contracts. Johnson performed contracts totaling
$1,505,000 within its domicile jurisdiction.
The following contracts were performed outside of Johnson’s domicile:
City of Jackson/Madison County – $ 60,000
Montgomery County (outside City limits) – $35,000
Shelby County (outside Memphis City limits) – $1,500,000
Lexington, Kentucky – $300,000
City of Oliver Springs/Morgan County – $100,000
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The following amounts must be reported for contracts performed outside the domicile
jurisdiction:
Cities Clarksville Jackson Memphis (no Oliver Springs
(domicile) (deemed filing) (deemed
location) location)
Gross Taxable $1,540,000 $60,000 $0 $100,000
Receipts
Allowable $0 $0 $0 $0
Deductions
Taxable $1,540,000 $60,000 $0 $100,000
Counties Montgomery Madison Shelby (deemed Morgan
(domicile) (deemed location) (deemed
location) location)
Gross Taxable $1,540,000 $60,000 $1,500,000 $100,000
Receipts
Allowable $0 $0 $0 $0
Deductions
Taxable $1,540,000 $60,000 $1,500,000 $100,000
Example 2
Foundation Builders, (“Foundation”) is domiciled in the City of Lebanon in Wilson County,
Tennessee. From the period beginning October 1, 2018, and ending September 30, 2019,
Foundation performed contracts totaling $2,000,000. Foundation performed contracts
totaling $1,930,000 in contracts within its domicile jurisdiction. Foundation has taxable
receipts that are less than $50,000 in each of two municipalities located in the same county
all of which are outside of Foundation’s place of domicile. The total taxable receipts for the
county are more than $50,000.
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The following contracts were performed outside domicile:
City of Smyrna/Rutherford County – $40,000
City of Murfreesboro/Rutherford County – $30,000
Foundation must file the following reports:
Cities Lebanon (domicile) Smyrna (no filing) Murfreesboro (no
filing)
Gross Taxable $2,000,000 $0 $0
Receipts
Allowable $0 $0 $0
Deductions
Taxable $2,000,000 $0 $0
Counties Wilson (domicile) Rutherford (deemed location)
Gross Taxable Receipts $1,930,000 $70,000
Allowable Deductions $0 $0
Taxable $1,930,000 $70,000
Example 3
Armstrong Home Improvements, (“Armstrong”), is domiciled in the city of Nashville/Davidson
County. For the period beginning October 1, 2018, and ending September 30, 2019,
Armstrong performed contracts totaling $2,000,000. A portion of the contracts, totaling
$75,000, were performed in the city of Murfreesboro in Rutherford County, Tennessee.
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Armstrong must report the following amounts:
Cities Nashville (domicile) Murfreesboro (deemed location)
Gross Taxable Receipts $1,925,000 $75,000
Allowable Deduction $0 $0
Taxable $1,925,000 $75,000
Counties Davidson (domicile) Rutherford (deemed location)
Gross Taxable Receipts $1,925,000 $75,000
Allowable Deduction $0 $0
Taxable $1,925,000 $75,000
5. Out-of-State Contractors
A contractor that does not have a location or domicile in Tennessee and has taxable gross
receipts in the state of less than $10,000 per county is exempt from the business tax and
does not need to register for business tax or obtain a business license.
A contractor that does not have a location or domicile in Tennessee and has taxable gross
receipts in any county between $10,000 and $50,000 is subject to the state business tax and
should register and file a return with the Department.
The contractor should total all its receipts for each county in which it has taxable sales
between $10,000 and $50,000 and pay the state tax on all such receipts, or at least the $22
minimum tax. The contractor is not required to pay the minimum tax for each county in
which it receives compensation. For example:
Contractor A is domiciled in Kentucky but receives compensation of $10,000 in
Davidson County, $21,000 in Williamson County, and $5,000 in Sumner County
during a tax period. Because he has receipts of $10,000 or more in at least one
Tennessee county, Contractor A should register and file one return with the
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Department. His total taxable receipts are $31,000 (only the receipts from counties
where he earns at least $10,000).
Deemed Location
If a contractor receives taxable compensation of more than $50,000 during a tax period in
any county and/or municipality, the contractor will be deemed to have a location in that
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county and/or municipality for business tax purposes. Therefore, the contractor must
register for and obtain a standard license in that county and/or municipality for that tax
period.
The contractor should file a separate return for that county and/or municipality, and the
compensation the contractor received in that county and/or municipality will be sourced to
that county and/or municipality. The contractor should subtract this compensation from the
remainder of the compensation it receives in the state which is filed on a separate return.
For example:
Contractor B is domiciled in Georgia but receives compensation of $62,000 in
Hamilton County and Chattanooga, $12,000 in Bradley County, and $23,000 in Polk
County. Because he performed a service in Tennessee has receipts of $10,000 or
more in at least one Tennessee County, Contractor B should register with the
Department. Because he received more than $50,000 in Hamilton County and
Chattanooga, he should also obtain standard business licenses from the Hamilton
County Clerk and the Chattanooga city official. Contractor B should file a return for
Hamilton County reporting his receipts in that county of $62,000 and should file a
return for Chattanooga reporting his receipts in that municipality of $62,000. He
should also file a separate return reporting total receipts of $35,000 for services
provided Bradley and Polk counties.
Tenn. Code Ann. § 67-4-717(c)(3) provides that if a contractor does not have a domicile or
location in the state and receives less than $50,000 of compensation in a municipality during
a taxable period (therefore does not have a deemed location), such compensation is not
subject to the municipal-level business tax.
Example
Hammer Construction (“Hammer”) is domiciled in Davidson County. During the period
beginning on October 1, 2018, and ending September 30, 2019, Hammer’s fiscal year,
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Hammer performed a total of $1,200,000 in contracts. Hammer performed $10,000 in
contracts outside of Tennessee.
Hammer performed the following contracts outside of its domicile:
City of Knoxville/Knox County – $20,000
City of Clarksville/Montgomery County – $60,000
City of Cookeville/Putnam County – $30,000
Cities Knoxville (no filing) Clarksville Cookeville (no filing)
(deemed location)
Gross Taxable $0 $60,000 $0
Receipts
Allowable $0 $0 $0
Deductions
Taxable $0 $60,000 $0
Counties Davidson Knox (no filing) Montgomery Putnam (no
(domicile) (deemed location) filing)
Gross Taxable $1,140,000 $0 $60,000 $0
Receipts
Allowable $0 $0 $0 $0
Deductions
Taxable $1,140,000 $0 $60,000 $0
6. Subcontractors
Contractors may deduct payments made to subcontractors if:
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The contractor completes Schedule C of the business tax return listing the
subcontractor’s name, address, business license, and amount paid;
It keeps a copy of the subcontractor’s business license or license issued by the board
for licensing contractors; and
The deductible amounts were made during the business tax period to
subcontractors, or other persons holding a business license or who is licensed by a
state board for licensing contractors for performing activities described in Tenn.
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Code Ann. § 67-4-708(4)(A), the classifications section of the business tax statute.
Contractors may not reduce their own gross receipts by deducting payments to
subcontractors if the subcontractor is not licensed for business tax. Contractors are not
required to determine whether their subcontractors have paid business tax. The contractor
is only required to obtain a copy of a subcontractor’s business license and report the
required information on Schedule C of the business tax return (Payment to Subcontractor
Worksheet).
Services
Payments to subcontractors are deductible if:
The payments are for Classification 4(A) services (see Chapter 2 for more information
on services); and
The taxpayer claiming the deduction actually sold those subcontracted services.
Contractors and subcontractors do not need to be primarily in the business of providing
Classification 4(A) services to be eligible for the subcontractor payment deduction.
Subcontractor Not Licensed in Deemed Location
A contractor that receives more than $50,000 from a contract outside of the county or city
where they are registered for business tax is required to register in the county and/or city
where the work is performed. If a taxpayer’s subcontractors did not have at least a $50,000
contract in a particular county or city, the Department would allow the taxpayer to deduct
payments to that subcontractor if the subcontractor held a business license or was licensed
by the state board for licensing contractors for work described in Tenn. Code Ann. § 67-4-
708(4)(A).
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7. Speculative Builders
Persons that build houses or other structures on their own property from their own plans
and that offer the structures for sale are not subject to business tax provided no structural
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changes are made to the initial building plans to suit the contracted buyer. Cosmetic
changes such as paint, flooring, counter tops, etc., are not considered structural changes.
If, while constructing a house or other structure, a builder agrees to sell the property and
alters the plans to the specifications of the buyer (e.g., extends a room, removes a wall, etc.),
the builder will be considered a contractor and liable for business tax on the total receipts
above the price that the property would otherwise be sold.
A builder is subject to business tax in this manner if the builder:
Contracts to sell a building and lot prior to completion of the construction of the
building, and
Alters the building plans to the specifications of the buyer.
For example, while constructing a home, a builder decides to sell the property and adds an
additional bathroom to the main floor of the home at the request of the buyer. The builder
sells the home for $360,000, and the value of the land is $60,000. The builder would owe
business tax on the $300,000 structure.
Agriculture
1. Agricultural Commodity Brokers
When sales of livestock, horses, poultry, or other farm products are made by any person
other than the producer, breeder, or trainer, they will be classed and taxed as Classification
4 sales under Tenn. Code Ann. § 67-4-708(4). The business tax shall also include the
commissions, fees, margins, or other charges received from sales of livestock, poultry, or
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other farm products.
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2. Agricultural Exemptions
Farmers Providing Services to Other Farmers
Farmers providing services to other farmers for planting or harvesting agriculture products,
or for the preparation, improvement, or maintenance of land used in the production of
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agricultural products are exempt from business tax.
Sales Directly from the Farm
Receipts of the producer from sales of livestock, poultry, and other farm products directly
from the farm, including receipts from catfish farmers, are excluded from gross sales on
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business tax returns.
When sales of livestock, horses, poultry, or other farm products are made by any person
other than the producer, breeder, or trainer, they will be classed and taxed as Classification
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4 sales under Tenn. Code Ann. § 67-4-708(4).
Lessors of Agricultural Properties
Persons leasing agricultural, airport, forest, mining, oil, and public utility properties are
excluded from business tax for the provision of these services.
Mobile Telecommunications Providers
Mobile telecommunications services sold to customers in Tennessee are subject to business
tax. The federal Mobile Telecommunications Sourcing Act (“MTSA”) requires mobile
telecommunications services providers (“providers”) to source gross receipts from the sale of
mobile telecommunications services to the customer’s place of primary use. The customer’s
place of primary use is the street address where the customer primarily uses the service (i.e.,
the customer’s residential or business address). Providers should obtain a business license,
register for business tax, and report sales of mobile telecommunications services made in
each city and county (i.e., jurisdiction) where they make more than $10,000 in taxable sales
during the tax year.
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1. Registration and Reporting
Mobile telecommunications services and tangible personal property sold by a provider
within a jurisdiction are reported separately. In accordance with the MTSA, providers must
register under Classification 3 and report sales of mobile telecommunications services under
Location IDs established for the sole purpose of reporting such sales to customers with a
place of primary use within a city or county jurisdiction.
Tennessee Taxpayer Access Point (“TNTAP”) registration allows providers to select the city or
county where they meet the $10,000 threshold instead of registering using a business
location address. Providers should first obtain a Location ID to report the sales of mobile
telecommunications services at the Classification 3 rate for each city where they meet the
$10,000 threshold. When a provider registers in a city, the Department’s registration system
will automatically create a separate county Location ID to report tax at the Classification 3
rate for the county.
A provider making sales of mobile telecommunications services in multiple cities within a
county as well as the unincorporated area of the county will have a separate Location ID
under Classification 3 for each city where it meets the $10,000 threshold. The provider will
also have a single separate county Location ID under Classification 3 to report all sales of
mobile telecommunication services into the county (i.e., all cities and unincorporated areas
in the county) if the total sales into the county are more than $10,000. A provider with a
store location in that jurisdiction should continue to report sales of tangible personal
property made from the store under the Classification 2 rate using the store Location ID to
report sales made from the store for both the city and county.
Example
Company X sells mobile telecommunications services, cellphones, and accessories. During
the 2019 tax year, Company X sold $15,000 of cellphones and accessories from its
Chattanooga store location. Company X also generated $240,000 in sales of mobile
telecommunications services to customers with places of primary use in the following cities
in Hamilton County: $85,000 in Chattanooga, $50,000 in East Ridge, $25,000 in Red Bank,
$5,000 in Soddy-Daisy, and $75,000 in the unincorporated area of Hamilton County.
The $15,000 in sales of cellphone and accessories made from the Chattanooga store are
reported for both the city and county under the Classification 2 store Location ID.
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The mobile telecommunications services are reported using the Classification 3 rate as
follows:
$85,000 under the Chattanooga Location ID;
$50,000 under the East Ridge Location ID;
$25,000 under the Red Bank Location ID; and
$240,000 under the Hamilton County Location ID.
Because the mobile telecommunications services sold to customers with a place of primary
use in the city of Soddy-Daisy are less than $10,000, no business tax is reported to Soddy-
Daisy. However, the $5,000 is included in sales reported to Hamilton County. The provider is
still required to have a minimal business activity license for the city of Soddy-Daisy.
2. Sales of Phones and Accessories from Outside the State
Providers making sales of tangible personal property to customers in Tennessee from
locations outside of Tennessee are only subject to the state-level business tax on those
sales. Providers should report such sales under a separate out-of-state Location ID on their
consolidated business tax return.
3. Personal Property Tax Credit
A provider may take a credit on its business tax return for the personal property taxes paid
to the same jurisdiction during the tax period covered by the return or prior to the due date
of the return. The credit shall be taken first against the business tax due for a store location
and then may be taken against the business tax due for the wireless telecommunications
services for the same jurisdiction up to 50% of the provider’s business tax liability in that
jurisdiction.
4. Sales of Internet Access
Taxable mobile telecommunications services do not include charges for internet access.
Sales of internet access are not taxable because of the federal Internet Tax Freedom Act.
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Persons providing wireless telecommunications services must register and pay business tax
as a Classification 3 service provider in every county and city jurisdiction where those sales
of services are received by their customers.
Performance Entities
Performing artists or their business entities (collectively “performance entities”) who perform
in Tennessee are subject to business tax, and they must pay tax on merchandise sales, as
well as ticket sales and commissions.
Performance entities, when performing at any given location, often receive a commission on
ticket sales or a portion of the admission receipts to the event from the ticket promoter. The
amounts received are receipts for the sale of services. The performance entities may also
sell merchandise, such as souvenirs and t-shirts. There are no exemptions from business tax
under the law for either of these types of sales.
1. In-state Performance Entities
In-state and out-of-state performance entities have different licensing requirements. While
all ticket and merchandise sales/commissions are subject to business tax if they total
$10,000 or more per jurisdiction, there are different reporting and licensing requirements
for in-state performance entities versus out-of-state performance entities.
Licensing with the County and City
Performance entities with a Tennessee location (e.g., an office or other place of business)
must obtain a county business license from the county of that location if the entity’s total
state taxable receipts are $10,000 or more.
In-state performance entities must also obtain a city business license from the city of that
location if the city has a business tax and the entity’s total city taxable receipts are $10,000 or
more.
Minimal Activity Licensing
If a performance entity’s total state taxable receipts are at least $3,000 but less than $10,000,
the entity must get a minimal activity license from the county of its location. If the entity’s
total city taxable receipts, if applicable, are at least $3,000 but less than $10,000, the entity
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must get a minimal activity license from the city of its location. If the performance entity’s
taxable receipts are less than $3,000, it does not have to obtain a license or file a return.
Filing
Performance entities with locations in Tennessee must file a tax return that includes sales
subject to both the state and the city business tax rates with the Department.
2. Out-of-State Performance Entities
Performance entities that perform in Tennessee, but do not set up an established location in
the state must register and file a return with the Department, reporting all sales made in
each county that are $10,000 or more. Out-of-state performance entities are not subject to
the city business tax. Additionally, these entities are not required to obtain any type of
business tax license.
3. Are Touring Artists Transient Vendors?
Performing artists generally do not meet the definition of a transient vendor found in Tenn.
Code Ann. § 67-4-702(24) as transient vendors are sellers of merchandise. Sellers of services
are not considered transient vendors. If performing artists are only selling tangible personal
property, it is possible that these artists may be classified as transient vendors.
Traveling Photographers
A “traveling photographer” is a photographer who makes studio-type photographs or
portraits and sells them but does not have an established studio or place of business in the
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trade area in which such photographs are taken. A traveling photographer is not a
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photographer who makes photographs to be placed upon articles of identification.
Before a traveling photographer may do any business in a community, the photographer
must register with the sheriff or chief of police where the photographer proposes to conduct
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temporary business. The photographer must provide:
The photographer’s full name and address;
The name and address of any other person working with the photographer;
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The name and address of the employer of the photographer; and
Proof that a deposit of $100 has been made with the county clerk and a like amount
with the proper municipal tax collector, against whatever amount or amounts of
business taxes the photographer may owe on account of business done in the
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county or municipality, or both, depending on the case.
Any deposits made will be a credit on the amount of business tax for which such
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photographer may be liable to any county or municipality. When the taxes are paid, any
balance remaining to the photographer’s credit with the respective taxing jurisdictions will
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be refunded.
Lottery Commissions
The 6.5% commission earned on lottery ticket sales is included in gross receipts and subject
to the business tax. However, receipts from lottery tickets are not subject to business tax nor
are they subject to sales and use tax.
Commissions earned from the sales of lottery tickets are considered Classification 3 sales.
Because the applicable business tax rate is determined by an entity’s dominant business
activity, lottery ticket vendors must determine their appropriate business tax classification
based on gross receipts.
Funeral Directors
Funeral directors are liable for business tax depending on how they bill customers.
1. Unit Price
When a funeral director sells goods and services for a “unit price” the transaction is regarded
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as a sale of tangible personal property and taxed as a Classification 2 sale.
For example, if a funeral director sells a casket, burial vault, and all services
furnished for one stated price, this sale would be considered a Classification 2 sale of
tangible personal property.
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2. Itemization
If a funeral director sells goods and services but itemizes the bill (e.g., the price for the
casket, burial vault, and other tangible personal property sold and services rendered), the
tax rate is determined by the classification that comprises the dominant business activity,
303
either Classification 2 or Classification 3.
For example, Funeral Home J (“J”) sells funeral goods and services to a client. J
itemizes the charges on the invoice sent to the client.
o The charges are as follows:
Basic Funeral Service Fee: $ 2,000
Vault: $ 1,400
Embalming Services: $ 800
Casket: $ 2,400
Transportation Services: $ 400
o Because J itemized these sales on the invoice to the client, the items are
taxed as Classification 2 sales. J’s dominant business activity in this
transaction is the provision of tangible personal property (i.e., vault and
casket) because the vault and casket totaled $3,800 of the transaction while
services totaled $3,200.
3. Cash Advances
When a funeral director makes cash advances for services and furnishes items such as
flowers and clothing to a customer, acts as an agent for the customer, and charges for
reimbursement on the advances without adding profit to the charges for himself, the
charges are included in the funeral director’s gross sales but may be deducted on the
304
business tax return in computing business tax owed.
Services include:
Opening graves
Transportation
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Newspaper notices
Telephone calls
Other similar services
Cemeteries and Memorial Gardens
Income derived from interment charges made by cemeteries, memorial gardens, etc., is
305
taxable under the Business Tax Act. In cases where no deed or certificate of ownership is
given, charges for burial in lots, crypts, etc., will be deemed to be charges made for the right
of sepulcher and the entire gross income therefrom is taxable without any deduction for
306
amounts set aside for perpetual care. The sale of boxes, urns, markers, vases, plants,
307
shrubs and other tangible personal property are also taxable under the Business Tax Act.
Municipal Airports
Certain airports or other navigation facilities located outside the territorial limit of the
municipality that created or controls the facility may be taxed under the Business Tax Act by
the creating or controlling municipality as though the facility were located within the
municipality’s territorial limit. Any vocation, occupation, business, or business activity located
on the grounds of the facility may also be taxed as though it were located within the
territorial limit of the municipality.
Limitations to this authority to tax are defined in Tenn. Code Ann. § 67-4-727(b).
Leased Departments
A person (“lessee”) operating a leased department is liable for the business tax and must file
308
business tax returns and pay the minimum tax for that location. A lessee is not permitted
309
to include their tax liability on the returns of the lessor of the department. For example:
An individual who leases a booth at a hair salon that has his or her own clients and
cash drawer must file business tax returns and pay the minimum tax for the
location.
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Commission Agents
A commission agent or factor, such as an oil company bulk station or any other type of
business that does billing in the name of the supplier they represent while using their own
employees or agents and their own equipment and supplies in operating their business, is
310
taxable under Classification 3 on its gross commissions. Such persons shall obtain a
separate license in their own name even though the principal they represent may have
obtained a license for reporting sales made by the commission agent or factor.
Vending Machines
All persons making sales of tangible personal property through coin-operated vending
311
machines must register with their city and county and pay business tax. However, vending
machine taxpayers may elect to pay the gross receipts tax imposed in Item 65(c)(1), T.C.A. §
312
67- 4-503, in lieu of the business tax.
If a vending machine operator sells tangible personal property by any means other than
through vending machines or makes charges for servicing coin-operated machines other
than those he owns, he is subject to, and must pay, the appropriate business tax applicable
313
to such other activities.
A person engaged in a non-coin-operated vending business that incidentally sells
merchandise through a vending machine must pay business tax on such sales unless the
person elects to pay the Gross Receipts Tax under Tenn. Code Ann. § 67-4-503.
Antique Malls, Flea Markets, Craft Shows, Antique Shows, Gun
Shows, and Auto Shows
Antique malls, flea markets, craft shows, antique shows, gun shows, and auto shows that are
operated as public facilities where two or more retailers of tangible personal property carry
on business are subject to business tax at a rate of $1 per booth per day from each exhibitor
314
at the promotion location. A “flea market booth” is any contiguous space leased by a
315
single vendor to sell tangible personal property.
For information on casual and isolated antique sales, see Chapter 4 of this manual.
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1. Fee in Lieu of Business Tax
Exhibitors registered for Tennessee sales and use tax purposes and those who register
annually pursuant to Tenn. Code Ann. § 67-6-220 (dealers who make retail sales at flea
markets) have the option of either:
Obtaining a business tax license and remitting the business tax in accordance with
the provisions of Tenn. Code Ann. § 67-4-709; or
Remitting a $1 fee per day per booth for each jurisdiction to the flea market
operator. For example, if the flea market is location in a city within a county, the
operator would collect $2 per day per booth.
The $1 per day per booth fee is in lieu of any business tax. The owner, manager, operator, or
promoter of an antique mall, flea market, craft show, antique show, gun show, or auto show
at a location that is not a continuing business, must obtain a business license and collect and
submit fees to local tax officials with the supporting documents required by those officials,
within 72 hours after the closing of the event.
The preceding provision does not apply to exhibitors properly licensed at the promotion
location prior to July 1, 1983, until such time as that license expires. The provision also does
not apply to promotions conducted by nonprofit associations, corporations, or
organizations, nor to casual and isolated activities by persons who do not hold themselves
out as engaged in business.
Individual Exhibitors
Exhibitors electing to obtain a business tax license must present evidence of the license to
the operator before conducting business. Exhibitors who are not registered annually should
pay the $1 fee per booth per day to the flea market operators.
Submitting Forms and Payments
Fees collected by the owner, manager, operator, or promoter of an antique mall, flea
market, craft show, antique show, gun show, or auto show location that is a continuing
business are due and payable monthly, on the first day of each month.
All owners, managers, operators, or promoters must transmit completed forms and tax
collected during the preceding month to collecting officials, (both city and county, if
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applicable), on or before the 10th day of each month. Failure to remit the tax by the 10th day
of each month will cause the tax to become delinquent.
2. Businesses Selling Antiques at Least 5 Days Per Week
The above information does not apply to any business that is primarily engaged in selling
antiques at least 5 days each week in a permanent location. For antique malls selling
antiques at least 5 days a week with a common cash register for all sales, only the mall
operator will be required to obtain a business tax license and pay on all receipts derived
from that location. Individual booths rented at such malls will not be deemed to be separate
places, locations, or outlets in the state from which business is conducted.
Transient Vendors
A transient vendor is defined as “any person who brings into temporary premises and
exhibits stocks of merchandise to the public for the purpose of selling or offering the
316
merchandise to the public.” “Merchandise” is any consumer item that is or is represented
to be new or not previously owned by a consumer.
A transient vendor does not include:
Any person selling goods by sample, brochure, or sales catalog for future delivery to
the seller by the owner or occupant of a residence; or
Any person making sales resulting from the prior invitation to the seller by the owner
or occupant of a residence; or
Any person making sales of services.
1. Temporary Premises
A “temporary premises” is any public or quasi-public place, including a hotel, rooming house,
storeroom, building or part of a building, tent, vacant lot, railroad car, or motor vehicle that
is temporarily occupied for the purpose of exhibiting stocks of merchandise to the public.
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Premises are not temporary if the same person has conducted business at those premises
for more than 6 consecutive months or has occupied the premises as the person's
permanent residence for more than 6 consecutive months.
A taxpayer that has an established business location (i.e., a location that is more than a
temporary premises) in Tennessee is not a transient vendor. If a taxpayer moves to another
municipality, that taxpayer is not considered transient. Please see Chapter 2 for additional
information on what constitutes a location for business tax.
2. Transient Vendor License Fee
In lieu of paying the business tax on gross receipts, transient vendors pay a 50-dollar
business tax license fee for each two-week period the vendors are engaged in business in
each county or municipality where they sell or offer to sell merchandise or where they are
317
issued a license.
Transient vendors should pay a fee of $50 for each 14-day period in each county or
municipality, or both:
Where the vendors sell or offer to sell merchandise; or
Where they are issued a license.
The fee must be paid prior to the first day of engaging in business. Transient vendors are not
liable for the tax levied under Tenn. Code Ann. § 67-4-709.
3. Transient Vendors and Business Tax
A taxpayer that meets the definition of a transient vendor and does not have an established
location in Tennessee is not subject to state and local business tax regardless of whether the
taxpayer has substantial nexus in Tennessee. Accordingly, a transient vendor has no receipts
to source using the sourcing provisions under Tenn. Code Ann. § 67-4-717(b)(1) because it is
paying the transient vendor fee and not liable for state-level or municipal-level business tax.
For example:
Hotel in Nashville, Tennessee hosted a four-month modern art exhibition where
professional artists displayed and sold art.
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Artist 1 came from Kentucky, brought $40,000 worth of art to display and sell at the
exhibition, and paid the Nashville clerk $400 (roughly $100/mo. transient vendor fee).
Artist 1 sold $20,000 in art and returned to Kentucky once the exhibition ended.
Artist 1 is not subject to Tennessee business tax because it did not establish a location
in Tennessee and otherwise met all the requirements as a transient vendor.
Food Trucks
Food trucks must be licensed for business tax in the jurisdiction where the food truck is
based (domiciled). Food trucks must display their license when selling in other jurisdictions.
Food truck operators that pay a fee to utilize commercial kitchen space or a commissary to
prepare food are based (domiciled) in the jurisdiction where the commercial kitchen or
commissary is located. If the food truck operator continues managing the business from its
domicile (such as keeping and managing its books and records, scheduling events, etc.) it
must be registered in both its domicile and the jurisdiction where the commercial kitchen or
commissary is located.
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1
Dixie Rents, Inc. v. City of Memphis, 594 S.W.2d 397, 399-400 (Tenn. Ct. App. 1979).
2
The Tennessee Code Annotated may be accessed for free at the following link:
https://advance.lexis.com/container?config=014CJAA5ZGVhZjA3NS02MmMzLTRlZWQtOGJjNC
00YzQ1MmZlNzc2YWYKAFBvZENhdGFsb2e9zYpNUjTRaIWVfyrur9ud&crid=df4206ac-948a-
487a-8a8a-8e2c48b8be80&prid=d4c835c1-112a-44d3-b572-9c4bed4ee970
3
The business tax rules and regulations can be found at the following link:
https://publications.tnsosfiles.com/rules/1320/1320-04/1320-04-05.20160926.pdf
T
4 ENN .COMP .R. & EGSR. 1320-04-05-.03.
5
Tenn. Code Ann. § 67-4-704.
6
Tenn. Code Ann. § 67-4-702(a)(13).
T
7 ENN .COMP .R. & EGSR. 1320-04-05-.35.
8
Tenn. Code Ann. § 67-4-717(a).
9
Tenn. Code Ann. §§ 67-4-704 and 705.
10
Please see Chapter 11 for special rules that apply to cable, telecom, and other specific
industries.
11
Tenn. Code Ann. § 67-4-702(a)(2).
12
Tenn. Code Ann. § 67-4-702(a)(2).
13
Tenn. Code Ann. § 67-4-702(a)(5).
14
Tenn. Code Ann. § 67-4-708(2)(F).
15
Tenn. Code Ann. § 67-4-708(3).
16
Tenn. Code Ann. §§ 67-4-702(a)(16) and (25).
17
Tenn. Code Ann. § 67-4-704.
18
General Motors Corp. v. Washington, 377 U.S. 436 (1964).
19
Boeing Equipment Holding Company v. Tennessee State Board of Equalization, 1987 WL 15202
(Tenn. Ct. App., August 7, 1987).
20
Tenn. Code Ann. § 67-4-704.
21
Tenn. Code Ann. § 67-4-705.
22
Tenn. Code Ann. § 67-4-717(a).
23
Tenn. Code Ann. § 67-6-717(a)(1).
24
Please note, Rule 14 is still in effect and is helpful in making this determination.
25
Please note, there are provision that apply to telecommunications and cable providers,
vending machine operators, and overnight lodging rentals. These are discussed later in this
Manual.
26
Tenn. Code Ann. § 67-4-702(a)(22)(A).
27
Tenn. Code Ann. § 67-4-702(a)(22)(A)(i)-(iv)(c).
28
Tenn. Code Ann. § 67-4-717(a)(1)(A)-(C). Please note, the following activity is also covered
under this code section: “making sales as a natural gas marketer to customers located within
this state through the presence in this state of the seller's property, through the holding of
pipeline capacity by the seller on pipelines located in this state, or through the presence in
this state of the seller's employees, agents, independent contractors, or other
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representatives acting on behalf of the seller to solicit orders, provide customer service, or
conduct other activities in furtherance of such sales. For purposes of this subdivision
(a)(1)(D), the phrase "presence in this state of the seller's property" shall include property
owned by the seller in this state during delivery to the customer, whether in a pipeline or
otherwise.”
29
Tenn. Code Ann. § 67-4-717(a)(2).
30 ENN .COMP .R. & EGSR. 1320-04-05-.14.
T
31
Tenn. Code Ann. § 67-4-706.
32
TNTAP may be accessed at https://tntap.tn.gov/eservices/_/
33
Tenn. Code Ann. § 67-4-706(a).
34
Tenn. Code Ann. § 67-4-706(c).
T
35 ENN .COMP .R. & EGS R.1320-04-05-.28(1).
T
36 ENN .COMP .R. & EGS R.1320-04-05-.28(2).
37
Tenn. Code Ann. § 67-4-723(a).
38
Tenn. Code Ann. § 67-4-723(c).
39
Tenn. Code Ann. § 67-4-723(b)(1).
40
.Id
Tenn. Code Ann. § 67-4-721(e). T
41 ENN .COMP .R. & EGS R.1320-04-05-.57.
42
Tenn. Code Ann. § 67-4-709(4)(A)(i).
43
Tenn. Code Ann. § 67-4-721(a).
44
Tenn. Code Ann. § 67-4-721(b).
45
Tenn. Code Ann. § 67-4-721(c)(1).
46
Tenn. Code Ann. § 67-4-721(c)(2).
47
Tenn. Code Ann. § 67-4-721(c)(2).
48
Tenn. Code Ann. § 67-4-721(c)(3).
49
Tenn. Code Ann. § 67-4-702(a)(7).
50
Tenn. Code Ann. § 67-4-702(a)(15)(B).
51
Tenn. Code Ann. § 67-4-702(a)(18)(A)(i).
T
52 ENN .COMP .R. & EGSR. 1320-04-05-.05 and 1320-04-05-.53.
53
.Id
54
Tenn. Code Ann. § 67-4-702(a)(18)(B).
T
55 ENN .COMP .R. & EGSR. 1320-04-05-.05.
56
Hermitage Memorial Gardens Mausoleum and Memorial Chapel, Inc. v. Dunn, 541 S.W.2d 147,
149 (1976).
57
. Id
58
Id.
59
Tenn. Code Ann. § 67-4-708(3)(c).
60
Tenn. Code Ann. § 67-4-702(a)(21).
61
.Id
T
62 ENN .COMP .R. & EGSR. 1320-04-05-.48(1).
T
63 ENN .COMP .R. & EGSR. 1320-04-05-.48(2).
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64
Auto Glass Co. of Memphis v. Gerregano, No. W2018-01472-COA-R3-CV, 2019 WL 1343987 at
*5 (Tenn. Ct. App. 2019). Tenn. Code Ann. § 67-4-702(19), (21).
65
.Id
T
66 ENN .COMP .R. & EGSR. 1320-04-05-.48(2).
67
Tenn. Code Ann. § 67-4-702(a)(1).
68
Aabakus, Inc. v. Huddleston, 1996 WL 548148 at *3 (Tenn. Ct. App. 1996).
69
The 1987 version of the manual can be accessed online at
http://www.osha.gov/pls/imis/sicsearch.html.
T
70 ENN .COMP .R. & EGSR. 1320-04-05-.02(3).
71
Tenn. Code Ann. § 67-4-702(a)(23).
72
Id.
73
See Ruling 17-05.
T
74 ENN .COMP .R. & EGS R.1320-04-05-.21(1).
75
.Id
76
.Id
T
77 ENN .COMP .R. & EGSR. 1320-04-05-.49.
T
78 ENN .COMP .R. & EGSR. 1320-04-05-.22.
T
79 ENN .COMP .R. & EGSR. 1320-04-05-.23.
80
.Id
81
Tenn. Code Ann. § 67-4-702(a)(19).
T
82 ENN .COMP .R. & EGSR. 1320-04-05-.18.
T
83 ENN .COMP .R. & EGSR. 1320-04-05-.08.
84
Tenn. Code Ann. § 67-4-702(a)(19).
85
Id. These advertising costs are not included in the sales price when no portion of the
payment is retained as profit by the auctioneer, and when the payment has been placed in
escrow or a trust account by the auctioneers on behalf of the seller.
86
.Id
87
Tenn. Code Ann. § 67-4-702(a)(19).
T
88 ENN .COMP .R. & EGSR. 1320-04-05-.18.
T
89 ENN .COMP .R. & EGSR. 1320-04-05-.08(2).
90
Tenn. Code Ann. § 67-4-702(a)(5).
91
Aabakus, Inc. v. Huddleston, 1996 WL 548148 at 2 (Tenn. Ct. App. Sept. 25, 1996).
92
Tenn. Code Ann. § 67-4-708(1).
93
Tenn. Code Ann. § 67-4-708(2).
94
Tenn. Code Ann. § 67-4-708(3)(C)(i)-(xvi).
95
Hermitage Memorial Gardens Mausoleum and Memorial Chapel, Inc. v. Dunn, 541 S.W.2d 147
(Tenn. 1976).
96
Tenn. Code Ann. § 67-4-708(4).
97
Tenn. Code Ann. § 67-4-708(5).
98
Tenn. Code Ann. §§ 67-4-710 and 67-4-705(c).
99
Tenn. Code Ann. § 67-4-710.
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100
Tenn. Code Ann. § 67-4-710(a)(2).
101
Tenn. Code Ann. § 67-6-231(a).
T
102 ENN . COMP. R. & REGS. 1320-04-05-.41(1).
103
Tenn. Code Ann. § 67-4-708(2)(F)).
104
Tenn. Code Ann. § 67-4-702(a).
105
Tenn. Code Ann. § 67-4-708(3)(C)(iii).
106
See also SIC Code 8049.
107
See Letter Ruling 18-01 for further examples.
108
Tenn. Code Ann. § 67-4-709.
109
Tenn. Code Ann. § 67-4-702(a)(17).
Tenn. Code Ann. § 67-4-702(a)(26). T
110 ENN .COMP .R.& EGSR. 1320-04-05-.20, 1320-04-05-.47
and 1320-04-05-.50.
111
Tenn. Code Ann. § 67-4-702(a)(27).
T
112 ENN .COMP .R. & EGSR. 1320-04-05-.10.
113
Tenn. Code Ann. § 67-4-702(a)(15).
T
114 ENN .COMP .R. & EGSR. 1320-04-05-.47(4).
115
.Id
116
Tenn. Code Ann. § 67-4-702(a)(15).
T
117 ENN .COMP .R. & EGSR. 1320-04-05-.47(1).
118
Id.
119
Tenn. Code Ann. § 67-4-702(a)(18)(B). Pfizer v. Johnson, 2006 WL 163190 (Tenn. Ct. App.
Jan. 23, 2006).
120
Tenn. Code Ann. § 67-4-702(a)(18)(B).
121
Tenn. Code Ann. § 67-4-709.
122
Tenn. Code Ann. § 67-4-714(a).
123
Tenn. Code Ann. § 67-4-705(b).
Tenn. Code Ann. § 67-4-715. T
124 ENN .COMP . R.& EGSR. 1320-04-05-.53.
125
Tenn. Code Ann. § 67-1-107.
Tenn. Code Ann. § 67-4-715(g). T
126 ENN .COMP .R.& EGSR. 1320-04-05-.30.
127
Tenn. Code Ann. § 67-2-107(f)(1).
128
.Id
129
Tenn. Code Ann. § 67-2-107(f)(1)(A).
130
Tenn. Code Ann. § 67-1-114(b).
131
Tenn. Code Ann. §§ 67-4-721 and 67-4-714(b).
132
Tenn. Code Ann. § 67-4-714.
133
Tenn. Code Ann. § 67-1-802.
134
Tenn. Code Ann. § 67-1-804(b)(1).
135
Tenn. Code Ann. § 67-1-804(c)(2).
136
Tenn. Code Ann. §§ 67-1-804(c) and 67-1-1400-1445.
137
Tenn. Code Ann. § 67-1-803(c)-(d).
138
Tenn. Code Ann. § 67-1-803.
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139
Tenn. Code Ann. § 67-1-803(c)(1)(A)-(E).
140
Tenn. Code Ann. § 67-1-803(d)(1)(A)-(I).
141
Tenn. Code Ann. § 67-1-107.
142
Tenn. Code Ann. § 67-1-803.
143
Tenn. Code Ann. § 67-1-801(a)(1)(B).
144
Tenn. Code Ann. § 67-1-801(a)(2).
145
Tenn. Code Ann. § 67-1-1438.
146
Tenn. Code Ann. § 67-1-1801.
147
Tenn. Code Ann. § 67-1-1501(b)(1)-(2).
148
Tenn. Code Ann. § 67-1-1501(b).
149
Tenn. Code Ann. § 67-1802(a)(1)(A).
150
Tenn. Code Ann. § 67-1-1802(b)(1).
151
Tenn. Code Ann. § 67-4-722.
152
Tenn. Code Ann. § 67-1-113.
T
153 ENN .COMP .R. & EGSR. 1320-04-05-.42.
154
Tenn. Code Ann. § 67-4-717(b)(1) and (c)(1).
155
Tenn. Code Ann. § 67-4-724(c).
156
Tenn. Code Ann. § 67-4-709(4)(A)(i).
157
Tenn. Code Ann. § 67-4-717(b)(3) and (c)(3).
158
Tenn. Code Ann. § 67-4-717(b)(2) and (c)(2).
159
4 U.S.C.A. § 117(b).
160
Tenn. Code Ann. § 67-4-724(a).
161
Tenn. Code Ann. § 67-4-724(b).
162
Tenn. Code Ann. § 67-4-724(d).
163
.Id
164
Tenn. Code Ann. § 67-4-724(c).
165
.Id
Tenn. Code Ann. § 67-4-708(3)(C). T
166 ENN .COMP .R. & EGSR. 1320-04-05-.16.
167
See Aabakus, Inc. v. Huddleston, 1996 WL 548148 at *3 (Tenn. Ct. App. 1996).
168
Tenn. Code Ann. § 67-4-708(3)(C)(i)-(xvi).
169
Tenn. Code Ann. § 67-4-708(3)(C).
170
Hershey v. Knowles, 1991 WL 191633 (Tenn. 1991).
T
171 ENN .COMP .R. & EGSR. 1320-04-05-.12(1)(g).
172
Tenn. Code Ann. § 67-4-708(3)(C)(iii).
173
See SIC Major Group 88 titled Private Households.
174
Tenn. Code Ann. § 67-4-708(C)(vi).
175
These services are classified in Industry 8733 titled Noncommercial Research
Organizations within Industry Group 873 titled Research, Development, and Educational
Research in the SIC Index.
176
See, e.g., Tennessee Farmers Assur. v. Chumley, 197 S.W.3d 767, 782-83 (Tenn. 2006); Beare
Co. v. Tennessee Dept. of Revenue, 858 S.W.2d 906, 908 (Tenn. 1993).
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177
See SIC Industry 8721 within Industry Group 872 titled Accounting, Auditing, and
Bookkeeping Services.
178
Tenn. Code Ann. § 67-4-708(C)(ix).
179
Tenn. Code Ann. § 65-4-101(6)(A).
T
180 ENN .COMP .R. & EGSR. 1320-04-05-.58.
181
Tenn. Code Ann. § 67-4-708(3)(C)(i)-(xvi).
182
Tenn. Code Ann. § 45-4-803. 12 U.S.C. § 1768.
183
See Industry Group 641 titled Insurance Agents, Brokers, and Services within SIC Major
Group 64.
184
See Industry 6513 titled Operators within SIC Industry Group 651.
185
See SIC Industry 6519 titled Lessors of Real Property, Not Elsewhere Classified within
Industry Group 651.
186
Tenn. Code Ann. § 67-4-708(3)(C)(i)-(xvi).
187
Note that, as also stated in Aabakus, Inc. v. Huddleston, any actual pass-through amounts
(i.e., amounts transferred to a taxpayer with no mark-up that the taxpayer is obligated to pay
over to a third party on its client’s behalf) included in the amount received by a taxpayer
from its client should not be included in the amount taxed. Such pass-through amounts
could include postage, insurance premiums, or certain taxes.
188
Tenn. Code Ann. § 67-4-702(a)(21).
189
Tenn. Code Ann. § 67-4-702(a)(19).
190
Internet Tax Freedom Act, 47 U.S.C.A. §151, note §1101(a).
191
Tenn. Code Ann. § 67-4-712(b)(1).
192
Tenn. Code Ann. § 67-4-712(b)(2).
193
Tenn. Code Ann. § 67-4-712(b)(4).
194
Tenn. Code Ann. § 67-4-712(b)(5).
195
Tenn. Code Ann. § 67-4-712(b)(6).
196
Tenn. Code Ann. § 67-4-712(b)(7).
197
Tenn. Code Ann. § 67-4-712(d).
198
Tenn. Code Ann. § 67-6-309(b).
199
Tenn. Code Ann. § 69-10-102(b).
200
Tenn. Code Ann. § 58-2-204(c)(5).
T
201 ENN .COMP .R. & EGSR. 1320-04-05-.40(1).
T
202 ENN .COMP .R. & EGSR. 1320-04-05-.40(2).
203
Tenn. Code Ann. §§ 67-4-704(b) and 67-4-705(d).
T
204 ENN .COMP .R. & EGSR. 1320-04-05-.39(1).
T
205 ENN .COMP .R. & EGSR. 1320-04-05-.39(2).
T
206 ENN .COMP .R. & EGSR. 1320-04-05-.39(3).
207
Tenn. Code Ann. § 67-4-712(a)(1).
208
Tenn. Code Ann. § 67-4-712(a)(2).
209
Tenn. Code Ann. § 67-4-712(b)(2).
T
210 ENN .COMP .R. & EGSR. 1320-04-05-.13(9) and 1320-04-05-.29(3).
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T
211 ENN .COMP .R. & EGSR. 1320-04-05-.29(3)-(4).
T
212 ENN .COMP .R. & EGSR. 1320-04-05-.16(1)(c).
213
https://www.osha.gov/pls/imis/sic_manual.html.
214
Tenn. Farmers’ Coop. v. State ex rel. Jackson, 736 S.W.2d 87, 91-92 (Tenn. 1987).
215
This analysis is different than that for sales tax, which requires three separate categories
(sales of manufactured goods alone, sales of manufactured goods that are also installed,
and all other sales).
216
Tenn. Code Ann. § 67-4-712(d).
217
Tenn. Code Ann. § 67-4-702(a)(2).
Id. T
218 ENN .COMP . R.& EGSR. 1320-04-05-.05(1).
219 ENN .COMP .R. & EGSR. 1320-04-05-.05(1).
T
220
.Id
221 ENN .COMP .R. & EGS R.1320-04-05-.05(2) and 1320-04-05-16(1)(c).
T
T
222 ENN .COMP .R. & EGS R.1320-04-05-.05(3).
223
.Id
224
Tenn. Code Ann. § 67-4-712(b)(3).
225
Tenn. Code Ann. § 67-4-712(e).
226
https://www.naics.com/standard-industrial-code-divisions/?code=86 .
227
.Id
228
Tenn. Code Ann. § 67-4-712(c)(2).
229
Tenn. Code Ann. § 67-4-702(a)(23).
230
.Id
231
See Letter Ruling 17-05.
232
Tenn. Code Ann. § 67-4-702(a)(18)(B).
233
Tenn. Code Ann. § 67-4-702(a)(19).
234
Tenn. Code Ann. § 67-4-702(a)(16).
235
Tenn. Code Ann. § 67-4-702(a)(14).
T
236 ENN .COMP .R. & EGSR. 1320-04-05-.56.
237
.Id
238
Tenn. Code Ann. § 67-4-712(b)(5).
T
239 ENN .COMP .R. & EGSR. 1320-04-05-.18.
T
240 ENN .COMP .R. & EGSR. 1320-04-05-.16.
241
Tenn. Code Ann. § 67-4-711(a)(1).
T
242 ENN .COMP .R. & EGSR. 1320-04-05-.12(3).
243
Tenn. Code Ann. § 67-4-711(a)(2).
T
244 ENN .COMP .R. & EGSR. 1320-04-05-.45.
245
Tenn. Code Ann. § 67-4-711(a)(3).
T
246 ENN .COMP .R. & EGSR. 1320-04-05-.54(1).
T
247 ENN .COMP .R. & EGSR. 1320-04-05-.54(2).
248
Tenn. Code Ann. § 67-4-711(a)(4).
T
249 ENN .COMP .R. & EGSR. 1320-04-05-.44(2).
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250 ENN .COMP .R. & EGSR. 1320-04-05-.44(3).
251
See Revenue Ruling 18-01.
252
Tenn. Code Ann. § 67-4-711(a)(6).
T
253 ENN .COMP .R. & EGSR. 1320-04-05-.12(1)(f).
T
254 ENN .COMP .R. & EGSR. 1320-04-05-.33(1).
T
255 ENN .COMP .R. & EGSR. 1320-04-05-.33(2).
256
Tenn. Code Ann. § 67-4-711(a)(7).
257
Tenn. Code Ann. § 67-4-711(a)(8).
258
See 26 U.S.C. § 166.
259
Tenn. Code Ann. § 67-4-711(a)(8)(B).
260
Tenn. Code Ann. § 67-4-711(a)(8)(C).
261
Tenn. Code Ann. § 67-4-711(a)(8)(D).
262
Tenn. Code Ann. § 67-4-711(a)(8)(E).
263
Tenn. Code Ann. § 67-4-711(b).
264
Compiled in Tennessee Code Annotated Title 67, Chapter 3.
265
Id.
266
Compiled in Tennessee Code Annotated Title 67, Chapter 4, Part 10.
267
Compiled in Tennessee Code Annotated Title 57, Chapters 5 and 6.
268
Compiled in Tennessee Code Annotated Title 67, Chapter 3, Part 9.
269
Compiled in Tennessee Code Annotated Title 67, Chapter 3, Part 11.
T
270 ENN .COMP .R. & EGSR. 1320-04-05-.01(1).
271
Id.
272
Id.
T
273 ENN .COMP .R. & EGSR. 1320-04-05-.34.
T
274 ENN .COMP .R. & EGSR. 1320-04-05-.38(2).
T
275 ENN .COMP .R. & EGSR. 1320-04-05-.31(3).
T
276 ENN .COMP .R. & EGSR. 1320-04-05-.19(2).
277
Tenn. Code Ann. § 67-4-713(a)(2).
278
Tenn. Code Ann. § 67-4-713(a)(2)(A).
279
Tenn. Code Ann. § 67-4-713(a)(2)(B).
280
Tenn. Code Ann. § 67-4-713(a)(2)(C).
281
.Id
282
Tenn. Code Ann. § 67-4-713(a)(4).
283
.Id
284
Tenn. Code Ann. § 67-4-713.
285
Tenn. Code Ann. § 67-4-713(a)(4).
286
Tenn. Code Ann. § 67-4-713(a)(5).
287
Tenn. Code Ann. § 67-4- 713(a)(1).
288
Tenn. Code Ann. § 67-4-709(4)(A)(i).
289
Tenn. Code Ann. § 67-4-709(4)(A)(i).
290
Tenn. Code Ann. § 67-4-711(a)(5)(A).
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291 ENN .COMP .R. & EGSR. 1320-04-05-.51.
292
Tenn. Code Ann. § 67-4-708(4)(B).
293
Tenn. Code Ann. § 67-4-708(3)(C)(xvi).
T
294 ENN .COMP .R. & EGSR. 1320-04-05-.16(d).
295
Tenn. Code Ann. § 67-4-712(c)(1).
296
Tenn. Code Ann. § 67-4-729(a).
297
.Id
298
Tenn. Code Ann. § 67-4-729(b)(1).
299
Tenn. Code Ann. § 67-4-729(b)(2).
300
Tenn. Code Ann. § 67-4-729(b)(3).
301
.Id
T
302 ENN .COMP .R. & EGS R.1320-04-05-.19(1)(a).
T
303 ENN .COMP .R. & EGS R.1320-04-05-.19(1)(b).
T
304 ENN .COMP .R. & EGS R.1320-04-05-.19(2).
T
305 ENN .COMP .R. & EGS R.1320-04-05-.06.
306
.Id
307
.Id
T
308 ENN .COMP .R. & EGSR. 1320-04-05-.25.
309
.Id
T
310 ENN .COMP .R. & EGSR. 1320-04-05-.07.
T
311 ENN .COMP .R. & EGSR. 1320-04-05-.59(1).
312
.Id
T
313 ENN .COMP .R. & EGSR. 1320-04-05-.59.
314
Tenn. Code Ann. § 67-4-710(a)(1)(A).
315
Tenn. Code Ann. § 67-4-710(a)(1)(B).
316
Tenn. Code Ann. § 67-4-702(a)(17).
317
Tenn. Code Ann. § 67-4-710(a)(2).
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