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Tennessee Department of Revenue

Tennessee Department of Revenue. Business Tax 2015. Brief History of Tennessee’s Business Tax. Began in 1971 Rate change in 2002 Public Chapter 530 in 2009 – major change Public Chapter 313 - Uniformity and Small Business Relief Act of 2013 made other changes

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Tennessee Department of Revenue

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  1. Tennessee Department of Revenue Business Tax2015

  2. Brief History of Tennessee’s Business Tax • Began in 1971 • Rate change in 2002 • Public Chapter 530 in 2009 – major change • Public Chapter 313 - Uniformity and Small Business Relief Act of 2013 made other changes • Public Chapter 514 – Revenue Modernization Act • A privilege tax imposed upon all businesses that sell tangible personal property and most businesses that render services

  3. Business Tax Changes for 2015 (Effective 1/1/2016) Public Chapter 514 Revenue Modernization Act • New definition of “substantial nexus in this state” • Line #1 of Schedule A – language change • Law changes what it means to be “engaged in this state”

  4. Local and State Governments Administer Business Tax • Cities and Counties • All businesses statewide are subject to business tax unless statutorily exempted • Businesses in cities that have passed business tax ordinances pay twice – state and city business tax • Local governments issue standard business licenses and minimal activity licenses • State of Tennessee • Responsible for return processing, tax payments, audit, and collection functions • Handles tax accounting – money back to local governments

  5. Transient Vendor Fee • Only applies to out-of-state vendors coming into Tennessee to sell stocks of new merchandise • $50 fee for each 14-day period • Imposed at the local level and must be paid before engaging in business • $50 fee applies regardless of the amount of sales • Tennessee businesses holding licenses report taxes back to home or billing location, unless new location officially established – transient vendor license not needed

  6. Business Tax Applies To Certain Out-of-State Businesses Taxable Transactions for State Business Tax Until 1/1/16 • Performing a service received by a TN customer • Leasing tangible personal property located in TN • Shipping or delivering tangible personal property to a location in this state • Sale of natural gas to a customer located in this state through sellers property in this state Registration and tax payments required to be submitted directly to the TN Department of Revenue License is not required & not issued

  7. Licenses Are Issued By Local Governments • Counties and cities issue business licenses for businesses with $10,000 or more in taxable gross income for a one-time fee of $15. • A standard license is renewed annually for no additional fee when the tax return has been filed and taxes paid with the Department of Revenue • A minimal activity license may be obtained annually for businesses having $3,000 to $9,999 in gross income (eliminates having to file and pay taxes to Revenue). License costs $15 each year • Businesses having less than $3,000 in gross income do not need a license, but can obtain a license upon request • Transient vendor and flea market licenses are obtained with the local governments - local governments retain 100% of funds

  8. Personal Property Taxes Are Deductible • Credit can offset up to 50% of the total business tax liability • By location and jurisdiction – ensure the correct tax deduction is taken • Some cities do not have personal property taxes

  9. Classifications and Tax Rates Are Tied Together • There are five main classifications of businesses defined in the statute – some have subclasses • Each of these classifications is subject to a different rate • Wholesaler vs. Retailer – the taxpayer declares their rate when filing

  10. Business Tax Classification 1 • Classification 1 (A, B, C, D, E) • Retail and Wholesale Rates, except for 1(D), which is retail only and 1(E) which is wholesale only • Rates vary from.001 - .0005 retail & .00025 - .000375 wholesale • Sales include food, lumber, tools, hay, seeds, and gasoline • Gasoline wholesalers are Classification 1E

  11. Business Tax Classification 2 • Classification 2 • Has retail and wholesale rates • Rates: .0015 retail & .000375 wholesale • Sales include motor vehicles, clothing, and home furnishings

  12. Business Tax Classification 3 • Classification 3 • Has retail and wholesale rates • Rates: .001875 retail & .000375 wholesale • Sales include books, sports equipment, tobacco, and services

  13. Business Tax Classification 4 • Classification 4 • Retail only • Rate: .001 retail; no wholesale • Contractors who install personal property or construct and improve real property • Sales by commodity brokers or livestock auctions of farm products

  14. Contractors Have Special Requirements Contractors may deduct amounts paid to a subcontractor if: • The subcontractor has their own business license or contractor’s license (not a minimal activity license), • The subcontractor must be making improvements to real property • The contractor submits with the tax return the subcontractor’s name, address, license number, and amount paid, and • Contractor maintains a copy of the license in his files

  15. Out-of-State Contractors Have Different Requirements Out-of-State Contractors • Register with Department of Revenue and pay state business tax when $10,000 or more in gross receipts is made in any county • This is per county, not aggregated • No city license or tax requirement & no county license required, unless $50,000 or more • If $50,000 or more – get licenses from city and county and pay both city and state business tax (deemed location)

  16. Minimum Tax Due For All Taxpayers • Classifications 1 through 4 and 5B: $22 • No such thing as a $0 business tax return • Out-of-state businesses having no permanent location in TN only pay one $22 minimum tax or their tax liability, whichever is higher

  17. Fiscal Year Filing Required • Taxpayers file their tax returns based on their fiscal year • Same as their federal (IRS) tax year • Taxpayers not having a special fiscal year are assumed to have a December year end • This applies to all classifications • New businesses must tell Revenue or the city/county clerk what their fiscal year is when registering 17

  18. Fiscal Year Filing Example:December Tax Year End • Taxpayers not having a special fiscal year are assumed to have a December year end • Most businesses have a January-December tax year • All tax returns for all classifications are due on or before April 15th of the following year • Electronic filing and payment is required • Electronic filing and payment waivers may be requested 18

  19. License Periods • Current licenses are good until 30 days past due date for next tax return • Newly-issued standard and minimal activity licenses expire 30 days after the due date for the tax return • Minimal activity licenses follow the same license period as taxpayers having standard business licenses 19

  20. Filing Correctly • Returns must be filed electronically or a waiver must be applied for in writing and approved by Revenue • Returns are due by the 15th day of the fourth month following the end of the tax period • If the return becomes delinquent, penalty and interest is assessed • Penalty can be waived under certain conditions; interest cannot be waived

  21. Current Issues • Nexus definition change beginning in 2016 • Delinquency notices • Electronic filing has been successful! Continue to encourage businesses to register early for electronic filing usernames and passwords.

  22. Visit Us on the Web! www.TN.gov/revenue

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