Tennessee Department of Revenue Business Tax 2015

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

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

Local and State Governments Administer Business Tax 4  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

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 5

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 6

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

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

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

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

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

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

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

Contractors Have Special Requirements 14 Contractors may deduct amounts paid to a subcontractor if: 1. The subcontractor has their own business license or contractor’s license (not a minimal activity license), 2. The subcontractor must be making improvements to real property 3. The contractor submits with the tax return the subcontractor’s name, address, license number, and amount paid, and 4. Contractor maintains a copy of the license in his files

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

Minimum Tax Due For All Taxpayers 16 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

Fiscal Year Filing Required 17 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

Fiscal Year Filing Example: December Tax Year End 18  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 15 th of the following year  Electronic filing and payment is required  Electronic filing and payment waivers may be requested 18

License Periods 19 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

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

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

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