United States

Tennessee: Department Issues Summaries of Informal Conference Decisions

Nov 21, 2016
From KPMG TaxWatch

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Recently, the Tennessee Department of Revenue issued an annual report summarizing several tax topics addressed during informal conferences held in fiscal year 2016.  Without identifying the taxpayer, the report generally describes the facts involved in the conference and the conclusion reached by the Department’s Hearing Officer. The purpose of the compilation is to provide guidance to other taxpayers on topics of interest. Of the 346 informal conferences held during fiscal year 2016, 61 addressed franchise and excise tax issues and 85 were sales and use tax related. During 62 of the informal conferences, multiple taxes were reviewed.

One of the excise tax disputes addressed in an informal conference was sourcing of service receipts for excise tax purposes. Under Tennessee law, a sale of other than tangible personal property is considered a Tennessee sale if the greater proportion of the earnings-producing activity is performed in Tennessee. It should be noted that effective for tax years beginning on or after July 1, 2016, Tennessee has adopted market-based sourcing rules for sales of services and intangibles.

The company requesting the conference provided staffing and administrative services to in- and out-of-state businesses from its location in Tennessee. The taxpayer had no property or employees but subcontracted with others to provide its services. On its returns, the taxpayer sourced none of its sales to Tennessee. The auditor later determined that 100 percent of the taxpayer’s sales should be apportioned to Tennessee. The Hearing Officer, who upheld the assessment, agreed with the adjustment. In the Hearing Officer’s view, because the contracting activity occurred in Tennessee, all of the taxpayer’s service receipts were sourced to Tennessee- regardless of where the services were performed or the taxpayer’s customers were located. Other franchise and excise topics of interest include when companies can deduct intangibles expenses paid to related entities, and the characterization of gain from the sale of goodwill as business or nonbusiness income. Please contact Loren Chumley at 615-248-5565 with questions on the annual report.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.