United States

Tennessee: New Economic Nexus Standards Also Apply to State Business Tax

Dec 19, 2016
From KPMG TaxWatch

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In recent years, a number of states, including Tennessee, have adopted economic nexus standards for corporate income tax purposes. In Tennessee, those standards also apply to the state’s business tax. As background, the Tennessee business tax is really two taxes—the state business tax and the city business tax. These gross-receipts type taxes are assessed for the privilege of conducting business within the state and certain cities and are based on receipts from the sale of both tangible personal property and services. Businesses are subject to city business tax if they have a physical location where business is conducted in a city that imposes a business tax. There is a different nexus standard for state business tax. In 2015, the Tennessee legislature adopted factor-presence nexus standards for excise (income), franchise, and state business tax purposes. Under these standards, a taxpayer whose total receipts from the sale in Tennessee of tangible personal property or services exceed the lesser of $500,000 or 25 percent of the taxpayer’s total receipts during the tax period, will be deemed to have Tennessee nexus. Thus, businesses that lack a physical presence in Tennessee may nevertheless be subject to the state-level business tax. The state business tax is a gross receipts tax, meaning Public Law 86-272 protection does not apply. Please contact Loren Chumley at 615-248-5565 with questions. 

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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.