Tennessee recently passed the Revenue Modernization Act which attempts to make out-of-state businesses “pay their fair share of taxes” and help Tennessee-based businesses. This legislation will impact anyone who is doing business with Tennessee. Notable changes include:
- The creation of a “bright-line presence” test. Out-of-state taxpayers will be subject to Tennessee’s franchise and excise tax if they meet any of the following tests:
- The taxpayer’s receipts in Tennessee exceed either $500,000 or 25% of taxpayers total receipts everywhere;
- The average value of the taxpayer’s real and tangible property owned or rented exceeds $50,000 or 25% of taxpayer’s total real and tangible property;
- The taxpayer paid compensation in Tennessee exceeds more than $50,000 or 25% of the total compensation paid by the taxpayer.
- The weight of the sales tax factor is increased to 60% beginning July 1, 2016.
- Receipts from sales of services are to be sourced to Tennessee to the extent that the service is delivered to a location in Tennessee (market-based sourcing), regardless of where the service is performed, effective January 1, 2016.
- “Click-through” nexus was enacted as of July 1, 2015, establishing a presumption of sales and use tax nexus when remote online retailers pay one or more persons located in Tennessee for referring customers to them whether through a website link or other means. When gross sales from such referrals exceed $10,000 over a 12-month period, the online retailer will be required to collect and remit sales and use tax from its Tennessee customers.
Please contact your Somerset advisor should you have questions regarding the application of the new Tennessee laws to your business.