Tennessee § 67-4-2007 - Tax imposed.

§ 67-4-2007. Tax imposed.

All persons, except those having not-for-profit status, doing business in this state and having a substantial nexus in this state shall, without exception other than as provided in this part, pay to the commissioner, annually, an excise tax, in addition to all other taxes, equal to six and one-half percent (6½%) of the net earnings for the next preceding fiscal year for business done in this state during that fiscal year. Notwithstanding the fact that a person is not-for-profit, such person shall be subject to excise tax on all of its Tennessee net earnings to the extent such earnings constitute unrelated business taxable income as defined in § 512 of the Internal Revenue Code, codified in 26 U.S.C. § 512, or are otherwise subject to income taxes under Subtitle A of such code. Notwithstanding the fact that a person is otherwise exempted from the excise tax, such person shall be subject to excise tax on all of its Tennessee net earnings that are attributable to any activities unrelated to and outside the scope of the activities that give it an exemption status. Every such person, now or hereafter doing business in this state, shall, as a recompense for the protection of its local activities and as compensation for the benefits it receives from doing business in Tennessee, pay the tax imposed by this part. A person doing business in Tennessee without incorporating, domesticating, qualifying or otherwise registering in Tennessee, or doing business in Tennessee while its charter, domestication, qualification or other registration is forfeited, revoked or suspended, is not relieved from filing a return and paying the excise tax levied by this part for each tax year that such person does business in Tennessee. The tax imposed by this part shall apply to taxpayers whose business is being conducted by a receivership or trusteeship appointed by any court of competent jurisdiction, and shall continue to accrue until such time as the taxpayer has been actually and legally dissolved or withdrawn from this state. For purposes of the excise tax levied by this part, a business entity shall be classified as a corporation, partnership, or other type business entity, consistent with the way the entity is classified for federal income tax purposes, and subject to tax in accordance with this part. Notwithstanding any law to the contrary, entities that are disregarded for federal income tax purposes, except for limited liability companies whose single member is a corporation, shall not be disregarded for Tennessee excise tax purposes. Except for unitary groups of financial institutions, captive REIT affiliated groups, and business entities that have been required or permitted to file excise tax returns on a combined, consolidated or separate accounting basis under § 67-4-2014, each taxpayer shall be considered a separate and single business entity for Tennessee excise tax purposes and shall file its Tennessee excise tax return on a separate entity basis reflecting only its own business activities even though it may have filed a consolidated federal income tax return with other members of its unitary group. The federal taxable income computed on a separate entity basis excise tax return and subject to adjustments set forth in § 67-4-2006 shall be the same federal taxable income that would have been computed on the taxpayer's federal return if it had been filed on a separate entity basis rather than a consolidated basis. Financial institutions subject to tax in this state, that are members of a unitary group, shall file a combined return and pay tax based on the apportioned combined net earnings of the entire unitary group, as defined in § 67-4-2006(a)(3). The members of the group shall designate one (1) member that is subject to tax in this state to file the combined return. Except as provided in subdivision (e)(2)(B), each member subject to tax in this state shall be jointly and severally liable for the tax imposed by this part with regard to the unitary business. Joint and several liability for the tax imposed by this part with regard to the unitary business shall not apply to any member that is a limited liability company, limited liability partnership, or limited partnership and meets the criteria set forth either in subdivision (e)(2)(B)(i) or (e)(2)(B)(ii): (a) The member was formed and operated for the primary purpose of acquiring, from one (1) or more of its direct or indirect owners, notes, accounts receivable, installment sale contracts, or similar evidences of indebtedness; and (i) (a) The member was formed and operated for the primary purpose of acquiring, from one (1) or more of its direct or indirect owners, notes, accounts receivable, installment sale contracts, or similar evidences of indebtedness; and The member has pledged substantially all of its assets as security, directly or indirectly, for third party borrowings or securitized indebtedness acquired by third parties; or Substantially all of the member's assets consist of assets described in subdivision (e)(2)(B)(i)(a ), cash and cash equivalents, third party debt securities, or equity interests in entities satisfying the requirements of subdivision (e)(2)(B)(i). For the purposes of subdivision (e)(2)(B), the following shall apply: The requirements of subdivision (e)(2)(B)(i)(a ) shall be satisfied by the presence of language in the entity's organizational or other governing documents expressly stating that the purpose of the entity is to acquire, own, manage, protect, conserve and sell or otherwise dispose of assets described in subdivision (e)(2)(B)(i)(a ), cash and cash equivalents, and third party debt securities; to enter into and perform its obligations under its organizational documents, any documents relating to the acquisition of the assets or any third party borrowing or securitized indebtedness to which the entity is a party; and to engage in activities related or incidental to the purposes in this subdivision (e)(2)(C)(i) and necessary or appropriate for the purposes in this subdivision (e)(2)(C)(i). “Substantially all” as set forth in subdivision (e)(2)(B) means at least two-thirds (66.67%) of the entity's assets as determined by fair market value. Persons subject to tax in this state that are members of a captive REIT affiliated group shall file a combined return and pay tax based on the apportioned combined net earnings of the entire captive REIT affiliated group, as defined in § 67-4-2006(a). The members of the group shall designate one (1) member that is subject to tax in this state to file the combined return. Each member subject to tax in this state shall be jointly and severally liable for the tax imposed by this part with regard to the affiliated group. Any entity or individual not otherwise subject to the tax imposed by this part shall pay to the commissioner an excise tax equal to six and one-half percent (6.5%) of the gain from the sale of any asset if any of the following criteria is met: The entity or individual received the asset through a distribution from a taxpayer within the twelve-month period immediately prior to the sale and the taxpayer making the asset distribution ceased to exist prior to the sale; The entity or individual received the asset through a merger, liquidation, or any similar transaction involving a taxpayer subject to the tax imposed by this part during the twelve-month period immediately prior to the sale; The entity or individual qualified for the exemption provided in § 67-4-2008(a)(9) during the twelve-month period immediately prior to the sale; or The asset was owned, during the twelve-month period immediately prior to the sale, by an affiliate subject to the tax imposed by this part. Tax on such gain shall be reported and paid in accordance with § 67-4-2015; provided, however, that such tax shall not apply to any person having not-for-profit status. In no event shall the gain from the sale of such asset be taxed twice as a result of the same transaction. Any entity or individual who fails to report and pay the tax as required by this subsection (f) shall be subject to a penalty as set forth in § 67-1-804(b)(3). Acts 1999, ch. 406, § 3; 2000, ch. 982, §§ 15-17; 2002, ch. 856, § 3c; 2004, ch. 592, § 6; 2005, ch. 499, § 77; 2006, ch. 1019, § 32; 2007, ch. 602, § 19; 2008, ch. 1106, § 37; 2010, ch. 1134, §§ 10, 11, 22; 2015, ch. 514, § 7. Compiler's Notes. Acts 1999, ch. 406, § 19(b) provided that §§ 67-4-2001 — 67-4-2017 shall apply to tax years ending on and after June 30, 1999, for limited liability companies, limited liability partnerships and limited partnerships, in which one or more corporations subject to excise taxes under prior law directly or indirectly have in the aggregate an eighty percent (80%) or more ownership interest at any time after June 30, 1998; however, §§ 67-4-2001 — 67-4-2017 shall apply to tax years beginning on or after July 1, 1999, for all other taxpayers. Acts 2000, ch. 982, § 60(a) provided that §§ 1-38 of that act shall apply to tax years beginning on or after July 1, 1999, and to limited liability companies, limited liability partnerships and limited partnerships whose tax years ended on or after June 30, 1999, and in which one (1) or more corporations subject to franchise and excise taxes under title 67, chapter 4, parts 8 and 9 before their repeal by Chapter 406 of the Public Acts of 1999, directly or indirectly had in the aggregate an eighty percent (80%) or more ownership interest at any time after June 30, 1998. The Internal Revenue Code, referred to in this section, is compiled in Title 26 of the United States Code; with Subtitle A compiled in 26 U.S.C. §§ 1-2000. Acts 2002, ch. 856, § 14(c) provided that the 2002 amendment by that act shall apply to tax years ending on or after July 15, 2002. Acts 2002, ch. 856, § 13 provided that no expenditure of public funds pursuant to that act shall be made in violation of the provisions of Title VI of the Civil Rights Act of 1964, as codified in 42 U.S.C. § 2000 d. Acts 2004, ch. 592, § 16 provided that §§ 5 and 6 of the act shall apply to any asset sale occurring on or after July 1, 2004. Acts 2008, ch. 1106, § 69 provided that § 37 of the act, which added (f)(1)(D), shall apply to transactions occurring on or after July 1, 2008. Acts 2010, ch. 1134, § 66, provided that §§ 10 and 11 of the act, which amended subdivision (e)(1) and added subdivision (e)(3), shall apply to all tax years ending on or after July 1, 2010. For the Preamble to the act concerning the need to modernize the sales and use taxes, franchise and excise taxes and business tax in the state to address the engagement in business within the state by out-of-state companies, see Acts 2015, ch. 514. Acts 2015, ch. 514, § 31 provided that the act, which amended (a), shall apply to all tax years beginning on or after January 1, 2016. Amendments. The 2015 amendment, effective January 1, 2016, substituted “doing business in this state and having a substantial nexus in this state” for “doing business in Tennessee” at the beginning of the first sentence of (a). Effective Dates. Acts 2015, ch. 514, § 31. January 1, 2016. Law Reviews. Building a House of Cards: A Policy Evaluation of Tennessee's Tax Reform Act of 2002 with Emphasis on Fairness to the Poor (Robert F. Parsley), 70 Tenn. L. Rev. 1177 (2003). State Taxation on Corporate Income from a Multistate Business (Paul J. Hartman), 13 Vand. L. Rev. 21 (1959). Tax Incentives for the Biotechnology Industry: Should Tennessee Offer Sales Tax Exemptions and Net Operating Loss Extensions? (Julie Tennyson), 70 Tenn. L. Rev. 321 (2003). Taxation-State Tax Apportionment of Out-Of-State Business Income—Constitutionality and Propriety of a State's Apportionment and Taxation of Capital Gains as Business Earnings (Clark Milner), 79 Tenn. L. Rev. 437 (2012). To Pay or Not to Pay: A Primer on the Federal Unrelated Business Income Tax (UBIT) for Non-tax Lawyers (Sean P. Scally), 37 No. 10 Tenn. B.J. 12 (2001). Attorney General Opinions. Constitutionality, application and construction of provisions of proposed SB 603 [HB644/SB603 enacted as 2015 Acts ch. 514]. OAG 15-37, 2015 Tenn. AG LEXIS 38 (4/22/15). Cited: Hilloak Realty Co. v. Chumley, 233 S.W.3d 816, 2007 Tenn. App. LEXIS 170 (Tenn. Ct. App. Mar. 29, 2007).