Tennessee § 67-4-2014 - Variances from standard apportionment formula — Notice of discontinuation — Hospital companies.

§ 67-4-2014. Variances from standard apportionment formula — Notice of discontinuation — Hospital companies.

If the tax computation, allocation or apportionment provisions of this part or chapter 2 of this title do not fairly represent the extent of the taxpayer's business activity in this state, or the taxpayer's net earnings, the taxpayer may petition for, or the department through its delegates may require, in respect to all or any part of the taxpayer's business activity, if reasonable: Separate accounting; The exclusion of any one (1) or more of the formula factors; The inclusion of one (1) or more additional apportionment formula factors that will fairly represent the taxpayer's business activity in this state; The use of any other method to source receipts for purposes of the receipts factor or factors of the apportionment formula numerator or numerators; or The employment of any other method to effectuate an equitable computation, allocation and apportionment of the taxpayer's net earnings or losses that fairly represents the extent of the business entity's activities in Tennessee. If any factors are excluded from or added to the statutory apportionment formula, an appropriate change shall be made in the number used as the denominator of the fraction. In any case of two (2) or more persons, organizations, trades or businesses, whether or not incorporated and whether or not affiliated, owned or controlled directly or indirectly by the same interests, the commissioner through delegates may distribute, apportion, or allocate income, deductions, credits, or allowances between or among such persons, organizations, trades or businesses, if the commissioner determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes, excessive use or abuse of exemptions, or to clearly reflect the income of such persons, organizations, trades or businesses. In addition, the commissioner through delegates may require combined reports utilizing a common apportionment formula covering members of an affiliated group. It is the intent of the general assembly that the federal regulations, rulings, and court implementations with respect to 26 U.S.C. § 482 be used as guidance in the administration of this subdivision (c)(1). In the case of two (2) or more entities owned or controlled directly or indirectly by the same persons, including, but not limited to, affiliated groups, the commissioner, through the commissioner's delegates, may require combined reports and, if applicable, the utilization of a common apportionment formula covering such entities. The commissioner may apply federal taxation concepts, including, but not limited to, “assignment of income,” “arms length,” and “fair market value” to dealings between and among affiliates. The commissioner may disregard any entity created or transaction made that has no business purpose or is created or made with the primary purpose of evading either the federal income tax or the excise tax. When another method of tax computation, allocation or apportionment as set out above has once been established, it shall continue in effect so long as the circumstances justifying the variation remain substantially unchanged, or until changed or discontinued by the department, whichever occurs first. In the event that the department changes or discontinues a variation from the statutory computation, allocation or apportionment provisions that has been granted to or required of a taxpayer, reasonable notice shall be given to the taxpayer affected, and any such change or discontinuation shall apply prospectively to the first and subsequent tax periods beginning on or after the date of such notice. For tax years beginning on or before December 31, 2006, a hospital company, as defined in § 67-4-2004, shall file its franchise and excise tax return on a combined basis, together with all other corporations or other entities subject to the taxes imposed under this part and part 21 of this chapter that are members of its controlled group, as defined in 26 U.S.C. § 267(f)(1), and that are doing business in and taxable by this state, apportioned or allocated as to each member separately as provided in §§ 67-4-2011 and 67-4-2012, and then combined. Such combined franchise and excise tax returns shall be signed on behalf of one (1) member of the combined controlled group for itself and on behalf of the other members of the combined controlled group, and such signature shall constitute representation and evidence of authority to file on behalf of all members of the combined controlled group. The combined return shall contain all financial statements and schedules that would be required of each member filing a separate franchise and excise tax return. Each member's net earnings or losses subject to carryover, as the case may be, and each member's apportionment ratio, and applicable supporting schedules shall be computed separately as would be required by law if no combined return were required. The franchise and excise tax shall be computed for the combined group based on the combined net earnings or net losses of the members as combined and shown on the combined return filed for members of the controlled group of companies doing business in this state. The losses available to each member of the controlled group under current or prior law shall be available for offset against the net earnings of the combined group in the first year of filing on a combined basis, and any portion that is not used to offset net earnings of the combined group in the first combined year shall be carried forward on a combined basis to be available as an offset to future net earnings of the combined group in accordance with and subject to the time limitations set forth in § 67-4-2006(c)(1); provided, that such combination shall not extend the time limitation of any then existing net operating losses. No member of the combined group may file its franchise and excise tax return on a separate basis without the consent of the commissioner. Acts 1999, ch. 406, § 3; 2005, ch. 499, §§ 41-43; 2006, ch. 1019, § 57. 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. Pursuant to Acts 1999, ch. 406, § 19(c), notwithstanding § 19(b) of the act, the provisions of this section relating to variances, fraud and abuse shall apply to tax years ending on or after June 30, 1999. Acts 2005, ch. 499, § 91 provided that §§ 41-43 of the act shall apply to tax periods beginning on or after January 1, 2005. Law Reviews. 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).