Tennessee § 67-4-2105 - Persons doing business in state and having substantial nexus in state subject to tax.

§ 67-4-2105. Persons doing business in state and having substantial nexus in state subject to tax.

All persons doing business in this state and having a substantial nexus in this state, including any limited liability company regardless of how it is treated for federal income tax purposes, or any person exercising the corporate franchise, except for those having not-for-profit status or otherwise exempt under § 67-4-2008, shall pay to the commissioner of revenue annually a privilege tax in addition to all other taxes, the rate and measure of which are hereinafter set forth. The tax shall be paid for the privilege of doing business in Tennessee, and shall be in addition to all other taxes levied by any other statute. Notwithstanding any law to the contrary, a not-for-profit entity shall be subject to the franchise tax on all of its Tennessee net worth or real or tangible personal property owned or used, as the case may be, that is attributable to activities subject to income taxes under § 512 or any other provision of subtitle A of the Internal Revenue Code. Notwithstanding any law to the contrary, a taxpayer that is exempted from the franchise tax shall be subject to such tax on all of its Tennessee net worth or real or tangible personal property owned or used, as the case may be, that is attributable to any activities that are unrelated to and outside the scope of the activities that gave the entity its exempt status. Every taxpayer as described in subsection (a) 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. 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jurisdiction, and shall continue to accrue until such time as the taxpayer has been actually and legally dissolved or withdrawn from this state. 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 shall not be relieved from filing a return and paying the franchise tax levied by this part for each tax year that it does business in Tennessee. A financial institution shall be presumed, subject to rebuttal, to be doing business in this state, if the sum of its assets and the absolute value of its deposits attributable to sources within this state is five million dollars ($5,000,000) or more. Additionally, a financial institution shall be deemed to be doing business in this state, if the institution: Maintains an office in this state; Has an employee, representative or independent contractor conducting business in this state; Regularly sells products or services of any kind or nature to customers in this state that receive the product in this state; Regularly solicits business from potential customers in this state; Regularly performs services outside this state that are consumed in this state; Regularly engages in transactions with customers in this state that involve intangible property, including loans, and result in receipts flowing to the taxpayer from within this state; Owns or leases property located in this state; or Regularly solicits and receives deposits from customers in this state. Notwithstanding any other provision to the contrary, a financial institution is not considered to be conducting the business of a financial institution in this state, if the only activity of the financial institution in this state is the ownership of an interest in one (1) or more of the following types of property, including those activities within this state that are reasonably required to evaluate and complete the acquisition or disposition of the property, or the servicing of the property, or the income from it, the collection of income from the property, or the acquisition or liquidation of the collateral relating to the property: An interest in a real estate mortgage investment conduit, a real estate investment trust, or a regulated investment company as those terms are defined by the Internal Revenue Code of 1986; An interest in a loan-backed security representing ownership or participation in a pool of promissory notes or certificates of interest that provide for payments in relation to payments or reasonable projections of payments on the notes or certificates; An interest in a loan, lease, note or other assets attributed to this state and in which the payment obligations were solicited and entered into by an independent person that is not acting on behalf of the owner; An interest in the right to service or collect income from a loan or other asset from which interest on the loan or other asset is attributed to this state and in which the payment obligations were solicited and entered into by an independent person that is not acting on behalf of the owner; An interest in demand deposit clearing accounts, federal funds, certificates of deposit and other similar wholesale banking instruments issued by other financial institutions; An interest in a security; An interest of a financial institution in any intangible, tangible, real or personal property acquired in satisfaction, whether in whole or in part, of any asset embodying a payment obligation that is in default, whether secured or unsecured, if the ownership of the interest would be exempt otherwise as provided in subdivisions (e)(1)-(4); For the purposes of subdivisions (e)(3) and (4), an “independent person who is not acting on behalf of the owner” is defined as follows: At the time of the acquisition of the assets, the owner of the assets shall not directly or indirectly own fifteen percent (15%) or more of the outstanding stock or, in the case of a partnership, fifteen percent (15%) or more of the capital or profits interest of the entity from which the owner originally acquired the assets. In determining indirect ownership, an owner is deemed to own all of the stock, capital interest or profits interest owned by another person, if the owner directly owns fifteen percent (15%) or more of the stock, capital interest or profits interest in that other person. Also, the owner is deemed to own all stock, capital interest and profits interest directly owned by any intermediary parties in the transaction, to the extent a fifteen percent (15%) or more chain of ownership of stock, capital interest or profits interest exists between the owner and any intermediary party; The entity from which the owner acquired the assets shall regularly sell, assign or transfer interest in such assets to three (3) or more persons during the full twelve-month period immediately preceding the month of acquisition; and The entity from which the owner acquired the assets shall not sell, assign or transfer ninety percent (90%) or more of its exempt assets to the owner during the full twelve-month period immediately preceding the month of acquisition. Acts 1999, ch. 406, § 4; 2000, ch. 982, §§ 27, 28, 49, 50; 2003, ch. 355, § 38; 2003, ch. 418, § 11; 2006, ch. 1019, § 9; 2013, ch. 321, § 3; 2015, ch. 514, § 15. Code Commission Notes. This section was amended twice in 2003, first by Acts 355, § 38, effective June 16, 2003, then by ch. 418, § 11, effective June 24, 2003. The amendments conflict in subsection (f). The amendment by ch. 355 would have inserted “except for a financial institution included in a unitary group of financial institutions otherwise subject to franchise and excise taxes,” following “Notwithstanding any other provision to the contrary” at the beginning of (f); the amendment by ch. 418 deleted this language. Compiler's Notes. Acts 1999, ch. 406, § 19(b) provided that §§ 67-4-2101 — 67-4-2120 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 franchise 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, §§ 67-4-2101 — 67-4-2120 shall apply to tax years beginning on or after July 1, 1999, for all other taxpayers. The Internal Revenue Code, referred to in this section, is compiled in 26 U.S.C.; with Subtitle A compiled as 26 U.S.C. §§ 1-2000. Acts 2000, ch. 982, § 53, which applies to the insertion of “under the provisions of subsection (b)” in (a), and the addition of (b) by §§ 49 and 50 of that act, provided that those amendments apply to tax years ending on or after June 28, 2000; provided, that they shall not take effect as to any tax year of an entity which is not subject to the provisions of Acts 1999, ch. 406. 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. Acts 2003, ch. 355, § 69 provided that the act shall apply to tax years ending on or after June 15, 2003. Acts 2003, ch. 355, § 66 provided that no expenditure of public funds pursuant to the 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 2003, ch. 355, § 73 provided that there is established within the general fund the state-shared revenue reduction mitigation account. Any amounts in the state-shared revenue reduction mitigation account shall be applied by the commissioner of finance and administration to offset reductions in state-shared revenues allocated to local governments pursuant to the provisions of the act so that such reductions shall not exceed nine percent (9%) of state-shared revenues that otherwise would have been allocated to any such local government. Funds shall be restored on a pro rata basis taking into account the percentage reduction to each local government from each state-shared revenue source. Acts 2003, ch. 355, § 69 provided that the act shall apply to tax years ending on or after June 15, 2003. Acts 2003, ch. 418, § 16(d) provided that the act shall apply to the period beginning January 1, 2003. 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 2013 amendment deleted “or under subsection (b)” following “under § 67-4-2008 ” in the first sentence of (a). 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” in (a). Effective Dates. Acts 2013, ch. 321, § 9. May 13, 2013. Acts 2015, ch. 514, § 31. January 1, 2016. Cross-References. Savings and loan associations subject to tax, § 45-3-901 . Law Reviews. Taxation — Interstate Commerce — Franchise and Excise Taxes, 27 Tenn. L. Rev. 308 (1960).