Tennessee § 67-4-2108 - Value of tangible property as minimum tax base — Exempt property.

§ 67-4-2108. Value of tangible property as minimum tax base — Exempt property.

The measure of the tax levied by this part shall in no case be less than the actual value of the real or tangible property owned or used in Tennessee, excluding exempt inventory and exempt required capital investments. There shall not be included within the meaning hereof the value of any property while construction of that property is in progress and, in addition thereto, there is no actual utilization of such property by the taxpayer either in whole or in part. For purposes of this section, “property” shall be valued at cost less accumulated depreciation in accordance with generally accepted accounting principles; provided, that, if the taxpayer, other than any taxpayer required by this part to file as a unitary group on a combined basis, does not maintain its books and records in accordance with generally accepted accounting principles, the value of the property shall be computed in accordance with the accounting method used by the taxpayer for federal tax purposes, so long as the method fairly reflects the property's value for purposes of the tax levied by this part. Notwithstanding any provision of this subdivision (a)(3) to the contrary, railroad companies as defined by the uniform system of accounts in 49 CFR 1201 may compute the value of their “property” in accordance with the method used for federal tax purposes so long as such method fairly reflects the property's value for purposes of the tax levied by this part. A return being filed by a limited liability company that has a general partnership as its single member shall include in its franchise tax minimum measure only the real and tangible property owned or used by the limited liability company. For this purpose, “property” includes a taxpayer's ownership share of the real or tangible property owned or rented by any general or limited partnership, subchapter S corporation, limited liability company, or other entity treated as a partnership for federal tax purposes and not subject to the tax levied by this part and in which the taxpayer has an ownership interest either directly or indirectly through one (1) or more such entities. In cases where part or all of the property is rented, the value of rented property used shall be determined by multiplying the net annual rental by the following multiples: Multiples Real property 8 Machinery and equipment used in manufacturing and processing 3 Furniture, office machinery and equipment 2 Delivery or mobile equipment 1 For purposes of this section, the value of owned or leased mobile or movable property located both in and outside Tennessee during a tax period shall be determined on the basis of the total percentage of time such property is within the state during the tax period; provided, that the value of an automobile or truck assigned to a traveling employee shall be considered in Tennessee, if the employee's compensation is assigned to Tennessee for purposes of the taxpayer's apportionment formula payroll factor, or if such vehicle is licensed in Tennessee. For purposes of this section, any system, method, improvement, structure, device or appliance appurtenant thereto, used primarily for the control, reduction, or elimination of water or air pollution, or used primarily for the disposal, treatment or recycling of hazardous waste, and required to meet mandatory requirements of state, federal or local law, shall not be deemed to be property that is actually utilized by the taxpayer in the conduct of its principal business. Copies of certificates provided for in § 67-5-604 shall be furnished to the commissioner by the taxpayer with the franchise tax return to verify exemption. This exemption shall apply only to property, the construction, reconstruction or erection of which is completed by the taxpayer during corporate fiscal years ending on or after July 15, 1981, or which is acquired by the taxpayer during such fiscal years, and the original use of that commences with the taxpayer and commences during such fiscal years. Machinery and equipment used to produce electricity in a certified green energy production facility shall not be deemed to be property that is actually utilized by the taxpayer for purposes of this section. A copy of the facility certification issued by the department of environment and conservation shall be furnished to the commissioner by the taxpayer with the franchise tax return to verify exemption. As used in this section, unless the context otherwise requires: “Configuring” computer products means integrating a computer with peripheral computer products, such as a hard disk drive, additional memory or software; “Exempt inventory” means that portion of a taxpayer's finished goods inventory in excess of fifty million dollars ($50,000,000) for fiscal years beginning on or after July 15, 1996; forty million dollars ($40,000,000) for fiscal years beginning on or after July 15, 1997; and thirty million dollars ($30,000,000) for fiscal years beginning on or after July 15, 1998, that would otherwise be included in the minimum measure of the taxpayer's franchise tax base; “Finished goods inventory” means tangible personal property that is: Owned by the taxpayer; Stored in a facility used primarily for manufacturing, warehousing, or distribution of such inventory; Held for wholesale or retail sale by the taxpayer, but not sold over-the-counter to consumers at the location where stored; Shown as inventory on the taxpayer's books and records kept in accordance with generally accepted accounting principles; and In need of no further fabrication or processing by or for the taxpayer, except, in the case of configuring, testing or packaging of computer products; “Net annual rental” means the gross annual rental paid by the taxpayer, less the gross rental received by the taxpayer for sub-rental. A lessee's payments to a lessor, or on such lessor's behalf, as part of rent, or in lieu of rent, shall be considered rent for purposes of this section. Except with respect to tangible personal property, for purposes of this subsection (a), payments, such as interest, taxes, insurance, repairs or other items, shall be treated as rent paid by the lessee if they would have been paid by the lessor, if the lease contract or other agreement had not specifically provided that they be paid by the lessee; “Property” includes a taxpayer's share of any specific property in a general partnership in which such taxpayer has a partnership interest; “Used” means only such property as is actually utilized by the taxpayer in the conduct of its principal business; and “Exempt required capital investments” means two thirds (2/3) in value of all capital investments that are the basis for a taxpayer's entitlement to credits under § 67-4-2109(b)(2)(B); provided, however, that the investments shall qualify as “exempt required capital investments” only in those tax years in which the additional annual credit is actually allowed under § 67-4-2109(b)(2)(B). In the case of property leased from an industrial development corporation formed pursuant to title 7, chapter 53, part 1, the value may be determined either in accordance with subsection (a) or, at the taxpayer's election, by capitalizing the lease on the taxpayer's books and records in accordance with generally accepted accounting principles. The taxpayer may change its election not more than once during the term of the lease. Acts 1999, ch. 406, § 4; 2000, ch. 982, §§ 33, 51, 57; 2000, ch. 983, § 12; 2004, ch. 924, §§ 5, 18; 2006, ch. 1019, § 10; 2009, ch. 530, § 14; 2010, ch. 1134, § 39. 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. Acts 2000, ch. 982, § 53, which applies to the amendment of (a)(1) by § 51 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 2004, ch. 924, § 19 provided that the amendment to subdivision (a)(6) by § 5 of that act apply to all tax periods beginning on or after January 1, 2004. Acts 2009, ch. 530, § 133 provided that § 14 of the act, which amended subdivision (a)(6)(G), shall apply to all business plans filed on or after July 1, 2009. Textbooks. Tennessee Jurisprudence, 23 Tenn. Juris., Taxation, § 79. Law Reviews. The Race is On: Choosing a Business Entity After the Tennessee Tax Revision and Reform Act of 1999 (Dania Leatherman and Marie A. Nelson), 35 Tenn. B.J. 24 (1999).