(a) 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 (6 1/2%) 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 (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.
Terms Used In Tennessee Code 67-4-2007
Affiliate: means any entity: (i) In which the taxpayer, directly or indirectly, has more than fifty percent (50%) ownership interest. See Tennessee Code 67-4-2004
Affiliated group: means :(i) A taxpayer that, standing alone, is subject to the Tennessee franchise tax. See Tennessee Code 67-4-2004
Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
Code: includes the Tennessee Code and all amendments and revisions to the code and all additions and supplements to the code. See Tennessee Code 1-3-105
Compensation: means wages, salaries, commissions and any other form of remuneration paid to employees for personal services. See Tennessee Code 67-4-2004
Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
Internal Revenue Code: means title 26 of the United States Code as effective during the year in which net earnings are determined under this part. See Tennessee Code 67-4-2004
Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
Person: includes a corporation, firm, company or association. See Tennessee Code 1-3-105
Securities: means United States treasury securities, obligations of United States government agencies and corporations, obligations of state and political subdivisions, corporate stock and other securities, participations in securities backed by mortgages held by the United States or state government agencies, loan-backed securities and similar investments. See Tennessee Code 67-4-2004
State: means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States and any foreign country or political subdivision thereof. See Tennessee Code 67-4-2004
Substantial nexus in this state: means any direct or indirect connection of the taxpayer to this state such that the taxpayer can be required under the . See Tennessee Code 67-4-2004
taxpayer: means every corporation, subchapter S corporation, limited liability company, professional limited liability company, registered limited liability partnership, professional registered limited liability partnership, limited partnership, cooperative, joint-stock association, business trust, regulated investment company, REIT, state-chartered or national bank, or state-chartered or federally chartered savings and loan association. See Tennessee Code 67-4-2004
unitary group: includes those entities that are engaged in a unitary business transacted wholly in, or in and out of the state of Tennessee, even if some of the entities would not be subject to tax in this state, if considered apart from their unitary group. See Tennessee Code 67-4-2004
(b) 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.(c) 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.(d) 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.(e)(1) 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.(2)(A) 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.(B) 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):
(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(b) 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(ii) 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).(C) For the purposes of subdivision (e)(2)(B), the following shall apply:
(i) 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);(ii) “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.(3) 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.(f)(1) 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:
(A) 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;(B) 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;(C) 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(D) 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.(2) 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.(3) 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).
