What legislation was passed in 2015 that affects franchise & excise tax?

Revenue Modernization Act - Economic Nexus Standard

Public Chapter 514 modernizes the franchise and excise and business taxes. Out-of-state businesses not already subject to Tennessee taxes will be subject to franchise and excise and business taxes to the fullest extent allowed by the Constitution. Such nexus includes, but is not limited to, a bright-line test for presence in the state as follows:

Receipts: > $ 500,000 or 25% of total receipts from sales in TN
Property: > $ 50,000 or 25% of total property by value in TN
Payroll: > $ 50,000 or 25% of compensation paid in TN

The law also repeals from the excise tax statutes an application process that certain taxpayers formerly followed before they could deduct intangible expenses paid to an affiliate company. This process will no longer be necessary when the economic nexus provisions of the bill become effective.

Effective: For tax years beginning on and after January 1, 2016

Revenue Modernization Act – Market-based Sourcing

Public Chapter 514 adopts market-based sourcing for sourcing sales other than sales of tangible personal property. The law also adopts a specific sourcing rule for certain taxpayers engaged in the telecommunications business.

Effective: For tax years beginning on and after July 1, 2016

Revenue Modernization Act – Triple-weighted Sales Factor

Public Chapter 514 changes the state apportionment formula by triple-weighting the sales factor.

Effective: For tax years beginning on and after July 1, 2016

Revenue Modernization Act – Distribution Incentive

Public Chapter 514 implements a special elective apportionment rule for taxpayers who sell very large volumes of product to regional distribution centers. This elective apportionment only applies to taxpayers who sell more than one billion dollars of product to Tennessee distributors and source more than 10 percent of all sales to Tennessee. If the election is made, specified sales to distribution centers will be excluded from the F&E sales factor and subject to a special excise tax.

Effective: For tax years beginning on and after January 1, 2016

Schedule of REIT Distributions

Public Chapter 273 removes the requirement that certain partnerships provide a schedule of public REIT distributions when filing the franchise and excise tax (“F&E”) return.

Effective: April 28, 2015

SB346 – “Community Resurgence Job Tax Credit Act of 2015”

Public Chapter 521 establishes a community resurgence job tax credit equal to $2,500 for qualifying jobs created by new or existing businesses located in a high-poverty area. “High poverty area” is defined as a census tract with a total population poverty level in excess of 30 percent. This credit shall apply to the business’ franchise and excise tax liability.

Effective: July 1, 2015

Excise Tax Exemption - Low-income Community Historic Structures

Public Chapter 449 establishes a franchise and excise tax exemption for certain interests in qualified low-income community historic structures. “Qualified low-income community historic structure” is defined as a certified historic structure located in a low-income community, with respect to which more than $100,000,000 of qualified rehabilitation expenditures are incurred after January 1, 2015.

Effective: Tax periods ending on or after July 1, 2015.

Identifying Revenue Growth Estimates as Recurring or Nonrecurring

Public Chapter 92 requires the Department to include in its estimates of franchise and excise tax revenue growth a description of whether the growth is recurring or nonrecurring. These estimates are presented to the State Funding Board, who in turn presents its findings to the Governor and the Chairs of the Finance, Ways and Means Committees of the Senate and House of Representatives.

Effective: April 9, 2015

Tax Incentives

Public Chapter 504 revises varying tax credits by: adding equipment used for research and development to the definition of industrial machinery; adding back-office operations (accounting, legal, IT, etc.) to the list of qualified business enterprises for franchise and excise tax job tax credit purposes; eliminating several rarely or never used credits; and requiring the Department of Economic and Community Development to periodically review franchise and excise and sales tax incentives and report to the General Assembly.

Effective: July 1, 2015


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