BUS-7 - Determining a Taxpayer's Business Tax Classification

Businesses pay Tennessee business tax based on their "dominant business activity." Tenn. Code Ann.§ 67-4-702(a)(5) defines dominant business activity as "the business activity that is the major and principal source of taxable gross sales." This means that a business pays all its business tax based on the source of the earnings that make up the majority of their taxable collections.

Each business must choose a business tax classification based on its dominant business activity and only one classification is allowed. There are five different business tax classifications explained in detail in Tenn. Code Ann. § 67-4-708 and on the Department's website. Businesses that need assistance in determining their classification may contact their county clerk, city business tax office, or the Tennessee Department of Revenue.

The following videos provide information on four of the five business tax classifications:

Business Tax Classification 1.  (3:30 minutes) This video explains the types of businesses that should register for business tax classification 1 (there are five different classification 1 categories).

Business Tax Classification 2.  (2:43 minutes) This video explains the types of businesses that should register for business tax classification 2 and provides examples of such businesses. Businesses that sell tangible personal property typically fall under this classification.

Business Tax Classification 3.   (3:20 minutes) This video explains the types of businesses that should register for business tax classification 3 and provides examples of such businesses. Service-based businesses typically fall under this classification.

Business Tax Classification 4.   (2:56 minutes) This video explains the types of businesses that should register for business tax classification 4 and provides examples of such businesses. Contractors and livestock sellers typically fall under this classification.

Reference: Tenn. Code Ann. § 67-4-708. 

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