Out-of-state contractors who perform contracts in Tennessee are subject to Tennessee business tax and local business licensing in the following ways:
- If an out-of-state contractor’s sales during its fiscal year are more than $50,000 in any county, the contractor must obtain a license from that county. Business tax must also be filed and paid to the Tennessee Department of Revenue on these sales.
- If an out-of-state contractor’s sales during its fiscal year are more than $50,000 in any municipality, the contractor must obtain a license from that municipality. Business tax must also be filed and paid to the Tennessee Department of Revenue on these sales. This is in addition to the business taxes filed with respect to the county.
- Out-of-state contractors performing work in any county where annual gross sales are between $10,000 and $50,000 must be reported on the contractor’s out-of-state location. Out-of-state locations do not require a contractor to obtain a business license from the state – the only obligation is that the business tax be remitted on the gross sales.
- Out-of-state contractors whose annual gross sales are $10,000 or less in any county are not taxed on the income derived from sales in that county. These sales should not be reported at all on the Tennessee business tax return.
Example: XYZ Contractor from Alabama has annual gross receipts in the following Tennessee counties and where the tax is reported:
- Lawrence County $12,000 reported on out-of-state account
- Maury County $60,000 reported on Maury County account
- City of Columbia $55,000 reported on city of Columbia account
- Giles County $5,000 does not have to be reported
A business license is needed for Maury County and City of Columbia. This is because the gross receipts are more than $50,000 annually in this county and in the city. The sales to Lawrence County are greater than $10,000 and must be reported on the State/Out-of-State return. The sales to Giles County are $5,000 and are not required to be reported anywhere.
Out-of-state contractors doing business in multiple cities and counties in Tennessee may wish to track annual sales on a spreadsheet that lists gross income received in each local jurisdiction. This practice will help determine exactly how to file and obtain any new registrations or to close existing registrations prior to filing and remitting business tax.