Tennessee
Sales and Use
Tax Guide
August 2016
SALES AND USE TAX
Dear Tennessee Taxpayer,
This sales and use tax guide is intended as an informal reference for taxpayers who wish to gain a better understanding of Tennessee sales and use tax requirements. It is not an all- inclusive document or a substitute for Tennessee sales or use tax statutes or rules and regulations. The information in this guide is current as of the date of publication. Tax laws, their interpretation, and their application can change due to legislative action, reviews, and court decisions.
Periodically, registered taxpayers are mailed information letters with updates on tax laws and policies. Be sure to read any letter you receive carefully; this information may save you time and money. Informational publications are also available for specific industries. Contact the Taxpayer Services Division to obtain these publications.
The Department of Revenue offers a toll-free tax information line for Tennessee residents. The number is (800) 342-1003. If calling from Nashville or outside Tennessee, you may call (615) 253-0600. The Department of Revenue also offers a telecommunications device for the deaf (TDD) line at (615) 741-7398.
If you have questions, please do not hesitate to contact any of the offices listed below.
Sincerely,
Taxpayer Services Division
Tennessee Department of Revenue Toll-Free: (800) 342-1003 Taxpayer Services Division Out-of-State: (615) 253-0600 Andrew Jackson Building TDD: (615) 741-7398 500 Deaderick Street Nashville, Tennessee 37242-1099
Regional Offices
Memphis: Chattanooga: Jackson: 3150 Appling Road 1301 Riverfront Parkway Lowell Thomas State Office Bldg Bartlett, TN 38133 Suite 203 225 Dr. Martin L. King Jr. Drive (901) 213-1400 Chattanooga, TN 37402 Suite 340 (423) 634-6266 Jackson, TN 38301 (731) 423-5747
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SALES AND USE TAX
Regional Offices
Johnson City: Knoxville 204 High Point Drive 7175 Strawberry Plains Pike Johnson City, TN 37601 Suite 209 (423) 854-5321 Knoxville, TN 37914 (865) 594-6100
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SALES AND USE TAX Table Of Contents
Sales or Use Tax 9 Sales or Use Tax 9 Sales Price 9 Local Option Sales or Use Tax 11 Sales Tax Application to the Lease or Rental of Tangible Personal 12 Property Who Must Register for Sales or Use Tax? 13 Who is Liable for Sales Tax? 13 Who is Liable for Use Tax? 14 How to Register 14 Tennessee Retailers 14 Out-of-state Retailers 15 Revocation of Certificate of Registration 16 Changes in Ownership, Address, or Business 16 Additional References 17
Definitions 18 Business and Occasional and Isolated Sales 18 Computer Software 18 Customized and Prewritten Computer Software 18 Computer Software Maintenance Contract 19 Single Article 19 Motor Vehicles 19 Boats 20 Manufactured Homes 20 State Tax on Purchases of Single Article 20 Computing Sales Tax Due on Single Articles 20 Specified Digital Products 21 Digital Audio-visual Works 21 Digital Audio Works 21 Digital Books 21 Tangible Personal Property 21 Third Party Drop Shipment 21 Video Game Digital Products 22
Food and Food Ingredients 23 What Are “Food and Food Ingredients?” 23 Examples of “Food and Food Ingredients” 23 Meal Substitutes 23 Items Not Taxable at the 5.00% Food Rate 24 Candy 24 Dietary Supplements 24 Prepared Food 24
Tax Credits 27 Returned Merchandise 27 Repossession 27
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SALES AND USE TAX Table Of Contents
Tax Credits (continued) Pollution Control 27 Bad Debt 27 Fire Protection Sprinkler Contractors 27 Sales or Use Tax Paid in Another State 28 Fuel or Petroleum Products Sold to Air Common Carriers 28 Headquarters Facility Tax Credit 28
Taxable and Non-taxable Property and Services 30 Taxable Tangible Personal Property 30 Computer Software 30 Modifications to Computer Software 31 Services to Computer Software 31 Remotely Accessed Computer Software 32 Video Game Digital Products 33 Application of Single Article Taxation to Software 34 Websites and Computer Software 34 In-House Computer Software 34 Affiliate Computer Software 35 Computer Software Maintenance Contract 35 Support Services to Software 35 Specified Digital Products 36 Services 36 Taxable Services 36 Taxable Amusements 38 Warranty or Service Contracts 38 Nontaxable Services 39
Exemptions Requiring Certificates 40 Documenting Exemptions 40 Blanket Certificate of Resale 40 Direct Pay Permits 42 Government Certificate of Exemption 42 Certificate of Exemption for Nonprofit Organizations 42 Certificate of Exemption for Call Centers 44 Dyed Diesel Tax Payments for Commercial Carriers 44 Authorization for Payment of Reduced Sales Tax for Common Carriers 44 Agricultural Exemption Certificate 45
Exemptions Requiring Documentation 46 Removal from Tennessee by Buyer 46 Exemption for Railroad Track Materials and Locomotive Radiators 46 Exemption for Rural Electric Cooperatives, Community Service Cooperatives and Governmental Utility Districts 46 Exemption for Electric Generating and Distribution Systems, Resource Recovery Facilities, or Coal Gasification Plants 46
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SALES AND USE TAX Table Of Contents
Agricultural Exemptions Agricultural Exemption Certificate 47 Agricultural Exemptions 47 Sales by Farmers and Nursery Operators 49 Purchases of Livestock Drugs by Veterinarians 50 Community Gardens 50
Industrial Machinery Exemptions and Reduced Rates 51 Industrial Machinery 51 Pollution Control Equipment 52 Industrial Machinery Authorization 52 Energy Fuel and Water 52 Industrial Materials 52 Qualified Data Center 53 Warehouse and Distribution Facility 53 County or Municipality Water Pollution Control and Sewage Systems 54 Research and Development Machinery 54
Exempt Products and Services 55 Authorized Large Aircraft Service Facility 55 Aircraft Parts and Supplies 55 Amusements 55 Automobiles 56 Design Professionals 56 Display Property 57 Energy 57 Exemptions for Tennessee Sales for Out-of-state Consumer Use 57 Films 59 Food 59 Fuel 59 Leased Vehicles 59 Medical Equipment and Supplies 60 Miscellaneous Nonprofit Sales 61 Motor Vehicles Used by Common Carriers 61 Natural Disasters 62 Packaging 62 Pollution Control 62 Preservation of Historic Property 63 Publications 63 Railroad Cars 63 Sales in Interstate Commerce 63 Sales Tax Holiday 63 Specified Digital Products or Video Game Digital Products 64 Telephone Cooperatives 64 Telecommunications 64 Transactions between Parent Companies and Wholly Owned Subsidiaries 64 6
SALES AND USE TAX Table Of Contents
Exempt Products and Services (continued) Time-share Accommodations 64 Used Property 65 Utility Poles 65 Vending Items 65 Warranty Services 65 Watershed Districts 65
Flea Markets 66 Flea Market Registration 66 Sales on Less than Permanent Basis 66 Submission of Flea Market Returns 66 Dealers Registering Annually 66 Dealers Registering Quarterly or Monthly 66 Penalty for Late Filing 67
Contractors 68 Contractors as Consumers 68 Liability for the Sales or Use Tax 68 Exemptions 68 Tax on Fabricated Materials 69 Asphalt Fabricators 69 Installation of Industrial Machinery 69 Lump Sum or Unit Price Contracts on Realty in Effect on July 15, 2002 69 Property Owned by the United States Government 70 Qualified Disaster Restoration 71
Returns and Payments 73 Returns and Payment 73 Electronic Data Interchange (EDI) 73 Electronic Funds Transfer (EFT) 74 Online Filing 75 Filing Date 75 Penalty and Interest 75 Audits and Assessments 75 Right to a Conference 76 Keeping Records 76
Tennessee Taxpayer Bill of Rights 78
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SALES AND USE TAX
Changes to the Sales or Use Tax Guide for 2016
(1) Decrease in the capital investment and job creation requirements for a “qualified data center” and exemption of cooling equipment and backup power infrastructure when sold to or used by a qualified data center. Also provides certain certification requirements on the business plan in order to qualify for franchise and excise job tax credits. (Page 53)
(2) Exemption of compressed natural gas from sales tax in the same manner that present law exempts motor fuel and liquefied natural gas from sales tax. (Page 59)
(3) Change in the date of the annual fall Sales Tax Holiday to begin on the last Friday in July rather than the first Friday in August each year. (Page 63)
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SALES AND USE TAX
Sales Or Use Tax [Tenn. Code Ann. Sections 67-6-102, 67-6- + Expenses, interest, losses, and 202] overhead;
+ Charges by the seller for services Sales or Use Tax necessary to complete the sale;
+ The sales or use tax is a combination of a Delivery charges made by the seller; + state tax (7%) and a local option tax (which Installation charges, and + varies from 1.50% to 2.75%) imposed by Exempt property given to the city and/or county governments. This tax purchaser where taxable and is generally applied to the retail sales of nontaxable products are bundled any business, organization, or person and sold as a single product for one engaged in making retail sales, including price. the selling, leasing, or renting of tangible personal property and the selling of The tax is imposed on the sales price of certain taxable services, amusements, and sales, leases, and rentals of tangible digital products specified in the law. In personal property and the sales price for addition, there is a state single article tax taxable services, amusements, and certain . rate of 2.75%, which is discussed later in digital products It is the total amount of this text. consideration for which products that are
subject to tax are sold. For example: A Tangible personal property, taxable consumer buying four automobile tires services, amusements, and digital subject to the sales or use tax is charged a products specifically intended for resale fee for mounting the tires. The fee for are not subject to tax. Retail sales to the mounting the tires is also subject to the federal government or its agencies and sales or use tax. the State of Tennessee or a county or municipality within Tennessee are not The term “sales price” does not include: subject to tax. In addition, there are + exemptions for retail sales to certain Dealer cash discounts allowed on entities that have qualified for tax property or services purchased. exemption. Manufacturer rebates are included in the tax base. + Sales Price Interest charges on purchases bought on an installment plan. The “sales price” of an item of tangible + Any tax legally imposed on the personal property is the total amount of consumer and separately stated on consideration (including cash, credit, the invoice, bill of sale, or similar property, and services) for which property document given to the consumer. or services are sold, including: + The value of items taken as “trade- ins” on purchases of similar new or + Cost of the property sold; used items. The trade-in item must + Cost of materials, labor, or service be listed by model and serial cost; number, when applicable, on the + Costs of transportation or delivery customer’s invoice. [Tenn. Code to the seller; Ann. Section 67-6-510] + All taxes imposed on the seller;
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SALES AND USE TAX
Sales Or Use Tax (continued)
There are some exceptions to the 7% + Gross receipts from the sale of general state sales or use tax rate: manufactured homes, including accessories, furnishings, and + Sales of food and food ingredients delivery or installation fees, are as defined in the law. These items taxed at half the current rate of are taxed at a state rate of 5.00% state tax. [Tenn. Code Ann. Section effective July 1, 2013. What 67-6-216] constitutes food and food + Property of a sole proprietorship ingredients is addressed later in this that becomes property of a text. [Tenn. Code Ann. Section 67-6- corporation as a result of 228] incorporation of the sole + Aviation fuel actually used in the proprietorship is not subject to tax. operation of aircraft motors is taxed [Tenn. Code Ann. Section 67-6-223] at 4.5%. Effective May 18, 2015, the + Video programming services total amount of the 4.5% sales and including cable television, wireless use tax imposed and remitted on cable television, and video services any one person’s purchase, use, provided through wireline facilities consumption, or storage of aviation that are offered for public fuel is limited to the following consumption are taxed at a state amounts: (a) for July 2015 – June rate of 8.25% on all charges of 2016 - $21,375,000; (b) for July 2016 $15.01 - $27.50. Charges of $27.51 – June 2017 - $17,750,000; for July and higher are taxed at the regular 2017 – June 2018 - $14-125,000; and state and local sales tax rates. (d) for any year occurring on or after Charges of $15 or less are exempt July 2018 - $10,500,000. [Tenn. Code from tax. [Tenn. Code Ann. Sections Ann. Section 67-6-217 as amended 67-6-103(f), 67-6-226] by Public Chapter 462, Acts of 2015] + Sales of direct-to-home satellite + Sales of property to common television programming or television carriers for use outside Tennessee services are taxed at a state rate of are taxed at the rate of 3.75%. 8.25% only. [Tenn. Code Ann. [Tenn. Code Ann. Section 67-6-219] Section 67-6-228(7)] + When sold to or used by + Electricity sold to or used by a manufacturers, water is taxed at 1%, qualified data center is taxed at a and gas, electricity, fuel oil, and state rate of 1.5%. [Tenn. Code Ann. other energy fuels is taxed at a rate Section 67-6-206(c)] of 1.5%. [Tenn. Code Ann. Section 67-6-206] Tennessee vendors must indicate in + Interstate or international specific ways whether customers are telecommunications services sold to paying sales or use tax. If the purchase businesses are taxed at a rate of price of a product includes the tax, it must 7.5%. [Tenn. Code Ann. Section 67- be indicated in writing on the invoice, on a 6-221] sign posted in the business, or in a manner that is assured to make the
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SALES AND USE TAX
Sales Or Use Tax (continued) flat 2.5% local tax rate regardless of the customer aware of that fact. [Tenn. Code local tax rate levied by the local Ann. Section 67-6-503] jurisdiction. [Tenn. Code Ann. Section 67-6-702(g)(2)] Local Option Sales or Use Tax
Interstate or international Any county or incorporated city may levy a telecommunications services sold to tax on the same privileges that are subject businesses are subject to the state tax to the state’s sales or use tax; all counties rate of 7.5% and exempt from local tax. and some incorporated cities have [Tenn. Code Ann. Section 67-6-702(g)(1)] adopted a local option tax of up to 2.75%.
The tax is imposed in the locality of the Interstate and international seller’s location in Tennessee from which telecommunications services sold to the sale is made. If a sale is made from an persons other than businesses are subject out-of-state location by a seller with to a state tax rate of 7% and a flat 1.5% locations in Tennessee, the local tax is local tax rate regardless of the local tax imposed based on the purchaser’s rate levied by the local jurisdiction. [Tenn. location of receipt. The seller with no Code Ann. Section 67-6-702(g)(1)] locations in Tennessee may opt to collect the local tax at a standard 2.25% local rate Video programming services including instead of the rate at the purchaser’s cable television, wireless cable television, location of receipt. The sale of water and video services provided through services is subject to the local tax rate for wireline facilities that are offered for the locality where water services are public consumption are exempt from local delivered to the consumer. [Tenn. Code tax up to an amount of $27.50. [Tenn. Ann. Section 67-6-702(a-f)] Code Ann. Section 67-6-714]
The law limits some local option tax rates: Vending machine sales of both food and
non-food items are taxed at a flat rate of There is no local option tax on electric 2.25% local tax on all sales regardless of power or energy, natural or artificial gas, the local tax rate levied by the local coal, or fuel oil. [Tenn. Code Ann. Section jurisdiction. [Tenn. Code Ann. Section 67- 67-6-704] 6-702(h)]
The local tax rate for water sold to Specified digital products (digital audio- manufacturers is 0.5%. [Tenn. Code Ann. visual works, digital audio works, and Section 67-6-702(b)] digital books) are subject to a standard
local tax rate of 2.50% regardless of the The local tax rate for sales of tangible local tax rate levied by the local property to common carriers for use jurisdiction. [Tenn. Code Ann. Section 67- outside Tennessee is 1.5%. [Tenn. Code 6-702(g)(4)] Ann. Section 67-6-702(e)]
Intrastate telecommunications services are taxed at the state rate of 7% and a
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SALES AND USE TAX
Sales Or Use Tax (continued)
has the option of leasing the property Sales Tax Application to the Lease or without purchasing the insurance policy Rental of Tangible Personal Property or fuel from the lessor. For leases under which the lessee will make periodic (e.g., weekly or monthly) Extended warranties or repair and payments, sales tax is to be collected on maintenance agreements covering each lease payment at the time the tangible personal property in this state payment is due. For leases under which are subject to sales tax and, effective the lessee will make a lump sum payment October 1, 2015 subject to use tax. up front, tax is due with that payment. The state general sales tax rate of 7% is For lease contracts entered into on or collected for the entire length of the lease after January 1, 2008, contracts for contract. Tenn. Code Ann. Section 67-6- transfers of property that require the 702 defines a “single article” for purposes transfer of title upon completion of all of the local option tax. Generally, the local payments and payment of an option price option tax is required only on the first that does not exceed the greater of $100 $1,600 of the cost of statutorily defined or 1% of the total payments under the single articles of tangible personal contract is a financing contract and not a property. lease. Sales tax is due at the time of sale, and the periodic payments, including The state single article tax rate of 2.75% is interest and financing charges made levied on the sales price of single articles under the agreement are not subject to of tangible personal property beginning at tax. $1,600.01 and continuing up to and including $3,200. On a lease or rental, this Sales tax applies to the “sales price” of the basically means the local tax applies to lease or rental. Generally, the total the first $1,600 of lease or rental income amount received from the customer on each single article, then the state becomes the base for state sales tax. 2.75% begins and continues up to and However, charges that are optional to the including $3,200 on the single article lease purchaser and separately stated are not price. Tenn. Code Ann. Section 67-6- part of the sales price that is subject to tax 204(b)(3) allows for a lump sum payment for the lease of the property. Interest of the local option tax due on the cost charges associated with the lease or price to the lessee; this can be remitted to rental are included in the sales price upon the Department on the sales tax return which sales tax is to be collected. for the tax period in which the tax for the first periodic lease payment is due. [Tenn. For sales and use tax purposes, insurance Code Ann. Section 67-6-204 and Revenue policies such as accident, collision, and Rule 1320-5-1-.32] GAP on motor vehicles and charges for fuel used in motor vehicles are not included in the sales price of a lease or rental when the charges are separately stated on the invoice and the purchaser
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SALES AND USE TAX
Sales Or Use Tax (continued)
When leased property is relocated to + Selling any item from a vending Tennessee from another state during the machine or device in which lease period, Tennessee use tax applies to merchandise is provided upon each lease payment for periods during deposit of money, other than certain which the property is located in vending machines operated for the Tennessee. The lessor is required to benefit of tax-exempt organizations, register with the Department to collect is taxable under the sales or use tax and remit the use tax. If the lessor does law. A separate registration is not collect the tax, the lessee must remit required for vending sales. the tax directly to the Department. If the lessor properly collects and remits sales This requirement applies whether your tax to another state with respect to the business is a sole proprietorship, lease payments, such sales tax will be a partnership, LLC, corporation, or any credit against the Tennessee use tax other type of organization including those liability. that are not for profit. Retailers from
other states that maintain a physical Who Must Register for Sales or Use Tax location in Tennessee, whether temporary [Tenn. Code Ann. Sections 67-6-102, 67-6- or permanent, must also hold a Certificate 201, 67-6-210, and 67-6-602] of Registration. A business having more Any entity wishing to manufacture, than one location must hold a certificate distribute, sell, rent, or lease tangible for each business location. For example: A personal property, or provide taxable clothing business with locations in two services, in this state must hold a malls must hold a certificate for each Certificate of Registration to conduct location. business in Tennessee. Business may be Dealers having average monthly gross conducted by: sales of $400 of tangible personal
property or less and taxable services of + Selling, renting, or leasing, even by a $100 or less, may, at the discretion of the transient vendor, any type of Commissioner, be required to pay tax to tangible personal property. their suppliers on purchases in lieu of + Selling any type of taxable service in registering for sales or use tax purposes. the state. For these taxpayers, the Department’s + Furnishing property or services that cost of administering the account would are subject to the sales tax. exceed the taxes reported. + Charging admission, dues, or fees
that are subject to the sales tax. Who is Liable for Sales Tax? + Using tangible personal property, [Tenn. Code Ann. Sections 67-6-501, 67-6- computer software, specified digital 502] products, or warranty or maintenance contracts not In Tennessee, the responsibility for sales previously taxed. tax rests on the dealer that provides the taxable product or service. The law requires that the dealer pass the tax to the customer; failure to do so does not relieve the dealer of the responsibility to
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Sales Or Use Tax (continued) The use tax rate is equal to the sales tax timely remit the tax to the state. In the rate on both the state and local level. Use case of a property management company tax is due even when a resident imports hired to manage vacation lodging for an tangible personal property into Tennessee individual property owner, the sales tax for use. will be imposed on the gross charge for rental and will be remitted by the property For example: A business relocating to management company. Tennessee brings property purchased in a state with no sales or use tax. The dealer Tax will be reported and paid each month would be liable for use tax on this based on the gross sales, or purchases, property. [Tenn. Code Ann. Section 67-6- from all taxable sales and purchases 210] during the preceding month. The tax will be paid on the return for the month in Use tax is normally incurred when: which the taxable event occurs, even if the tax is not collected from the customer + Purchasing a product in another during that month. For example: A charge state without paying sales or use tax sale is made during the month of June. and bringing it into Tennessee for The dealer must pay the tax on the June use here. [Tenn. Code Ann. Section return even though the customer may not 67-6-210] pay the account until July. + Purchasing a product from a mail- order catalog or on the Internet and Who is Liable for Use Tax? paying no sales or use tax. [Tenn. [Tenn. Code Ann. Sections 67-6-203, 67-6- Code Ann. Section 67-6-210] 210, 67-6-208, 67-6-231] + Purchasing a product from a transient business that does not When a user of tangible personal collect sales or use tax. [Tenn. Code property, computer software, computer Ann. Section 67-6-210] software maintenance contracts, warranty + Consuming or using a product that or maintenance contracts covering was purchased without paying sales tangible personal property located in this or use tax. [Tenn. Code Ann. Section state, and specified digital property does 67-6-203] not pay sales tax to a dealer, the user + Consuming, as a service provider, becomes personally liable for the tax. This tangible products in the generally occurs when a user purchases performance of a service. [Tenn. articles from an out-of-state dealer not Code Ann. Section 67-6-102(75)] registered for Tennessee tax. It also occurs when a dealer withdraws inventory How to Register items purchased on a resale certificate for [Tenn. Code Ann. Sections 67-6-601, 67-6- business or personal use. For example: A 602] clothing store owner purchases clothing on a resale certificate then takes items Tennessee Retailers from inventory for personal use. Use tax is then due on that clothing. You may apply for the certificate of registration online. The website address for the application is
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SALES AND USE TAX
Sales Or Use Tax (continued) + Have an office, distribution point, http://www.tennesseeanytime.org/bizreg/ . sales room, warehouse, or any You may also visit one of the Department other temporary or permanent of Revenue offices listed on the inside place of business in Tennessee. front cover of this publication. Trained + Have an agent, salesperson, personnel are available to explain canvasser, or solicitor operating in Tennessee’s tax system and answer any of Tennessee for the purpose of your questions. making sales or taking orders for sales. Whether registering online, in person, or + Furnish any property or services by mail, you must have the following subject to the sales or use tax while information to complete your application: in Tennessee. + Are the lessors of tangible personal + The name, address, and phone property located in Tennessee. number of the business, all owners, + Are construction contractors officers, or partners, and the person performing jobs in Tennessee. making the application. + Have any other physical presence in + The Social Security Number(s) of the Tennessee . owner(s), partners, or officers. + The Federal Employer Identification This requirement applies even though the Number (FEIN) issued by the U.S. sale of the product or its delivery is in Internal Revenue Service if you have interstate commerce. For example: An one. out-of-state computer company sells + A description of the business, the computer systems to Tennessee type of ownership, a brief businesses through a salesperson that explanation of the nature of the travels in this state. This business is business, and, if the business is a required to obtain a certificate of corporation, the date of registration and collect sales or use tax on incorporation. the price of the system. + If you have purchased your business, the name and address of A business having a physical presence in the previous owner. Tennessee must collect and remit sales or + The signature, on the application, of use tax on all sales whether orders are the sole proprietor, a partner, or an taken in person, by phone, or by mail. officer of a corporation. Effective July 1, 2015, sales or use tax law Out-of-State Retailers creates a rebuttable presumption that
out-of-state dealers have nexus and must Out-of-state retailers must register with collect Tennessee sales and use tax from the Department of Revenue and obtain a Tennessee customers if the dealer pays certificate of registration for payment of an in-state party a fee or commission to the sales or use tax if they have “nexus” in route customers to the dealer, and such Tennessee. Retailers are considered to dealer derives more than $10,000 over have nexus if they: the past 12 months from the referred
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Sales Or Use Tax (continued) Any person engaging in business as a customers. [Tenn. Code Ann. Title 67, dealer in Tennessee without a certificate Chapter 6, Part 5] of registration from the Department is guilty of a Class C misdemeanor. [Tenn. Out-of-state retailers can voluntarily Code Ann. Section 67-6-606] register to collect the tax for their customers. Out-of-state sellers who are Changes in Ownership, Address, or not registered to collect and remit tax in Business [Tenn. Code Ann. Section 67-6- Tennessee and wish to volunteer to 602] collect tax for Streamlined states may register through the Streamlined Sales You must notify the Department of and Use Tax Central Registration System Revenue if the business ownership to collect tax on sales in this state. changes in any manner. This change could However, if sellers do not collect and be selling or closing the business, remit the sales or use tax to the state, transferring or changing the ownership of then the consumer is responsible for the business, adding or changing reporting and paying the tax. Use tax is partners, or changing corporate structure due on use or consumption of tangible requiring a new charter or certificate of personal property, computer software, authority. You must also notify the computer software maintenance Department of Revenue if the business contracts, warranty or maintenance location changes. contracts covering tangible personal property in this state, and certain digital If any of the changes mentioned should products purchased from companies not occur, answer the questions on the back registered to collect the Tennessee tax. of the business’s certificate of registration and mail it to the Department of Revenue. Revocation of Certificate of Registration The new owners or officers, if applicable, [Tenn. Code Ann. Sections 67-6-603, 67-6- must then apply for a new Certificate of 604] Registration.
Any taxpayer violating the provisions of Taxpayers may make changes in their the sales or use tax law may have the mailing address through the Department’s certificate of registration revoked by the website. Commissioner after an opportunity for a due process hearing has been afforded. If If you sell your business or go out of the certificate is revoked, that person will business, you must file a final sales and not be eligible to apply for another use tax return and pay all sales or use tax certificate for 12 months. The taxpayer is due within 15 days after the date you sold entitled to a hearing with the Department or quit the business. If you sold the to determine if revocation was justified. business, the purchaser must apply for a The taxpayer will receive a 10-day notice certificate of registration in his or her own of the hearing and be allowed to present name. [Tenn. Code Ann. Section 67-6-513] evidence as to why the certificate should not be revoked.
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Sales Or Use Tax (continued)
Additional References
For additional information, or to view actual documents pertaining to Tennessee’s tax laws, we invite you to visit these Internet Web sites:
For the Tennessee Code, as well as information or changes to the Sales or Use Tax law, Revenue Rulings, Important Notices, Answers to Frequently Asked Questions, and Tax Forms, visit the
Department of Revenue’s Web site: http://tn.gov/revenue .
Sales and Use Tax Rules and Regulations are available on the Secretary of State’s web site at http://www.state.tn.us/sos/rules/1320/132 0-05/1320-05.htm .
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Definitions
effect for at least four years. An election Business and Occasional and Isolated form is available on the Department of Sales Revenue’s website. Business is defined as “any activity engaged in by any person, or caused to be Effective July 1, 2015, community engaged in by any such person with the foundations, as defined in 26 US Code object of gain, benefit, or advantage, Section 170(c)(2), may elect to make sales either direct or indirect. during biannual auctions in lieu of the two semi-annual sales periods. Such sales Business is defined in the law to exclude must take place in no more than two occasional and isolated sales, also known auctions, lasting up to 24 hours, in any as casual and isolated sales. Occasional calendar year in each county designated and isolated sales are sales made by to receive charitable support from a fund persons not engaged in business or that or trust that comprises a component part do not regularly sell the type of property of the community foundation. [Tenn. being sold. These sales are not subject to Code Ann. Section 67-6-102(8)(B)] sales tax. Churches or similar organizations that Occasional and isolated sales are also regularly sell goods or taxable services are sales of tangible personal property taking considered dealers and generally will be place only during temporary sales periods liable for tax on those sales. Sales of of 30 days or less and occurring no more motor vehicles, boats, and airplanes are than twice per year. Volunteer fire not considered occasional and isolated departments are allowed to have such sales in sales tax law. temporary sales periods which occur no Computer Software more than four times per calendar year.
For example: The sale of a piece of Computer software is defined in sales tax law to mean a set of coded instructions furniture in a yard sale and the sale of Girl Scout cookies are both considered designed to cause a computer or automatic data processing equipment to occasional and isolated sales. If more than two temporary selling periods take place perform a task. Tennessee imposes state and local sales and use tax on the retail during a year, or if a sales period extends beyond 30 consecutive days, then all sales sale, lease, licensing, or use of computer software in this state. for the year are subject to sales tax.
Charitable organizations whose primary Customized and Prewritten Computer purpose is fundraising in support of a Software county, municipal, or metropolitan library system may elect to make sales on a Computer software developed by the continuing basis in lieu of the two semi- author to the specifications of a specific annual sales periods. These sales will be purchaser is considered to be customized exempt from tax as long as they do not computer software. exceed $100,000 per calendar year. The election, once made, must remain in
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Definitions (continued)
services with respect to computer Prewritten computer software is software, or both. computer software, including prewritten upgrades, which is not designed and A computer software maintenance developed by the author or other creator contract does not include telephone or to the specifications of a specific other support services that are optional purchaser. purchases by the customer, that are sold separately and invoiced separately, and Prewritten computer software includes: that do not involve any transfer, repair, or the combination of two or more maintenance of computer software on the part of the seller. prewritten computer software programs or portions; subsequent sales of Single Article computer software initially sold as [Tenn. Code Ann. Section 67-6-702(d)] customized computer software; and prewritten upgrades designed to modify The term “single article” refers to any item or enhance previously purchased that is considered, by common prewritten computer software. understanding, to be a separate unit, apart from any accessories, extra parts, When a person who was not the original etc., and capable of being sold as an creator or author modifies or enhances a independent item or as a common unit of portion of prewritten computer software, measure. Independent units sold in sets, that person is deemed the author of only lots, suites, or such groupings, are not those modifications and enhancements. considered to be single articles. The local Prewritten computer software that is option tax rate cannot exceed 2.75% and modified or enhanced to the may be assessed only on the first $1,600 specifications of a specific purchaser of the purchase price of any single item of remains “prewritten computer software.” tangible personal property. However, if a separately stated reasonable charge is made for the Sales of taxable services, amusements, modification or enhancement, the custom computer software, computer modification or enhancement will be software maintenance contracts, and considered customized computer warranty or maintenance contracts are software, not “prewritten computer subject to the full local option tax. software.” Applications of “single article” taxation
include: Computer Software Maintenance Contract Motor Vehicles
Parts and accessories for motor vehicles A computer software maintenance installed at the factory and delivered as contract is defined to mean a contract original equipment will be treated as part that obligates a person to provide a of the unit. Parts and accessories that are computer with future updates or installed by the dealer or distributor prior upgrades to computer software, support
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Definitions (continued) to, or at the time of, sale and are included This is a state tax only. This portion of the in the sale price are also considered as single article sales price is not subject to part of the unit. This also applies to parts local tax. or equipment required to be installed prior to the sale because of state or Computing Sales Tax Due on Single federal law. Articles
Boats Assume that the total sales price, including all associated charges, of a Boat motors and any dealer installed single article is $20,000. Tax computation accessories that are installed prior to the would be calculated as follows: sale , freight, and labor, excluding trailers, will be treated as part of the boat unit in (a) The general state sales tax rate of the same manner as parts and 7% applies to the total $20,000 sales accessories for motor vehicles are treated price. $20,000 x 7% = $1,400. for purposes of the single article local tax limitation. Items such as skis, ski ropes, (b) The local option sales tax applies to personal flotation devices, and similar the first $1,600 of the sales price. The items are not considered part of the single local option sales tax rate in Davidson item. Boat trailers will be taxed as a County is 2.25%. $1,600 x 2.25% = $36. separate single item. The state tax rate applies to the total bill of sale. (c) The state single article sales tax applies to the sales price from $1,600.01 Manufactured Homes up to and including $3,200 (the second
$1,600 of the sales price). The state Parts, accessories, furniture, appliances, single article rate is 2.75%. $1,600 x and other items that are part of a 2.75% = $44. manufactured home at the time of sale are treated as parts of the single unit for (d) In this example, the total sales tax is purposes of the single article local tax $1,480. liability. Also included as part of the single article price are delivery fees, installation If a single article with a total sales price of fees, and other incidental items that are $20,000 has $5,000 in manufacturer’s part of the sale. Installation includes rebates applied, making the total amount charges made for setup, plumbing the consumer pays only $15,000, the hookup, and electrical hookup. consumer still owes sales and use tax on
the full $20,000 sales price before State Tax on Purchases of Single Articles application of the rebates. The sales price of $20,000 has not changed, even though Effective July 15, 2002, an additional state the consumer received a payment break sales or use tax at the rate of 2.75% is because a portion of the sales price is levied on the portion of the sales price, rebated to the dealer by the from $1,600.01 up to and including manufacturer. $3,200, of any single article sold.
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Definitions (continued)
If a consumer purchases an extended Digital Audio Works warranty plan on a single article, the warranty plan is also taxable, and tax Works that result from the fixation of a must be computed separately on the series of musical, spoken, or other single article and the warranty. Failure to sounds, that are transferred electronically, separately state the price and compute including prerecorded or live songs, the tax may result in assessment of the music, readings of books or other written full local tax from the consumer. And, materials, speeches, ringtones, or other because an extended warranty contract sound recordings. does not qualify as a single article of tangible personal property, the local Not included are audio greeting cards option tax rate applies to the entire sent by electronic mail. purchase price, even if it exceeds $1,600. There would be no state single article tax Digital books application to the purchase price of the warranty contract. Works generally recognized in the ordinary and usual sense as “books” that Specified Digital Products are transferred electronically, including works of fiction and nonfiction and short Specified digital products are products stories. that are electronically transferred to the purchaser or accessed electronically by Not included are newspapers, magazines, the purchaser. Products that are defined periodicals, web blogs, and chat room as specified digital products include the discussions. following products: Tangible Personal Property Digital Audio-visual Works “Tangible personal property” means A series of related images which, when personal property that can be seen, shown in succession, impart an weighed, measured, felt, or touched, or impression of motion, together with any that is in any other manner perceptible to accompanying sounds, that are the senses, and includes electricity, steam, transferred electronically. Examples water, gas, and prewritten computer include motion pictures, musical videos, software. entertainment and news programs, and live events. Tangible personal property does not include stocks, bonds, notes, insurance, Not included are video greeting cards sent and other securities. It does not include by electronic mail, video or electronic signals broadcast over the airwaves. games, and individual digital photographs that do not impart an impression of Third Party Drop Shipments motion when viewed successively. [Sales or Use Tax Rule 1320-5-1-.96]
Third party drop shipment transactions
typically involve a dealer registered for
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Definitions (continued)
Tennessee tax (Dealer A), selling to an out- and use computer software that facilitates of-state dealer not registered for human interaction with a user interface to Tennessee tax (Dealer B). Dealer A drop generate visual feedback for amusement ships the product to Customer C (Dealer purposes. The video game software B’s customer) in Tennessee. remains in the possession of the seller or a third party. In other words, a video If Customer C is a dealer buying for resale, game digital product cannot be loaded a nonprofit entity issued a Tennessee onto the user’s own computer. However, exemption certificate, or if the transaction the sale of video game software that is is exempt from the Tennessee tax in any loaded onto or downloaded onto the way, Dealer B may provide its home state purchaser’s computer in Tennessee is resale certificate in conjunction with subject to state and local sales and use tax Customer C’s Tennessee exemption and as the sale of computer software. relieve Dealer A of the Tennessee sales tax obligation.
If the transaction is a transfer of taxable merchandise to a non-exempt consumer, the only relief for Dealer A is a Tennessee resale certificate with a Tennessee registration number issued to Dealer B. Neither Dealer B’s home state resale certificate nor Customer C’s declaration that it will pay use tax is of any value in exempting Dealer A. That Dealer B may not have a physical presence in Tennessee is not material in this situation.
Dealer B’s home state resale certificate is not acceptable in this scenario because there is never a transfer of ownership or possession outside Tennessee. Because the shipment begins with a Tennessee- registered dealer and ends with a Tennessee customer, the shipment is an instate sale for purposes of determining sales tax liability.
Video Game Digital Products [Tenn. Code Ann. Section 67-6-102]
A video game digital product is the permanent or temporary right to access
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Food And Food Ingredients [Tenn. Code Ann. Sections 67-6-102, 67-6- herbs and spices, honey, ice (e.g., cubes, 228] crushed), ice cream, jams and jellies, luncheon meats, margarine, meat Tennessee sales or use tax law provides extracts, meat tenderizers, nuts that sales of food and food ingredients (unsweetened or salted), olives, pasta, are subject to a state rate of 5.00% plus pastries, peanut butter, pepper, pickles, the applicable local tax rate. [Tenn. Code pies, popcorn, popsicles, poultry, pretzels, Ann. Section 67-6-228] pumpkins, raisins, relishes, salad dressing What Are “Food or Food Ingredients?” and mixes, salad oil, salt (granular), seasonings, sherbet, shortening, soft In specifying that food and food drinks, sugar and sugar substitutes, ingredients are taxed at the 5.00% state sweeteners, tea (bags, leaves, bottled), rate, the law defines “food and food trail mix, vegetable juices, vegetables ingredients” to mean “substances, (fresh, frozen, dried, etc.), vinegar, yeast, whether in liquid, concentrated, solid, yogurt. frozen, dried, or dehydrated form, that are sold for ingestion or chewing by The following is a partial list of items that humans and are consumed for their taste are not considered food or food or nutritional value.” ingredients and are taxed at the 7% rate. This list is not all-inclusive. Examples of “Food or Food Ingredients” Alcoholic beverages, baking chips and The following is a partial listing of items baking bars (sweet and semi-sweet), beer, that meet the requirements to be breath mints, breath sprays, breath strips, considered food and food ingredients and cake decorations, candy-coated items, are subject to the 5.00% state rate, if not cigarettes and other tobacco items, cough prepared by the seller. This list is not all- drops and lozenges, dried fruit with inclusive. sweeteners, gum, herbal supplements, honey roasted or coated nuts, Baby food, baking powder, baking soda, marshmallows, party trays, vitamins, and beverage powders (other than dietary minerals. supplements), biscuit mix, bottled water (carbonated, flavored, sweetened, or Meal Substitutes unsweetened), bouillon cubes, bread, Meal substitutes are taxable at the 5.00% butter, cake mixes, cakes, canned foods, state rate and applicable local rate. Meal cereal, cheese, chip dip, chips (potato, substitutes are labeled with “Nutrition corn, etc.), chocolate (unsweetened) and Facts” and include unsweetened breakfast cocoa (powdered), coffee, condiments bars or those containing flour; (ketchup, mustard, mayonnaise, etc.), unsweetened dried fruit snacks; drinks cookies, cooking oil, dairy products, eggs, such as Ensure or Boost; pop tarts; and fish and meats, flavoring extracts, flour, soup mixes. This list is also not all- food colorings, frostings, frozen meals, inclusive. fruit (fresh or unsweetened dried), fruit juices, gelatin, granola and breakfast bars containing flour, gravies and sauces,
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Food And Food Ingredients (continued) 1. “Dietary supplements” contain one or Items Not Taxable at the 5.00% Food Rate more of the following dietary ingredients: a vitamin; a mineral; an herb or other The law specifies that the 7.00% state rate botanical; an amino acid; a dietary and not the 5.00% rate applies to candy, substance for use by humans to dietary supplements, prepared food, supplement the diet by increasing the alcoholic beverages, and tobacco total dietary intake; or a concentrate, products. metabolite, constituent, extract, or Candy combination of the ingredients listed.
“Candy” is defined as a preparation of 2. Dietary supplements are also intended sugar, honey, or other natural or artificial for ingestion as a tablet, capsule, powder, sweeteners in combination with softgel, gelcap, or liquid form. Dietary chocolate, fruit, nuts, or other ingredients supplements are not represented as or flavorings in the form of bars, drops, or conventional food and are not pieces. Candy does not include any represented to be the sole item of a meal preparation containing flour and must or diet. require no refrigeration. If an item requires refrigeration or has the word 3. Dietary supplements must be labeled “flour” as an ingredient on the label, it is as a dietary supplement, identifiable by not candy. the “Supplement Facts” box found on the label and required by federal regulations. Examples of items that are considered to Any item that is required to have a be candy (the list is not all-inclusive) are “Supplement Facts” label is taxable at the baking bars (sweet or semi-sweet), beer full 7% state rate plus the applicable local nuts, breath mints, candy bars (no flour rate. listed), candy-coated items, caramel or candy-coated apples, caramel or candy- These items include amino acids; coated popcorn, cereal bars (no flour antioxidants; bee pollen; enzymes; garlic listed), chewing gum, chocolate chips and capsules; ginseng; herbal supplements; other sweet or semi-sweet baking chips, immune supports; lecithin; metabolic chocolate covered nuts or seeds, supplements; vitamins and minerals; and chocolate covered potato chips, chocolate zinc lozenges. This list is not all-inclusive. or carob-covered raisins, dried fruit with sweeteners, fruit roll-ups with sweeteners, Prepared Food honey-roasted or sweetened nuts, “Prepared food” means food that is sold in marshmallows, peanut brittle, sugarless a heated state or that is heated by the candy (no flour listed), yogurt-covered seller; food where two more food raisins or nuts. ingredients are mixed or combined by the Dietary Supplements seller for sale as a single item; or food sold with eating utensils, provided by the In order to be considered a dietary seller, such as plates, knives, forks, supplement, a substance must meet all of spoons, glasses, cups, napkins, or straws. the following criteria:
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Food And Food Ingredients (continued)
The seller may prepare the item where trays; ready to eat meats, poultry, or fish the food is sold or at another location. (cooked, smoked, or dried such as summer sausage, beef or venison sticks, Food that is only repackaged, pasteurized, and smoked fish); rotisserie chicken; salad or sliced by the seller is not considered to greens mixed by the seller; salads and be prepared food. Serving size or quantity other deli dishes; sandwiches; soups, does not affect the taxability of a food casseroles, or meals sold warm and ready item. to eat; warmed or honey roasted nuts.
On January 1, 2008, the definition of Food that is not prepared by the seller, prepared food was amended to clarify: (1) but is sold with eating utensils provided tax application when utensils are provided by the seller, is prepared food and is by the seller, and (2) that food ingredients taxable at the 7% state rate plus the mixed or combined by the seller that applicable local rate. Eating utensils contain raw animal foods (e.g., eggs, fish, include, but are not limited to, plates, meat, poultry) requiring cooking by the knives, forks, spoons, glasses, napkins, consumer are no longer defined as cups, and straws. A plate does not include prepared food. Examples include: a container or packaging used to marinated raw meats, uncooked meatloaf, transport the food. An example is a marinated raw seafood, combined raw container or tray that is packaging for a meats, and cookie dough containing raw frozen dinner and also serves as a plate. eggs. Box lunches with straws, napkins, plastic The term “seller” means the legal entity forks, and other utensils are considered that sells the product at retail. If the seller prepared food. If the manufacturer, rather prepares and sells the food item, the item than the seller, provides an eating utensil is taxed at the 7% state rate plus the local with the food, that food is not considered option rate. If the seller contracts with prepared food and is taxable at the 5.00% another legal entity to prepare the food, state rate plus the applicable local rate. the food is not prepared by the seller and For example, a box of crackers with is taxed at the 5.00% state rate plus the cheese spread that comes with a plastic local option rate, unless the legal entity spreader is subject to the 5.00% state tax preparing the food is an agent of the plus the applicable local tax because the seller. spreader is not provided by the seller.
Examples of prepared food items taxable Eating utensils other than plates, bowls, at the 7% state plus local rate if prepared glasses, or cups necessary for the by the seller are any food item sold in a purchaser to receive the product are heated state, bakery goods made by the “provided by the seller” if the seller’s seller; cold or frozen meals and soups practice is to: (1) physically give or hand prepared by the seller that are ready to the utensils to the purchaser, or (2) make heat and eat; fruit trays, coffee or tea the utensils, such as napkins or straws, prepared by the seller; ice cream in cones, available out on counters, and the seller’s sundaes, or such preparations; party percentage of food that is otherwise
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Food And Food Ingredients (continued)
considered prepared food is greater than 75% of all food sales.
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Tax Credits businesses taking either credit must Returned Merchandise provide documentation that the [Tenn. Code Ann. Section 67-6-507] equipment was necessary for compliance If a consumer voluntarily returns articles with current standards. of property to a dealer after the sales or use tax has been collected and remitted, A credit or refund is also available to the dealer may deduct the sales price of anyone purchasing pollution control that property from the taxable equipment required by law that is used to transactions shown for the current treat pollution created by the taxpayer. month’s return. The dealer must maintain The credit does not apply to taxpayers records clearly indicating that the price of that primarily treat pollution created by the item plus the sales or use tax was others. refunded to the consumer. The pollution control equipment credit Repossession also applies to machinery and equipment [Tenn. Code Ann. Section 67-6-507] used to produce electricity in a certified green energy production facility, as A dealer who repossesses, or enforces a defined in Tenn. Code Ann. Section 67-4- lien against, property the dealer has sold, 2004. A copy of the Certification issued by on which there is an unpaid balance of the Department of Environment and greater than $500, may deduct on the Conservation must be furnished to the current report an amount equal to the Commissioner of Revenue by the taxpayer unpaid balance minus $500. The amount to establish entitlement to the credit. of unpaid balance does not include [Tenn. Code Ann. Section 67-6-346] interest, carrying charges, or other similar charges. The dealer must document the Bad Debt credit by maintaining records on the [Tenn. Code Ann. Section 67-6-507] parties and items involved, dates of the sale and the repossession, the original A dealer who has paid the sales or use tax purchase price, and the amount of the on a sale to an account that later becomes unpaid balance. a bad debt and the debt qualifies as a bad debt that may be charged off for federal Pollution Control income tax purposes may take that sale
[Tenn. Code Ann. Section 67-6-507] amount as a credit on the current report. If that account is then paid to the dealer, Auto body paint shops may take a credit the dealer will report amounts paid in the of 100% of the cost of equipment next regular return and the tax amount purchased to comply with governmentally due. imposed pollution control standards. Dry cleaners may take a credit of 50% on Fire Protection Sprinkler Contractors replacement equipment purchased to [Tenn. Code Ann. Section 67-6-355 comply with governmentally imposed pollution control standards. Application There is a credit of the amount of any must be made to, and approval received special contractor tax paid in another from, the Department of Revenue. Those state for the sale of materials used by fire
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Tax Credits (continued) A dealer selling fuel or other petroleum protection sprinkler contractors for products to air common carriers on which fabrication of pipe and pipe fittings or use Tennessee sales tax was collected, and valves and pipe fittings in the the product is subsequently used by the performance of out-of-state contracts. air common carrier in a manner exempt The credit will be limited to the tax on the under Tenn. Code Ann. Section 67-6- value of the materials. 349(a), may, upon meeting certain criteria, take a credit equal to the amount of tax Sales or Use Tax Paid in Another State previously remitted to the Department. [Tenn. Code Ann. Section 67-6-507] The dealer must provide a credit/refund Persons having paid a legally imposed to the common carrier, obtain sales or use tax to another state on documentation sufficient to establish that tangible personal property, computer the fuel was used in an exempt manner, software, computer software and must take the credit on a tax return maintenance contracts, warranty or filed within one year of the date the tax maintenance contracts covering tangible was initially remitted to the Department of personal property, and taxable digital Revenue. products used or consumed in Tennessee may claim that payment as a credit Headquarters Facility Tax Credit against any use tax liability in this state. If the tax paid was less than what is due in Eligibility exists for a credit for al Tennessee, the taxpayer will be liable for Tennessee state sales and use tax paid, the difference. except tax at the rate of .5% on qualified tangible personal property for Residents of other states who move to construction of a new, expanded, or Tennessee and import their automobiles, remodeled headquarters facility. To be personal effects, and household goods eligible for this credit, the taxpayer and, if into the state are not liable for use tax on applicable, the lessor must submit an these goods purchased prior to the application with a business plan and relocation. This does not apply to property receive an authorization letter from the imported for business purposes or to Department of Revenue. aircraft. However, effective July 1, 2014, for boats imported solely for personal use Taxpayers eligible for the headquarters by persons moving to Tennessee, if the sales and use tax credit are those boat has a fair market value of $10,000 or taxpayers who are subject to the less and the boat was properly registered Tennessee franchise and excise taxes, in the previous state, the boat is not insurance companies as defined in Tenn. subject to use tax. Code Ann. Section 56-1-102(2) and, [Tenn. Code Ann. Section 67-6-210] effective with business plans filed on or after January 1, 2008, general Fuel or Petroleum Products Sold to Air partnerships entitled to compute a jobs Common Carriers tax credit under Tenn. Code Ann. Section [Tenn. Code Ann. Section 67-6-349] 67-4-2109(b)(3)(H). [Tenn. Code Ann.
Section 67-6-224]
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Tax Credits (continued)
A headquarters facility is a facility in this A taxpayer that has qualified for the state that houses the international or headquarters tax credit or an affiliate of national headquarters of a taxpayer such taxpayer can enjoy a sales tax where headquarters staff employees are exemption for “private communication located and employed and where primary services” used for communication with a headquarters related functions and computer or telecommunications center services are performed. located in Tennessee. To make purchases of private communication services without Qualified tangible personal property the payment of sales tax, the taxpayer includes: building materials, machinery must provide sellers a copy of an and equipment, furniture and fixtures, exemption certificate issued by the and computer software used in the Department of Revenue. [Tenn. Code Ann. qualifying facility and such property must Section 67-6-389] be directly related to the creation of the qualifying new full-time employee jobs to Taxpayers moving tangible personal qualify for exemption. property into Tennessee in conjunction with establishing a qualified headquarters The taxpayer or lessor to the taxpayer are exempt from any sales and use tax must invest a minimum of $10 million in a that arises as a result of moving property building or buildings, either newly into Tennessee as long as that property constructed, expanded, or remodeled was previously used in the operation of along with the creation of not less than the taxpayer’s business. [Tenn. Code Ann. 100 new full-time employee jobs, created Section 67-6-389(e)] during the investment period with average wages or salaries equal to, or greater than, 150% of the average wage in the county or metropolitan statistical area in which the taxpayer is located.
The minimum investment may include the purchase price of existing buildings, costs of building materials, labor, equipment, furniture, fixtures, computer software, parking facilities, and landscaping, but not land or inventory.
To receive the credit, the taxpayer must submit a claim for credit along with documentation as required. The Department will notify the taxpayer of the approved amount of the tax credit along with instructions for taking the credit.
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Taxable And Non-Taxable Property And Services
Some items of tangible personal property Taxable Tangible Personal Property are specifically exempted from sales or [Tenn. Code Ann. Sections 67-6-102, 212] use tax either by Tennessee law or when The sale, lease, or rental of tangible purchased by specific entities or for personal property is taxable under specific purposes. These items and Tennessee sales and use tax law. entities are discussed later in this “Tangible personal property” means publication. personal property that can be seen, Computer Software weighed, measured, felt, or touched, or that is in any other manner perceptible to Computer software subject to tax includes the senses, and includes electricity, steam, both custom and prewritten computer water, gas, and prewritten computer software. software. Examples are:
The sale, lease, license, and use of + Items sold by grocers to consumers computer software is subject to tax when: at retail.
+ Clothing and other items of personal + Provided to the customer in this apparel. state on tapes, discus, cards or + Motor vehicles and marine vessels other tangible materials; including repair parts and + Provided to the customer by accessories. loading and leaving on the + Watches, rings, and other items of customer’s (or the customer’s jewelry. designee’s) computer in + Building materials sold at retail or to Tennessee; realty contractors. + Provided to the customer by + Supplies sold to and used or electronic delivery (e.g., download) consumed by physicians, dentists to the customer’s (or the and veterinarians. customer’s designee’s) computer + Furniture, appliances, and home in Tennessee; furnishings. + Provided to the customer by + Electronic equipment and supplies. programming in the customer’s + Computer hardware, and (or the customer’s designee’s) peripherals. computer in Tennessee; or + Souvenirs, gifts, and novelty items. + As of July 1, 2015, remotely + Books, magazines, and other accessed by the customer from a periodicals. location(s) in Tennessee. [Tenn. + Cellular phones and pagers. Code Ann. Section 67-6-231] + Prepared meals and beverages
purchased from restaurants. Computer software provided to a + Water, gas, and electricity . customer that is installed, downloaded or
programmed into the customer’s (or the This list is not all-inclusive. Many other customer’s designee’s) computer located items of tangible personal property are subject to the sales or use tax.
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Taxable And Non-Taxable Property And Services (continued) in this state is subject to sales tax. Repair outside Tennessee is not subject to or maintenance services performed on Tennessee sales or use tax. computer software installed on computers located outside Tennessee is Modifications to Computer Software not subject to sales tax. [Tenn. Code Ann. Section 67-6-205(c)(4)] Modifications, enhancements, updates, upgrades and customizations of both Other services that are not enumerated in customized and prewritten computer the law may be subject to tax where the software are subject to sales and use tax. charges for the services are considered a It is the sale of computer software. part of the sales price of computer software. The sales price of computer Modifications, enhancements, updates, software includes labor and service costs upgrades and customizations downloaded and expenses of the seller as well as or programmed into the customer’s (or services necessary to complete the sale. the customer’s designee’s) computer [Tenn. Code Ann. Section 67-6-102] located inside Tennessee are subject to tax. Software programmed, downloaded, Reimbursable travel expenses (e.g., hotel, or installed on computers outside per diem) are costs or expenses of the Tennessee is not subject to Tennessee seller and are a part of the sales price of sales or use tax. the computer software, even if separately itemized or invoiced. Services to Computer Software Consulting or professional services that Services to computer software include creating, designing, developing, enumerated in the law that are subject to fabricating, programming, altering, or tax include installation, and repair/ modifying software furnished in maintenance of computer software. conjunction with the sale of the computer software are part of the sales price of the Installing or loading computer software computer software even if separately on a computer located in this state is itemized or invoiced as consulting or subject to sales tax. When provided by the professional services. If the computer software seller, the installation is part of software is subject to tax then these the sales price of the computer software, services are also subject to tax. even if separately itemized or invoiced. In addition, stand-alone installation of Activating features already coded within computer software furnished by a third existing software to optimize its party to install or load computer software functionality, including setting pre-defined on a computer located in this state is also software toggles or switches or building subject to sales tax. tables that give direction within the [Tenn. Code Ann. Section 67-6-205(c)(6)] standard delivered application software without development, modification, or Maintenance and repair to computer creation of software code is not subject to software installed on computers located sales tax when optional and sold
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Taxable And Non-Taxable Property And Services (continued) The seller must collect tax at the 7% state tax rate, plus the applicable local tax rate, independently from sales of software (or on the sales price for the use of remotely customization of software) or sales of accessed software during billing periods software installation or repair that begin on or after July 1, 2015. For example: A license of remotely accessed However, if these services are sold as part software requires payment of an annual of the sale of the software (i.e., are not license fee due each April 1st. Tax must be optional), or are sold with software, paid on the fee for the license period installation, and/or repair for one lump beginning April 1, 2016. price (i.e. not separately itemized), then they are subject to the sales tax as part of The tax applies to access and use of the the sale price for the taxable software, software from a location in Tennessee, installation and/or repair services. and it applies whether the charge for the software is on a per use, per user, per Unlike installation or repair services which license, subscription, or any other basis. are enumerated in the law as taxable The software is accessed from a location services; training services are not in Tennessee if a customer’s residential or enumerated as a taxable service. primary business address is in this state. Computer software training services included in the price and not separately If the seller does not have nexus in itemized are subject to tax as part of the Tennessee or otherwise does not collect sales price of the computer software. Even the tax, purchasers in this state who if separately itemized from the price of remotely access and use software must the computer software, training services report and pay use tax to the Department may be taxable as a part of the sales price on the purchase price for the use in this of the software if the purchase of the state of the remotely accessed software. training services is not optional and sold independently from the software. If the purchaser pays for access to software that will be used by individuals Remotely Accessed Computer Software who are located in this state, and other [Tenn. Code Ann. Section 67-6-231] individuals who are located outside this state (for example, the purchaser’s To address changes in technology and employees), then the price paid by the ways in which purchasers obtain and use purchaser may be allocated based on the software, Tennessee sales and use tax law percentage of users located in Tennessee provides effective July 1, 2015 the taxable to determine the amount subject to use of computer software in Tennessee Tennessee tax. This may be done using includes the access and use of software one of the following ways. that remains in possession of the seller and is remotely accessed by a customer If the purchaser is not registered for for use in this state. This provision Tennessee sales or use tax, the seller ensures that software remains subject to must obtain a fully completed Streamlined sales and use tax regardless of a certificate (available on the Department’s customer’s method of use. website) from the purchaser to document
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Taxable And Non-Taxable Property And Services (continued) its customers may purchase the software the exemption claimed for the portion of without tax using a resale certificate. the price that corresponds to the percentage of users located outside Remote access and use of software by the Tennessee. The seller must collect tax purchaser exclusively for fabricating other from the Tennessee customer on the software that is owned and used only by percentage of the price that is allocated to that person is exempt from sales and use Tennessee. tax. [Tenn. Code Ann. Section 67-6-387(b) as amended by Public Chapter 514 The Streamlined certificate must include Section 24 Acts of 2015] the nonregistered customer’s Federal Employer’s Identification Number (FEIN). Services that are not subject to tax under In addition, on Line 5, “Reason for state law but may be remotely accessed Exemption,” the customer should circle and utilized or received by a purchaser “Other” with an explanation such as, are not considered remotely accessed “remotely accessed software used by software and continue to be nontaxable employees located in multiple states” and services. Some examples include but are specify the percentage of users located not limited to: outside of Tennessee. + Information services or data If the purchaser is registered for processing services (including the Tennessee sales and use tax, then the capability of the customer to purchaser may: 1) use the Streamlined analyze such information or data certificate to claim exemption for the provided by the dealer); portion of the price that corresponds to + Payment or transaction users located outside Tennessee, or 2) use processing services; the Remotely Accessed Software Direct + Payroll processing services; Pay Permit form (available on the + Billing and collection services; Department’s website) to purchase the + Internet access; remotely accessed software without + Storage of data, digital codes, or paying tax to the seller. software; or + The service of converting, The purchaser then must directly pay the managing, and distributing digital tax to the Department on the portion of products. the price that corresponds to the percentage of users located in Tennessee. Video Game Digital Products The form must include the purchaser’s Tennessee sales and use tax registration Effective July 1, 2015, sales and use tax number. also applies to charges for remotely accessed software that is for the A dealer that purchases software permanent or temporary right to access exclusively for the purpose of providing video game digital products, whether the remote access and use of that software to charge is on a per use, per user, per license, subscription, or any other basis.
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SALES AND USE TAX
Taxable And Non-Taxable Property And Services (continued) a single article of prewritten computer The right to access a video game digital software. product may be through use of a digital code. Sales of digital codes to obtain Single article taxation does not apply to access to video game digital products are custom computer software or separate subject to tax at the time of the sale of the itemized charges for customization of digital code, and no additional tax is due prewritten computer software. when the purchaser or subscriber enters Customized computer software does not the code and accesses the video game qualify as a “single article” as defined in digital product. Tenn. Code Ann. Section 67-6-702 and the full sales price is subject to the local sales The state rate of 7% plus the applicable tax, but not the 2.75% additional state tax local tax rate (up to 2.75%) applies to sales on a single article. of digital video game products. Websites and Computer Software The sales or use of video game digital products is taxable in Tennessee if the Additionally, a web site is considered residential or primary business address of computer software, so the sale of web site the purchaser who accesses the digital development and design is taxable under video game product is in Tennessee. state law. If a web site is created in Tennessee for hosting outside of Application of Single Article Taxation to Tennessee, the sale is in interstate Software commerce and not subject to sales tax.
The single article tax laws do apply to However, if a web site is hosted in prewritten computer software. A separate Tennessee, the sale of the computer prewritten computer software application software that is the web site is subject to or module that is sold without any other sales tax. A dealer is liable for sales or use software applications or modules bundled tax on any type of tangible personal with it for one price will qualify as a single property or computer software used in article of prewritten computer software. the conduct of business. Therefore, if a This applies regardless of how the Tennessee seller creates a web site for an software is delivered, whether out-of-state customer and hosts the web downloaded or remotely accessed. site in Tennessee, the out-of-state customer is liable for tax if title to the Single articles of prewritten computer computer software transfers to the out-of- software are taxed on the first $1,600 of state customer. Generally, a charge for the sales price for each single article and merely hosting a web site is not taxable. are subject to the 2.75% additional state tax from $1,600.01 up to and including In-house Computer Software $3,200 of the sales price of each single article. Beyond $3,200, no local tax or When a seller does not collect tax on the additional state single article tax is due on sale of computer software, Tennessee purchasers must report and pay use tax
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SALES AND USE TAX
Taxable And Non-Taxable Property And Services (continued) single article tax limitation and the to the Department on the purchase price additional state single article tax do not of the software. A use tax exemption is apply to computer software maintenance available for computer software contracts. fabricated by a person or its direct employees (W-2 employees) for such Computer software maintenance person’s own use, referred to as in-house contracts are subject to Tennessee sales computer software. The use tax and use tax if: exemption does not apply to computer software fabricated or programmed by + The computer software independent contracts or employees of an maintenance contract is sold as entity that is not the user and consumer part of or in connection with the of the computer software. sale of computer software that is subject to Tennessee sales or use Affiliate Computer Software tax; + The computer software Tenn. Code Ann. Section 67-6-395 maintenance contract applies to exempts, from the sales and use tax, the computer software installed on use of computer software that is computers located within developed and fabricated by an affiliated Tennessee; or company, or the repair of computer + The location of the computer software if the repair is performed by an software covered by the computer affiliated company. This exemption software maintenance contract is applies regardless of whether such not known to the seller but the software is remotely accessed and used or purchaser’s residential street delivered by other means. For these address or primary business purposes the term affiliated company address is located in Tennessee. requires 100% ownership between the two companies or a 100% ownership by a If a computer software maintenance common parent. contract applies to computer software installed on computers both in Tennessee Computer Software Maintenance and located outside Tennessee, sellers or Contract users may allocate to Tennessee a percentage of the sales price or purchase Sales of, use of, or subscription to price of the contract that equals the computer software maintenance percentage of computer software contracts are subject to sales and use tax installed on computers located in at the time of the sale. If tax is paid on the Tennessee. computer software maintenance contract, then no additional tax will be owed on any Support Services to Software updates or upgrades to the software covered by the software maintenance In general, support services agreements contract. The total sales price of the provide help desk and customer service software maintenance contract is subject support, basic usability of the software to the state and local tax rate. The local
35
SALES AND USE TAX
Taxable And Non-Taxable Property And Services (continued) Taxable retail sales of specified digital and Q&A assistance with software products include: functionality. Sales of support service agreements that meet all three of the + Obtaining the specified digital following conditions would not be taxable products by download or access as part of the software maintenance online; contract. + Subscription fees (monthly, yearly, etc.) for access to or downloads of + The support services are sold specified digital products; separately from the sale of the + Sales in which the seller limited computer software maintenance the time a purchaser has access to contract; or can download the specified + The purchaser is not required to digital products; and purchase the support services in + Sales of digital codes that are to order to purchase software or the be used by the purchaser to software maintenance contract; download or access specified + The support services do not digital products. include transfer of, installation of, or repair or maintenance of Digital codes may be obtained in a computer software. tangible form such as a card or through an e-mail. By entering the code, the Specified Digital Products purchaser can download or access the
specified digital products. The retail sale, licensing, lease, or use of specified digital products to purchasers Services with a residential or business address in Tennessee are subject to sales and use Most services are not subject to the sales tax. The combined state and local sales tax. However, some services are and use tax rate for specified digital specifically named in the law as being products is 9.50% (7% state plus 2.50% subject to the tax. The following examples local) state-wide. are services that are taxable under Tennessee law. While not necessarily all- Specified digital products are inclusive, this list may assist you in electronically transferred (e.g., determining if your type of service is downloaded or accessed on-line) to taxable. Please contact the Department of purchasers or subscribers and are not Revenue if you have questions about any provided on tangible storage media such specific service. as tapes, CDs, or DVDs. Specified digital products include digital audio-visual Taxable Services [Tenn. Code Ann. Sections 67-6-205, 67-6- works (e.g., movie and music videos), 212, 67-6-226, 67-6-227] digital audio works (e.g., music, ringtones), and digital books, as defined in the law. Charges for the use of rooms or
accommodations furnished for periods of
less than 90 days by hotels, motels, inns,
36
SALES AND USE TAX
Taxable And Non-Taxable Property And Services (continued) Charges for installation of items of or other tourist lodgings are subject to tangible personal property that remain tax. The tax does not apply to tangible personal property after accommodations or rooms furnished to installation and installation of computer the same person for 90 or more software are subject to tax. An example is continuous days. the charge made by a retailer to set up computer hardware in the buyer’s home. Charges for the use of or the value of any time-share estate and any charges for the Charges for laundry and dry-cleaning of use of or the value of the use of a tangible personal property except for perpetual interest in specified entities coin-operated facilities are subject to tax. whose substantial purpose is the ownership and control of real property Charges for bathing and grooming are not subject to the sales and use tax. animals are taxable. This service is taxable on the total charge if both the bathing and Amounts paid as a standard fee for the grooming are performed for a single service of facilitating the exchange of one charge. Bathing charges billed separately timeshare interval for another or for the are 100% taxable. There is no tax applied service of making a reservation for a time to bathing performed for a medical share interval via a reservation system are purpose by a licensed veterinarian as a not subject to sales and use tax. For this part of the practice of veterinary purpose, a “time-share estate” is an medicine. There is no tax on grooming ownership or leasehold estate in property services billed separately. devoted to a time-share fee, tenants in common, time span ownership, interval Furnishing intrastate, interstate, or ownership, and time-share lease. international telecommunications services or ancillary services for a consideration Charges for services rendered in the are subject to tax. operation of parking or vehicle storage facilities are subject to tax. The tax does The sale of a prepaid calling service and not apply for parking in state and local prepaid wireless calling service is subject government facilities or on the street to the state and local tax at the time of the where the fees are collected by state or sale or the recharging of the calling card local government parking meters. The or authorization code to use the calling storage of property other than motor card. No additional tax is due when the vehicles is not a taxable service. telecommunications service is accessed or
received by the user of the calling card or Charges for repair services, both parts authorization code. [Tenn Code Ann. and labor, of tangible personal property Section 67-6-230(a)] such as automobiles, business machines, and appliances, and charges for repairs to Enriching uranium materials, compounds, computer software are subject to tax. or products performed on a cost-plus or “toll enrichment fee” basis.
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SALES AND USE TAX
Taxable And Non-Taxable Property And Services (continued) + Charges for using tangible personal Charges for renting space to a dealer with property for amusements, sports, no permanent location in Tennessee or to entertainment, or recreational a dealer registered for sales in another activities such as golf carts, tennis part of Tennessee but making sales at this courts, or bowling shoes. location on a temporary basis. This does not include space rental at flea markets, Warranty or Service Contracts craft fairs, or antique malls. This does not [Tenn. Code Ann. Section 67-6-208] include gun shows or book fairs sponsored by nonprofit organizations. Effective October 1, 2015, charges for This also does not include conventions, warranty or service contracts, warranting trade shows, or expositions that do not the repair or maintenance of tangible allow the general public to make sales in personal property are subject to the exhibit area. Tennessee sales tax when:
Charges or subscriptions for access to or + The warranty or service contract is use of television programming that is sold as part of, or in connection provided by a video programming services with, the sale of tangible personal provider; and charges or subscriptions to property that is subject to sales access or use direct-to-home satellite tax, or services are subject to tax. + The warranty or service contract applies to tangible personal Taxable Amusements property located in Tennessee. + The warranty or service contract is Also taxable under Tenn. Code Ann. for tangible personal property Section 67-6-212 are charges for a variety where the location of the property of amusement, recreation, and is unknown and the purchaser has entertainment activities such as: a Tennessee address.
+ Membership dues and fees to If the warranty or service contract applies sports and recreation clubs or to tangible personal property located both health spas, including inside and outside Tennessee, dealers or complimentary dues and fees made users may allocate to Tennessee a in connection with a valuable percentage of the sales price or purchase contribution. price of the warranty or service contract + Admissions to sporting events, that equals the percentage of tangible musical and theatrical personal property located inside the state. performances, and other amusements except as exempted Repairs performed under such contracts by law. are not also subject to tax. + Charges for entering or engaging in
any kind of recreational activity.
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SALES AND USE TAX
Taxable And Non-Taxable Property And Services (continued)
Nontaxable Services
Examples of non-taxable services are:
+ Furniture moving. + Barber and beauty shop services. + Hospital, physician, and dental
services.
+ Carpet cleaning and window washing. + Taxidermy services. + Use of recording studios and
television studios.
+ Furnishing of equipment when the owner provides a person, or crew, to operate it. Continuous supervision and control are required. + Carpentry, painting, and carpet
installing. + Lawn mowing.
Sales of goods or property to these providers that are consumed or used in the performance of their services are subject to the sales or use tax. Any items of tangible personal property sold by these providers, separately from their services are also subject to the sales or use tax.
These property and services listings are not necessarily all inclusive. Tennessee laws are also amended from time to time. Any questions concerning the taxability of tangible personal p property or services should be directed to the Taxpayer Services Division.
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SALES AND USE TAX
Exemptions Requiring Certificates purpose of resale. These certificates must Three general types of exemptions are be available for audit. A person duly provided in Tennessee sales or use tax registered under the provisions of the law. These are exempt entities, exempt sales tax law, and continually engaged in items, and exempt transactions. Many the business of selling tangible personal exempt transactions and sales to exempt property or taxable services at retail shall entities require that the purchaser not be required to execute additional claiming the exemption provide specific certificates of resale for individual documentation to the dealer. The dealer purchases as long as there is no change in is required to keep the exemption the character of the business operation documentation on file to support the and the purchases are of tangible exempt sales for audit purposes. personal property or taxable services of the kind usually purchased by the Documenting Exemptions purchaser for resale. This certificate Certificates are used to document remains valid until revoked in writing by authorization for purchasing tangible the issuer. personal property and taxable services A “sale for resale” does not include a sale free of tax. These certificates are issued of tangible personal property or computer directly to the specific taxpayer upon software to a dealer for use in the application to and verification by the business of selling services. Property used Department of Revenue. A copy of the in the business of selling services includes, certificate is then given to the seller by the but is not limited to, property that is taxpayer wishing to purchase free of tax. regularly furnished to purchasers of the
service without separate charge. A dealer In lieu of obtaining copies of certificates, that sells services will be considered the sellers may obtain a fully completed end user and consumer of property used Streamlined Sales Tax Certificate of in the selling, performing, or furnishing of Exemption form which must include the the services sold. exemption number appearing on the certificate issued to the purchaser by the “Sale for resale” does include: Department of Revenue. Sellers may obtain the certificates claiming + Repair parts or other property exemptions in an electronic format or sold to a dealer if the property is medium. Sellers are liable for tax on sales subsequently transferred to the where the seller failed to obtain and keep customer in conjunction with the exemption certificates authorizing the tax- dealer’s performance of repair free sales. services. Blanket Certificate of Resale + Installation parts or other [Tenn. Code Ann. Sections 67-6-102, 602; property sold to a dealer if the Sales or Use Tax Rule 1320-5-1-.68] property is subsequently transferred to the customer in Sellers shall require certificates of resale conjunction with the installation of for all tangible personal property sold, or property that remains tangible services rendered in this state, for the property after installation.
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SALES AND USE TAX
Exemptions Requiring Certificates
(continued) Certificates of resale may not be used to + Mobile telephones and similar obtain tangible personal property or devices sold to a dealer if the taxable services that would be used by property is subsequently the purchaser, not resold. transferred to the customer in conjunction with the sale of Such use will be grounds for the commercial mobile radio services. Commissioner to revoke the registration + Food or beverages sold to a hotel, certificate of the purchaser wrongfully motel, inn, or other provider of making use of the certificate of resale. In lodging accommodations if such addition to this penalty, it is a food and beverages are misdemeanor to misuse the certificate of subsequently transferred to the registration and resale certificate for the customer in conjunction with the purpose of obtaining tangible personal sale of lodging accommodations property or taxable services without the to the customer. payment of the sales or use tax when due.
Whether or not the dealer makes a Purchasers providing sellers with separately stated charge for the property certificates of resale for property or is not material. services that are used and not resold will be held liable for the tax. Sellers that “Sale for resale” also does not include a fraudulently fail to collect tax or that sale of services to a dealer for use in the solicit a purchaser to participate in the business of selling, leasing, or renting unlawful claim of an exemption will be tangible personal property or computer held liable for the tax. software. Services used in the business of selling, leasing, or renting tangible For example, it would be proper use of a personal property include, but are not resale certificate for a candy wholesaler to limited to, services such as cleaning, accept a resale certificate for candy maintaining, or repairing property that is purchased by a grocery store. It is held as inventory for sale, lease, or rental. reasonable for the wholesaler to believe the candy will be resold by the grocery A dealer that sells, leases, or rents store; the sales or use tax will be collected tangible personal property or computer on the final sale to the customers. software is considered the end user and consumer of the services used in However, it would be improper for an conducting such business. [Tenn. Code automobile dealer to issue a resale Ann. Section 67-6-102] certificate for its purchase of office furniture from a furniture dealer. The All sales for resale that are not supported automobile dealer will be held liable for by resale certificates or a fully completed the tax not paid as a result of issuing a Streamlined Sales Tax Certificate of resale certificate for the furniture Exemption indicating the purchases are purchased for use and not resold. If it is for resale shall be deemed retail sales; determined that the furniture dealer the seller will be held liable for the tax. unlawfully solicited the automobile dealer to issue the resale certificate to purchase
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SALES AND USE TAX
Exemptions Requiring Certificates
(continued) Government Certificate of Exemption the furniture tax free, the furniture dealer This exemption is valid for sales directly to will be held liable for the tax. entities of the United States government,
the state of Tennessee, and counties and If a buyer purchases for resale and later municipalities in Tennessee. Sales to other uses the product rather than reselling it, state governments or to cities and the buyer is responsible for reporting and counties outside this state are not exempt paying sales or use tax on the items used. from tax. This exemption form is generic This must be done on the sales or use tax in nature and is not issued to a specifically return for the period in which the goods named government entity. The were used. government entity must enter its name in Direct Pay Permits the block provided on the exemption form. The completed form is valid for A direct pay permit is special written purchases made by the governing entity. permission granted to a registered Employees traveling on paid expense taxpayer by the Commissioner to make all accounts or paying with personal funds purchases free of tax. The taxpayer must (checks or credit cards) cannot use the then report all sales or use taxes due government exemption for purchases. directly to the Department of Revenue. The government exemption certificate Tennessee will not accept direct pay form has no expiration date. permits issued by other states. This permission may be extended only under In lieu of obtaining a government exceptional circumstances or hardship to exemption form, sellers may obtain a fully the taxpayer. A copy of the direct pay completed Streamlined Sales Tax permit issued by the Department of Certificate of Exemption form. On Line 4 Revenue shall be filed with the of the Streamlined form, the purchaser wholesalers or retailers. This special should circle Item 18 for government written permission to remit the sales or organizations and on Line 5, circle Item B, use tax shall in no way alter or affect the and include the name of the government criteria for determining whether a entity claiming the government transaction is taxable in Tennessee. exemption.
In lieu of obtaining a copy of the direct Certificate of Exemption for Nonprofit Organizations pay permit, sellers may obtain a copy of a [Tenn. Code Ann. Section 67-6-322] fully completed Streamlined Sales Tax Certificate of Exemption form, which must This certificate is used by non- include the account number appearing on governmental organizations, that have the direct pay permit issued to the been issued a certificate of exemption by purchaser by the Department of Revenue. the Commissioner of Revenue to [Tenn. Code Ann. Section 67-6-102; Sales purchase free of tax goods and taxable or Use Tax Rule 1320-5-1-.68(4)] services that the organization will use,
consume, or give away. The certificate will contain an exemption
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SALES AND USE TAX
Exemptions Requiring Certificates (continued) organization are not liable for the tax if number that is unique to the organization the purchaser improperly claimed the receiving the letter. exemption for the purchases. The
purchaser will be liable for the tax. The seller making a sale to one of these organizations must maintain a copy of the These organizations include churches, exemption certificate in the entity’s files temples, synagogues, mosques, boys’ and for audit purposes. girls’ clubs, universities, colleges, schools, orphanages, foster home institutions, In lieu of obtaining a nonprofit homes for the aged, hospitals, community organization exemption certificate, sellers health councils, volunteer fire may obtain a fully completed Streamlined Departments, organ banks, organizations Sales Tax Certificate of Exemption form. primarily for the spiritual and recreational On Line 4 of the Streamlined form, the environment of the armed forces, state- purchaser should circle either item 16 for owned historical properties, nonprofit education or health care services or item community blood banks, senior citizen 17 for religious or educational centers, certain nonprofit talent and organizations. On Line 5, the purchaser beauty contest corporations , and 26 USC should circle either item E for charitable Section 501(c)(3) organizations, (c)(5) labor organizations or item F for religious or organizations, (c)(13) nonprofit educational organizations. The cemeteries, and (c)(19) wartime veterans’ Streamlined form must include the organizations. exemption number appearing on the nonprofit exemption certificate issued to Out-of-state organizations that hold a the organization by the Department of federal tax exemption under 26 USC Revenue. Section 501(c)(3) must submit a copy of their federal exemption letter in lieu of a When accepting an exemption, the seller certificate of exemption from the must ensure that the purchase is billed to Commissioner of Revenue. Instate Section the exempt organization and is paid for 501(c)(3) entities require a certificate of with checks or credit cards of the exemption issued by the Commissioner of organization. Members and employees of Revenue or a properly completed the organization may not use the exempt Streamlined Sales Tax Certificate of organization’s exemption certificate to Exemption. A properly completed make tax-free purchases that will be Streamlined Sales Tax Certificate of reimbursed by the exempt organization or Exemption must include the nonprofit tax that is for the member or employee’s own number issued to the entity by the use. Department of Revenue.
Sellers that have obtained a copy of the Other than out-of-state 501(c)(3) letters, nonprofit exemption certificate or a fully Tennessee does not accept nonprofit or completed Streamlined exemption form charitable exemption documents issued at the time of the sale and ensured billing by other states. to and payment by the exempt
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SALES AND USE TAX
Exemptions Requiring Certificates (continued) Commercial carriers must apply for and receive a certificate to present to their Certificate of Exemption for Qualified suppliers at time of purchase. [Tenn. Code Call Centers Ann. Section 67-3-1401] [Tenn. Code Ann. Section 67-6-356]
Authorization for Payment of Reduced Sales of interstate telecommunications Sales Tax for Common Carriers services to businesses for operation of one or more call centers are exempt upon Tenn. Code Ann. Sections 676-219 and 67- presentation of an appropriate exemption 6-702(e) grant common carriers the certificate. Call centers are single locations authority to pay sales tax at a reduced having at least 250 employee jobs and state rate of 3.75% and a reduced local utilizing telecommunications services in rate of 1.5% on purchases of tangible one or more of the following activities: personal property made in the State of Tennessee but that will be used outside + Customer services. the State of Tennessee. + Soliciting sales. + Reactivating dormant accounts. Common carriers must apply for and + Fund raising. receive a certificate from the Department + Conducting surveys or research. of Revenue that can be presented to + Collection of receivables. Tennessee suppliers when making such + Receiving or taking orders. purchases. The certificate will allow + Receiving reservations. common carriers to make qualifying
purchases without payment of the sales Dyed Diesel Tax Payments for tax to the supplier at time of purchase. Commercial Carriers
Common carriers will be responsible for Commercial carriers are required to payment of the Tennessee state and local report and pay the Tennessee diesel tax sales tax on qualifying purchases directly quarterly on each gallon of dyed diesel to the Tennessee Department of Revenue. fuel it uses to produce power for a means of transportation in Tennessee, as defined This authorization to pay a reduced rate in the Transportation Fuel Equity Act. of sales tax does not apply to purchases
of food or fuel. Such commercial carriers are granted authority by the Department of Revenue If a common carrier pays the reduced rate to make purchases of dyed diesel fuel of state and local sales tax on qualifying without payment of sales or use tax or purchases of property but subsequently diesel tax to suppliers at the time of uses the property inside Tennessee, the purchase. A commercial carrier is common carrier will be liable for responsible for payment of the sales or Tennessee state and local sales tax at the use tax on purchases of dyed diesel that is full rates provided by statute. A common not used to produce power for a means of carrier will also be required to pay the full transportation in this state. rates of state and local taxes if the common carrier fails to maintain records
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SALES AND USE TAX
Exemptions Requiring Certificates (continued)
to document that the purchases were not used inside the State of Tennessee but was removed from and used outside of Tennessee.
Agricultural Exemption Certificate
[Tenn. Code Ann. Section 67-6-207]
A discussion of this certificate is found later in this Sales and Use Tax Guide.
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SALES AND USE TAX
Exemptions Requiring Documentation
Under sales or use tax law, some sales are Exemption for Railroad Track Materials tax-exempt without the necessity of a and Locomotive Radiators certificate issued by the Department but This exemption is for railroads seeking to do require documentation between the purchase railroad track materials and seller and buyer. Examples of the many locomotive radiators for use outside the exemptions that fall under this category state of Tennessee as provided in Tenn. are shown below, but this list is not all- Code Ann. Section 67-6-340. If the railroad inclusive. Dealers should contact the fails to keep records sufficient to prove Department for more information on the these materials were used out-of-state types of exemptions available. and not within Tennessee, then the Removal from Tennessee by Buyer railroad will be liable for the sales or use tax on these items. [Tenn. Code Ann. Tennessee law allows a buyer to purchase Section 67-6-529] a motor vehicle in Tennessee and have up to three days to remove the motor vehicle Exemption for Rural Electric to another state without having to pay Cooperatives, Community Service sales or use tax on the purchase. This Cooperatives, and Governmental Utility exemption applies to all motor vehicles Districts – for entities organized under Tenn. Code Ann. Sections 65-25-201, et that would be subject to registration and titling in Tennessee were the vehicle to seq., and Tenn. Code Ann. Sections 7-82- 101, et seq. remain instate. This also includes all off- highway motor vehicles as defined in Exemption for Electric Generating and Tenn. Code Ann. Section 55-3-101(c)(2). Distribution Systems, Resource Recovery Facilities, or Coal Gasification Plants – for There is also a provision under Tennessee entities created by the federal, state, or law that exempts, from the sales or use local governments under the Electric tax, the retail sale of boats, motorboats, Membership Corporation or the Electric and other vessels that are subject to Cooperative Laws. registration in this state that are removed from Tennessee to another state within three days after purchase.
When purchasing these items under this privilege, the buyer presents the seller with the Seller/Purchaser Affidavit of Exemption for Motor Vehicles, Boats, and Vessels Sold For Removal From Tennessee
Within Three Days indicating the city and state to which the item will be delivered. This form is available on the website. [Tenn. Code Ann. Sections 67-6-313, 343, 345]
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SALES AND USE TAX
Agricultural Exemptions
Agricultural Exemption Certificate Agricultural Exemptions [Tenn. Code Ann. Sections 67-6-207 and Farmers, timber harvesters, and nursery 301] operators must qualify for and receive an Agricultural Sales and Use Tax Certificate The retail sale, lease, rental, use, of Exemption from the Department of consumption, distribution, repair, or Revenue to make agricultural purchases storage for use or consumption of the exempt from tax. A qualified farmer, following items may be purchased tax- logger, or nursery operator must present exempt when sold to a qualified farmer, a copy of the agricultural exemption logger, or nursery that provides the seller certificate issued by the Commissioner of with a copy of the agricultural exemption Revenue to the seller. The copy of the certificate or card. Exempt items include: certificate is the seller’s documentation of + tax-exempt sales of goods and services to Farm equipment or machinery qualified farmers, loggers, and nursery including all-terrain vehicles used operators. directly and principally for producing agricultural and nursery Also, in lieu of providing the seller with a products for sale. + copy of the agricultural exemption Hay wagons, silage wagons, and certificate, qualified persons making trailers used directly and principally exempt agricultural purchases can also in producing agricultural and provide a fully completed Streamlined nursery products for sale. + Sales Tax Certificate of Exemption which Grain bins and attachments thereto. + must include the exemption number Aircraft designed and used for crop included on the agricultural exemption dusting. + certificate issued by the Commissioner. Equipment used solely for harvesting timber. + The buyer is obligated to ensure that all Trailers used for transporting goods and services purchased under this livestock. + certificate are actually purchased for the Self-propelled fertilizer or chemical production of agricultural or nursery spreading equipment used to products. The buyer is also liable if he or spread fertilizer or chemicals to aid she allows others to use his or her in production of food and fiber for exemption certificate or number to make human consumption. + tax-exempt purchases. Sellers may refuse Tender beds and spreader beds, acceptance of the agricultural certificate even if mounted on a truck. + to make tax-free sales of items that Systems for poultry environmental obviously do not qualify for agricultural control, feeding and watering, and exemption. Sellers remain liable for the conveying eggs. + tax if they do not maintain copies of the Parts and labor used in the repair of agricultural certificate or card in their exempt farm machinery. records or if the invoice or bill does not contain the name and address of the buyer and a description of the products sold. [Tenn. Code Ann. Section 67-6-207]
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SALES AND USE TAX
Agricultural Exemptions (continued)
While not an all-inclusive list, items that do + Gasoline or diesel fuel used for not qualify for the agricultural exemption “agriculture purposes” as defined in include but are not limited to: Tenn. Code Ann. Section 67-6-102,
including dyed diesel fuel used in + Clothing items cutting and harvesting trees by + Automobiles and trucks and repair qualified timber harvesters. parts and repair services for + Containers for farm products or automobiles and trucks. plastic and canvas used in the care + Water for any use or purpose. of plants or as a protective covering + Materials that become real for agricultural products. property when installed, including + Livestock and poultry feeds, drugs gravel, concrete, building used for livestock, and instruments materials (excluding temporary used for the administration of such fencing such as corral panels and drugs. gates). + Seeds, seedlings, and cuttings that + Trucks, flat-bed trailers, and semi- will produce food, fiber, or tobacco. trailers that are used to transport + Fertilizer and pesticides used to aid farm products over the road to the growth and development of market, to transport machinery seeds, seedlings, or plants. Also over the road between farms, or included are solutions specifically to pick up and carry supplies over for mixture with pesticides or for the road to the farm. use as a soil conditioner. + Lawn mowers. + Any substance used in the
reproduction of livestock, including Straw purchased from a supplier other embryos and semen. than the agricultural producer does not + Agri-sawdust – sawdust, wood qualify for exemption when presenting shavings, chips, and slabs. the certificate. Straw is not one of the + Electricity, natural and liquified gas, items specified in the statute as tax- including propane and butane, used exempt even when purchased by a directly for producing food or fiber farmer, logger, or nursery operator. for human or animal consumption or to aid in growing horticultural A farmer, logger, or nursery operator is products for sale. qualified for issuance of the exemption + Coal, wood, wood products, or wood certificate if one or more of the following by-products or fuel oil used as criteria are met. energy fuel to produce food or fiber
or nursery or greenhouse crops. + Is the owner or lessee of [Tenn. Code Ann. Section 67-6-207] agricultural land from which one thousand dollars or more of These items are only exempt when agricultural products were purchased by persons that have qualified produced and sold during the year, for and have received the Agricultural including payments from Certificate of Exemption issued by the government sources; Department of Revenue.
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SALES AND USE TAX
Agricultural Exemptions (continued) operator, the Commissioner will issue a + Provides for-hire custom certificate granting the exemption for a agricultural services of plowing, period of four years. The exemption must planting, harvesting, growing, be renewed by the farmer, logger, or raising, or processing agricultural nursery operator by submitting a renewal products or the maintenance of application every four years. agricultural land; + Is the owner of land that qualifies Sales by Farmers and Nursery Operators
for taxation under the provisions of the Agricultural Forest and Open Proceeds from the sale of livestock, Space Land Act of 1976; poultry, nursery stock, or other farm + The person’s federal income tax products by the farmer or nursery return contains one or more of the operator are exempt from the tax. A following: (a) Business activity on person does not have to qualify for the IRS Schedule F (Profit or Loss From agricultural exemption certificate to make Farming); or (b) Farm rental activity tax-exempt sales of agricultural products on IRS form 4835 (Farm Rental grown or produced by that person. If the Income and Expenses) or Schedule farmer or nursery operator produced at E (Supplemental Income and Loss); least 50% of the agricultural products + The person otherwise establishes sold, then 100% of the proceeds from to the satisfaction of the agricultural or horticultural products are Commissioner that the person is tax-exempt. If the farmer or nursery actively engaged in the business of operator produced less than 50%, then raising, harvesting or otherwise the proceeds from products produced by producing agricultural commodities them are tax-exempt. The 50% test is as defined in Tenn. Code Ann. applied per calendar year. [Tenn. Code
Section 67-6-301(c)(2). Ann. Section 67-6-301]
+ Persons qualifying as Sales made directly from a farmer to a manufacturers cannot also qualify consumer though an online nonprofit for the agricultural exemption farmers’ market are exempt from sales or certificate. [Tenn. Code Ann. Section use tax providing that: 67-6-207(f)]
+ An amount equal to the consumer’s To receive an agricultural certificate of full purchase price is transmitted by exemption, persons who qualify for the the consumer or the online farmers’ exemption must apply to the Department market to the farmer; and of Revenue using the farmer, logger, and + The cooperative or other organizing nursery operator’s application for body of the online farmers’ market exemption. The exemption application charges no fee or other charge for form is available on the Department’s web facilitating the sales other than site. “virtual booth” rental fees assessed
to participating farmers to cover If the Commissioner of Revenue actual costs incurred in operating determines that the applicant is entitled the online farmers’ market. [Tenn. to be a qualified farmer, logger, or nursery Code Ann. Section 67-6-301(a)]
49
SALES AND USE TAX
Agricultural Exemptions (continued)
Purchase of Livestock Drugs by number on the Streamlined exemption Veterinarians form to claim exemption for purchase of Veterinarians are the users and livestock drugs and instruments for the consumers of all drugs purchased for use administration of livestock drugs. in their veterinary practice. Veterinarians Community Gardens may not purchase drugs without tax using a resale certificate. Veterinarians who Effective March 21, 2014, the sale of wish to make tax-exempt purchases of products that are grown or produced in a livestock drugs and instruments to community garden in any calendar year administer livestock drugs must present a are exempt from sales tax when sold by a completed Streamlined Sales Tax representative of the community garden. Certificate of Exemption to the drug supplier. A “community garden” is defined in Tenn. Code Ann. Section 43-24-102 as a piece of This form is a multi-purpose exemption real property, either on vacant public land and is found on the Department’s web site or private land, cultivated by residents of at a neighborhood or community, or http://www.TN.gov/revenue/streamlined/ members of a homeowners or exemptioncertificate.pdf . condominium owners association, for purposes of providing vegetables, nuts, On Line 4 of the Streamlined Exemption herbs, fruit, or flowers, whether by meals form, the veterinarian should circle of cultivating annual, biennial, or “Other” with the explanation perennial plants or trees, for use of the “veterinarian.” On Line 5 of the form, the residents of the neighborhood or veterinarian should circle “Other” with the community or members of the explanation “purchasing livestock drugs homeowners or condominium owners and/or administration instruments.” association.
Veterinarian services are not subject to sales tax.
Veterinarians who are not registered for sales and use tax purposes because they do not make taxable sales do not need to register with the Department of Revenue to receive sales and use tax account numbers.
If the veterinarian is not registered for sales and use, he or she can include some other identification number, such as a
Federal Employers Identification Number
(FEIN), and/or some other state identifying account number, such as a driver's license
50
SALES AND USE TAX
Industrial Machinery Exemptions and Reduced Rates
tax. The oils and lubricants used in the A manufacturer is a business whose machinery are also tax exempt. principal activity (more than 50%) at a specific location is fabricating and Exempt qualified machinery generally processing tangible personal property for includes the machines that transfer raw resale and consumption off the premises. materials from inventory and begin the A qualified manufacturer enjoys processing cycle, process the product substantial tax benefits. Before receiving through the various phases of eligibility for these exemptions, a manufacture, and transfer the finished manufacturer must file an application product from the final processing step to with the Department of Revenue and inventory. [Tenn. Code Ann. Sections 67- receive an authorization letter with a 6-102, 206] unique Industrial Machinery Number assigned to each specific manufacturing Exempt qualified machinery also includes location. [Tenn. Code Ann. Section 67-6- machinery used for generating, 206] producing, and distributing utilities (e.g.,
electricity, steam, and water) at the Fabricating or processing tangible qualified manufacturing location. In personal property for resale includes addition, it includes co-generating providing fabrication and repair services equipment purchased or leased for use at of aircraft for unrelated commercial or a manufacturing facility when such governmental entities provided the dealer facilities are located in a non-attainment engaged in such business qualifies for the area and a minimum capital investment jobs tax credit in Tenn. Code Ann. Section exceeding $30 million is made. [Tenn. 67-4-2109(b). Dealers meeting these Code Ann. Section 67-6-102)] requirements may qualify for sales and use tax manufacturing exemptions. [Tenn. Machinery used to package manufactured Code Ann. Section 67-6-102] items that is used at the qualified
manufacturing facility may qualify as tax- The term “manufacturer” does not include exempt industrial machinery. any entity whose principal business is the preparation of food for immediate retail Any computer, including software, which sale. is primarily used to control the Industrial Machinery manufacturing process or perform quality control or testing of the product during Industrial machinery is machinery the manufacturing process may qualify as necessary to, and primarily for, fabricating tax-exempt industrial machinery. or processing tangible personal property for resale and consumption off the The definition of industrial machinery also premises. The purchase, lease, or rental of includes machinery and equipment qualified machinery and accessories and necessary to and primarily for conversion attachments, and repair and replacement of tangible personal property into taxable parts, are exempt from the sales or use
51
SALES AND USE TAX
Industrial Machinery Exemptions and
Reduced Rates (continued) Energy Fuel and Water specified digital products for resale and Qualified manufacturers are authorized to consumption off the premises. The make purchases at a reduced 1.5% state exemption does not include machinery tax rate on all forms of energy used in any and equipment used primarily for the manner on the manufacturing site. This storage or distribution of specified digital includes electricity, natural gas, coal, products after conversion. [Tenn. Code firewood, fuel oil, and propane and Ann. Section 67-6-102] butane gases. These energy sources are
not subject to a local option tax. Any Pollution Control Equipment energy fuel that comes into direct contact Pollution control facilities used by a with the product during manufacturing, is qualified manufacturer that are needed to expended in the course of the contact, control or eliminate air and water and is metered separately is tax-exempt. pollutants resulting from manufacturing [Tenn. Code Ann. Section 67-6-206] are considered industrial machinery. As such, they are tax-exempt to the qualified There is also available a tax exemption for manufacturer. [Tenn. Code Ann. Section the natural gas used to generate heat for 67-6-102] the production of aluminum sheet foil.
Industrial Machinery Authorization There is also a tax exemption for electricity used to generate radiant heat To be eligible for this exemption, a for production of heat-treated glass. manufacturer must file an application with the Department of Revenue and Manufacturers are also entitled to a receive an authorization letter with a reduced state tax rate of 1% and a local unique industrial machinery number. tax rate of 0.33% to 0.5% on water used [Tenn. Code Ann. Section 67-6-206] within the manufacturing site. Water wetting the product during the Once the Department approves this manufacturing process that is separately authorization, the manufacturer may be metered is tax-exempt. [Tenn. Code Ann. entitled to tax-exempt purchases and Sections 67-6-206, 67-6-702] service of qualified industrial machinery as well as reduced tax rates or tax-exempt Industrial Materials purchases of electricity and water as provided under the law. Chemicals, solvents, greases, and similar items coming into direct contact with the A fully-completed Streamlined Sales Tax product, becoming a part of the finished Certificate of Exemption can be accepted product, or being rapidly used in for industrial machinery and material production of the finished product are exemption purchases provided the tax-exempt. Once removed from certificate contains the manufacturer’s inventory, these items must be totally exemption authorization number issued used or consumed within 25 days to by the Commissioner. [Tenn. Code Ann. qualify for exemption. [Tenn. Code Ann. Section 67-6-206(b)]
52
SALES AND USE TAX
Industrial Machinery Exemptions and Reduced Rates (continued) the WARN Act, FLSA, or federal Section 67-6-206(b)(3) and Revenue Rule immigration law. [Tenn. Code Ann. Section 1320-5-1.40(2)] 67-6-102, as amended by Public Chapter
1001, Acts of 2016.] Also exempt are industrial materials and explosives for future processing, Any computer, computer network, manufacturing, or conversion into articles computer software, or computer system, of tangible personal property for resale as defined in Tenn. Code Ann. Section 39- where such industrial materials or 14-601, and any peripheral devices explosives become a component part of including hardware such as printers, the finished product or are used directly plotters, external disc drives, modems, in fabricating, dislodging, or sizing. [Tenn. and telephone units, including repair Code Ann. Section 67-6-329(12)] parts, warranty or service contracts,
computer software maintenance Qualified Data Center contracts, and any necessary repair or
taxable installation labor, when the Previously, a qualified data center was equipment is used in the operation of a defined as a data center that has made a qualified data center is tax exempt. required capital investment in excess of
$250 million and that creates at least 25 Beginning July 1, 2016, there is also an net new full-time employee jobs paying at exemption from sales or use tax for 150% of the state’s average occupational backup power infrastructure (i.e., backup wage as defined in Tenn. Code Ann. power generation, battery systems, and Section 67-4-2004 during an investment related infrastructure) and cooling period of three years. equipment (i.e., cooling systems, cooling
towers, and other temperature control Effective with tax years ending on or after infrastructure) used primarily for and July 1, 2016, the required capital necessary to the operation of the qualified investment amount is decreased to $100 data center. million, and the job creation requirement is reduced to 15 jobs. Electricity sold to and used by a qualified
data center is subject to a reduced state Taxpayers must apply to the Department tax rate of 1.50%. to receive the Qualified Data Center Sales and Use Tax Exemption Certificate to Warehouse and Distribution Facility make qualifying purchases for use in the operation of a qualified data center Material handling and racking systems exempt from sales and use tax. An equipment used directly and primarily for application for the exemption certificate is the storage or handling and movement of available on the Department’s website. tangible personal property in a qualified warehouse or distribution facility, Any qualified data center that applies for purchased beginning one year prior to the franchise and excise job tax credits must start of, and ending one year after the certify on its business plan that it has not, substantial completion of, the in the last 12 months, been in violation of
53
SALES AND USE TAX
Industrial Machinery Exemptions and Reduced Rates (continued) and equipment that is necessary to and primarily for research and development. construction or expansion of the facility, not to exceed three years, qualifies for tax New Sales and Use Tax Rule 1320-05-01- exemption. .128 defines research and development. In order to qualify as research and Such qualifying facility must be used for development, the taxpayer’s activities the storage or distribution of finished must have one of the following as its tangible personal property and shall not ultimate goal: include a building where tangible personal property is fabricated, processed, or + Basic research in a scientific field assembled. An investment of more than of endeavor, $10 million is required. A taxpayer must + Advancing knowledge or submit an application with a business plan technology in a scientific or describing the investment to be made, to technical field of endeavor, the Department of Revenue. If approved, + Development of a new product, the taxpayer will receive a Warehouse and + Improvement of an existing Distribution Facility Material Handling and product, Racking System Sales and Use Tax + Development of new uses of an Exemption Certificate, which includes an existing product, or exemption number and expiration date + Design and development of for the exemption. [Tenn. Code Ann. prototypes. Sections 67-6-102]
Taxpayers are not required to be engaged County or Municipality Water Pollution in any business of fabricating or Control and Sewage Systems processing tangible personal property for
resale to qualify for the research and Machinery used by counties or development machinery and equipment municipalities or their contractors for tax exemption. Taxpayers that have water pollution control or sewage systems received an industrial machinery is exempt from sales and use tax. The authorization will be required submit a exemption also applies to use of such separate application for authorization to machinery by a water or wastewater make tax exempt purchases for research treatment authority created by private act and development machinery and or pursuant to the Water and Wastewater equipment. Treatment Authority Act.
A taxpayer must apply to the Department Research and Development Machinery to receive the Research and Development [Tenn. Code Ann. Section 67-6-102)] Sales and Use Tax Exemption Certificate
to make qualifying purchases that are Effective July 1, 2015, a new sales and use necessary to and primarily for research tax exemption is available for machinery and development exempt from sales and and equipment, all associated parts and use tax. An application for the exemption appurtenances to the machinery and certificate is available on the Department’s equipment, and repair parts and labor website. and installation labor for the machinery
54
SALES AND USE TAX
Exempt Products and Services Aircraft, Parts, and Supplies Many products and services are identified [Tenn. Code Ann. Sections 67-6-302, 329] as exempt in the sales or use tax law. The + sale of these items or services requires no Charges for the sale, use, or storage special documentation between the seller of aircraft owned or leased by and buyer. A number of them are commercial air carriers primarily for identified below. If you have questions use in interstate or international about specific exemptions, please contact commerce and parts and supplies the Taxpayer Services Division. for servicing them. This does not apply to fuel, petroleum products, Authorized Large Aircraft Service or shop tools. Dealers should Facility maintain documentation of buyer’s [Tenn. Code Ann. Section 67-6-302] eligibility. + Payments on leases or rental of Effective July 1, 2015, the sale, use, property, owned by airport storage, or consumption of parts, authorities, to businesses primarily components, software, systems, engaged in the repair of aircraft accessories, materials, equipment and owned or leased by commercial air supplies that are sold to or sold by an carriers. authorized large aircraft service facility or + Aircraft used for and owned by a affiliate. Also exempted are certain repair person providing flight training. and refurbishment service labor performed by an authorized large aircraft Amusements service facility. These exemptions do not [Tenn. Code Ann. Section 67-6-330] apply to fuel and other petroleum + Events held for, or sponsored by, products or to shop equipment and tools. schools in grades K-12 or athletic
events for participants 18 years old An “authorized large aircraft service or younger sponsored by civic or facility” means a repair station located in nonprofit organizations. Tennessee that is engaged in repair and + Admissions to county fairs and refurbishment services of large aircraft participation in fair activities such as mainframes, large aircraft engine rides, shows, or grandstand events. equipment, and large aircraft accessories + Admission to museums, historical under a valid air agency certificate issued sites, and historical societies by the Federal Aviation Administration in operated by nonprofit entities. accordance with 14 CFR Part 145 of the + Fees resulting from the production federal aviation regulations, with an of film, television, radio, or theatrical authorized class rating of Air Frame Class presentations. Charges for IV, and organization designation authority, admission to these presentations or similar, or successor certificate, rating, are not exempted by this provision. and authority as the Federal Aviation + Receipts from coin-operated Administration may provide for from time amusement devices. to time.
55
SALES AND USE TAX
Exempt Products and Services + Motor vehicles sold in Tennessee (continued) but removed from the state within 3 days and registered outside the + Admissions to recreational or state. [Tenn. Code Ann. Section 67- amusement facilities operated and 6-343] controlled by city or county + Equipment used to adapt motor governments. vehicles for use by honorably + Member assessments made for discharged disabled veterans of the capital improvements by recreation, armed services of the United States. community, or country clubs. [Tenn. Code Ann. Section 67-6-353] + Proceeds from and entry fees to + Sales of motor vehicles to members rodeos and beauty pageants, of the Tennessee National Guard conducted by nonprofit and reserve component units who organizations, which have been held are called into active military service in the same city for 30 years or and who are stationed outside the longer. United States during hostilities in + Admissions to musical concerts which such person is actually conducted solely by nonprofit engaged in combat. The exemption community group organizations. from sales tax begins on the + Events held entirely by employers effective date of the orders and solely for the benefit of their assigning the member to the employees. combat zone and expires ninety + Dues and fees paid to physical days after the effective date the fitness facilities that meet certain individual receives military orders program and staffing requirements releasing him or her from the established by law, if the exemption combat zone. A copy of the military has been approved in advance by orders must be provided to the the Department of Revenue. dealer or county clerk, as + Entry fees for any contest, appropriate. [Tenn. Code Ann. tournament, or charity horse show. Section 67-6-303] Fishing tournament registration fees + Purchases of motor vehicles made are also exempt. by members of the Tennessee
National Guard on Active Guard and Automobiles Reserve (AGR) tour and stationed in Tennessee or at Ft. Campbell + Motor vehicles registered in military installations. [Tenn. Code Tennessee to active full-time duty Ann. Section 67-6-303] members of the armed forces stationed anywhere in Tennessee or Design Professionals at Ft. Campbell military installation. [Tenn. Code Ann. Section 67-6-303] + Concept sketches, drawings, and + Transfer of automobiles between models made by architects, spouses as the result of a divorce. engineers, landscape architects, [Tenn. Code Ann. Section 67-6-306] and interior designers used to develop a prototype for production. [Tenn. Code Ann. Section 67-6-354]
56
SALES AND USE TAX
Exempt Products and Services (continued) + Charges for gas, electricity, or other + The transfer of preliminary artwork energy fuels sold directly to by an advertising agency to its consumers for residential use. client and the use of preliminary [Tenn. Code Ann. Section 67-6-334] artwork created by the advertising + Sales of propane in cylinders of 100 agency to provide advertising pounds or more made over the services. Preliminary artwork counter by the seller for residential means tangible personal property use. Other over-the-counter sales of and digital equivalents that are energy fuel, including propane in produced by an advertising agency containers of less than 100 pounds, in the course of providing are subject to tax. [Tenn. Code Ann. advertising services solely for the Section 67-6-334] purpose of conveying concepts or + Retail sales of kerosene through ideas or demonstrating an idea or dispensers designed and message to a client. This includes, constructed to prevent delivery but is not limited to, concept directly from the dispenser into a sketches, illustrations, drawings, vehicle fuel supply tank. [Tenn. Code paintings, models, photographs, Ann. Section 67-6-334(b)(4)] storyboards, and similar materials. [Tenn. Code Ann. Sections 67-6-102 Exemptions for Tennessee Sales for Out- and 67-6-312] of-State Consumer Use
Display Property + Sale or use of materials for fabrication of structural metal + Inventory items used by a dealer products for use on out-of-state for display or demonstration that jobs. [Tenn. Code Ann. Section 67-6- are returned to inventory within 120 339] days. Items consumed in display or + Sale of boats or other marine demonstration or remaining out of vessels moved to another state inventory for more than 120 days within three days of purchase. are subject to the use tax. The + Sales to non-residents of helicopters dealer will pay use tax on the and airplanes that will have a situs amount that the cost to the dealer out of Tennessee and will be exceeds the sales price of the article removed from Tennessee within 15 at the time it is sold. [Tenn. Code days of purchase. Effective January Ann. Section 67-6-305] 1, 2016, the time period for removal without payment of tax is extended Energy to 30 days. [Tenn. Code Ann. Section
67-6-313] + Money paid by customers of city + The sale of helicopters within and county utilities, electric Tennessee to purchasers who are cooperatives, and electric not Tennessee residents are exempt membership cooperatives, directed when those helicopters remain in to capital construction. [Tenn. Code Tennessee after the sale solely for Ann. Section 67-6-332] purposes of repair or refurbishment
57
SALES AND USE TAX
Exempt Products and Services business in Tennessee. [Tenn. Code (continued) Ann. Section 67-6-313] + Sales of property for use by and are removed from Tennessee commercial marine vessels when within 15 days of the completion of the deliveries are made mid-stream such repair or refurbishment. Repair in waterways that are part of the and refurbishment includes geographical boundaries of modifications, conversions, and Tennessee. installations. This exemption works [Tenn. Code Ann. Section 67-6-326] in conjunction with existing + Repair services, including parts and exemptions for the sale and repair labor, performed on certain tangible of helicopters that are removed personal property, when the repair from the state within 15 days. services are initiated and/or Effective January 1, 2016, the time completed in Tennessee, where the period for removal without payment repaired property is delivered or of tax is extended to 30 days. [Tenn. shipped out of state. The Code Ann. Section 67-6-313(h)] exemption applies to repairs to + Repair and refurbishment services mining, logging, and other natural within Tennessee on airplanes and resource extraction equipment; airplane components and parts, road-building equipment; land- performed pursuant to a clearing, excavation, and “supplemental type certificate” construction equipment; and issued to the repairer by the FAA, to equipment for loading or unloading aircraft qualifying as “Transport containers or truck trailers from Category Aircraft,” or performed by railcars, ships, barges, or aircraft. a facility designated to perform such [Tenn. Code Ann. Section 67-6- services to aircraft qualifying as 313(b)] “Transport Category Aircraft,” where + Repair service labor on aircraft the airplane is sitused outside of engine equipment and aircraft Tennessee and is removed from mainframes, when the repair Tennessee within 15 days from the services are initiated, performed, or completion of the repair. Effective completed in Tennessee. “Aircraft January 1, 2016, the time period for engine equipment” and “aircraft removal without payment of tax is mainframes” are defined by statute extended to 30 days. [Tenn. Code and limited to aircraft used by a Ann. Sections 67-6-313] commercial interstate or + Sales of fuel and petroleum international air carrier. [Tenn. Code products to air common carriers for Ann. Section 67-6-313(c)] flights destined for, or continuing + Repair services, including parts and from, outside the United States. labor, performed out of state on [Tenn. Code Ann. Section 67-6-349] equipment used primarily in + Sales of computer media exchange interstate commerce, when the services or other storage media original purchase of the equipment when that media is to be shipped was exempt from sales and use tax. out of Tennessee or to a [Tenn. Code Ann. Section 67-6- government agency or non-taxable 313(d)]
58
SALES AND USE TAX
Exempt Products and Services (continued) Food + Repair parts and labor for [Tenn. Code Ann. Sections 67-6-337, 67-6- 338] firefighting equipment owned by an
out-of-state fire Department. [Tenn. + Food paid for by food stamps, food Code Ann. Section 67-6-313(e)] coupons, or approved electronic + Repair service labor on railroad benefits transfer systems from rolling stock, when the repair special supplemental food programs services are initiated, performed, or for women, infants, and children as completed in Tennessee. [Tenn. required by federal law, or any other Code Ann. Section 67-6-313(g)] means approved by the Department + Parts and accessories, materials and of Human Services and issued by supplies used in servicing and/or the Department or the federal maintaining railroad rolling stock government. used, or intended to be used, in interstate commerce. [Tenn. Code Fuel Ann. Section 67-6-321(a)] [Tenn. Code Ann. Section 67-6-329] + The transfers of railroad rolling stock and vessels or barges of 50 + Motor vehicle fuels, including tons or more displacement that are compressed natural gas, taxed per used in interstate commerce or gallon under the petroleum outside Tennessee. [Tenn. Code products statutes of Tennessee law. Ann. Section 67-6-321] [Amended by Public Chapter 1070, + Repair services, including Acts of 2016] renovations and improvements, + Gasoline on which a privilege tax is performed on barges and vessels of paid, not including premixed two- 50 tons and over displacement, cycle engine fuel containing gasoline used in interstate commerce, and and oil sold in containers of one the parts, accessories, material, and gallon or less. supplies used in such repairs if the + Liquefied gas taxed under Tenn. parts, accessories, material, and Code Ann. Title 67, Chapter 3. supplies become a part of the barge. [Tenn. Code Ann. Sections 67-6-321, Leased Vehicles 327] [Tenn. Code Ann. Section 67-6-388]
+ Films Insurance proceeds paid to the [Tenn. Code Ann. Section 67-6-309] owner of a leased vehicle pursuant to a damage settlement are + Rental fees of films to theaters that exempt. The exemption applies charge tax on admission prices to when the vehicle has sustained view the films. damage that renders it a salvage + Rental prices for films, recordings, vehicle, a non-repairable vehicle, or or transcriptions charged to radio a flood vehicle, and the owner and television stations operating transfers title of the leased vehicle under license by the Federal to the insurance company. Communications Commission.
59
SALES AND USE TAX
Exempt Products and Services (continued) services for such equipment; Medical Equipment and Supplies attachments and components that [Tenn. Code Ann. Sections 67-6-314, 67-6- are for single patient use with such 320] equipment. + + Prosthetic devices for human use, Disposable medical supplies needed repair and replacement parts, and to administer or deliver medical repair services for such items. . oxygen. + + Durable medical equipment for Insulin and any syringe used to home use sold with a prescription dispense insulin for human use. + for human use. Items generally Disposable medical supplies, such understood and intended to be as bags, tubing, needles, and used in the patient’s home are syringes dispensed by a licensed exempt. DME sold to or for use by a pharmacist on a prescription by a facility such as a for-profit hospital, practitioner of the healing arts for nursing home, clinic, or dental office the intravenous administration of is not for home use and is subject to any prescription drug and which sales tax. Repair and replacement come into actual contact with the parts and repair services are exempt drug or medicine. This exemption only if the equipment qualified for applies only to such items used to exemption. Parts, components, or treat a patient outside of a hospital, attachments that are for single skilled nursing facility, or patient use are not exempt. ambulatory surgical treatment + Kidney dialysis equipment for center. + , treatment of humans, repair parts Computer software prescribed by a and repair services for such practitioner of the healing arts, equipment, and attachments, designed for the treatment of components, and parts that are for people with learning disabilities. + single patient use with such Sales or use of disposable non- equipment. prosthetic ostomy products for use + Enteral feeding systems for by persons who have had treatment of humans, repair parts colostomies, ileostomies, or and repair services for such urostomies. + equipment, and attachments, Repair parts and services for components, and parts for single helicopters and aircraft used by patient use with such equipment. government organizations and + Mobility enhancing equipment sold nonprofit hospitals and medical with a prescription for human use, facilities for medical evacuation or repair and replacement parts, and transportation. repair services for such equipment. [Tenn. Code Ann. Section 67-6-347] + + Oxygen prescribed for medical Prescription drugs distributed at no treatment of humans and charge by the manufacturer. [Tenn. equipment for administering Code Ann. Section 67-6-319] medical oxygen; repair and replacement parts and repair
60
SALES AND USE TAX
Exempt Products and Services (continued) are not tax exempt. [Tenn. Code Ann. Section 67-6-310] + Drugs or medicines, including over- + Sales of school textbooks and the-counter drugs, for human use workbooks, including electronically dispensed on a prescription. [Tenn. accessed or transmitted digital Code Ann. Section 67-6-320] textbooks and digital workbooks. + Veterinarian purchases of drugs, [Tenn. Code Ann. Section 67-6-329] including wormers, used to treat + Sales of school meals in grades K-12. livestock. Other purchases of drugs [Tenn. Code Ann. Section 67-6-329] by veterinarians are taxable based + Sales of parking privileges sold by on the veterinarian’s purchase price. colleges, universities, technical [Tenn. Code Ann. Section 67-6-351] institutes, or technology centers to + Drugs, including over-the-counter students. [Tenn. Code Ann. Section drugs, sold to healthcare service 67-6-329] providers such as hospitals, nursing + Sales of United States or Tennessee facilities, physicians, and dentists flags by nonprofit organizations. that will be prescribed for treatment [Tenn. Code Ann. Section 67-6-329] of humans. + Sales made by schools (grades K-12) + Effective July 1, 2015, diabetic testing or school support groups. Such supplies, including lancets, test schools or school support groups strips for blood glucose monitors, are required to pay Tennessee sales visual read test strips, and urine test tax on the purchase price of the strips. [Tenn. Code Ann. Section 67- goods or services purchased for 6-314(7) as amended by Public resale to others but are not Chapter 274, Acts of 2015] subsequently required to collect tax
when the goods or services are Durable medical equipment and mobility resold. [Tenn. Code Ann. Section 67- enhancing equipment purchased and 6-229] used by pharmacies and home health care providers in rendering outpatient The requirement for schools or school health care services in the home is not support groups to pay tax to the supplier eligible for the exemption for durable at time of purchase does not apply to medical equipment for home use or purchases of textbooks and workbooks to mobility enhancing equipment. Exceptions be sold to students or purchases of food are oxygen delivery equipment, kidney to be sold as meals for public or private dialysis equipment, and enteral feeding school students in grades K – 12. systems. [Tenn. Code Ann. Section 67-6- 352(b)] Motor Vehicles Used by Common Carriers Miscellaneous Nonprofit Sales [Tenn. Code Ann. Section 67-6-331]
+ Sales at gun shows conducted by a The transfer, by any dealer in personal nonprofit organization of gun property, of motor vehicles with a Gross collectors. Sales by dealers who Vehicle Weight Rating of Class 3 regularly conduct gun sales, and (maximum gross weight of vehicle and make sales of guns for later delivery load of 16,000 pounds) [Tenn. Code Ann.
61
SALES AND USE TAX
Exempt Products and Services (continued) 2012. To qualify, the claimant must receive natural disaster assistance Section 55-4-113] and above, and trailers, through the Federal Emergency semi-trailers, and pole-trailers [Tenn. Management Agency (FEMA) as a result of Code Ann. Sections 55-1-105, 55-4-113] the natural disaster. which will be used in the transport of passengers or cargo, principally in The sales price of the appliance or piece interstate or foreign commerce, by a of residential furniture cannot exceed common carrier or contract carrier under $3,200 per item. The sales price of an item authority granted by the federal of residential building supplies cannot government or other state regulatory exceed $500. The total amount of refund agency, shall be exempt from the sales or connected to any one residence cannot use tax. The term “principally” means exceed $2,500. To receive a refund, a more than 50% use . This exemption is claimant must file one natural disaster available regardless whether or not the claim for refund within one year from the carrier sells its services for a fee, provided date shown on the FEMA decision letter that all requirements of Tenn. Code Ann. received by the claimant. Claimants must Section 67-6-331 are met. retain records of purchases for which the refund is claimed for three years from A motor vehicle is used in the transport of December 31 in the year in which the cargo or passengers in interstate or natural disaster claim for refund was filed. foreign commerce if it transports Persons knowingly filing a false or passengers or cargo from: fraudulent refund claim are subject to a civil penalty of up to $25,000. [Tenn. Code + A point of origin in another state or Ann. Section 67-6-396] foreign country to a point within this state. Packaging
+ A point of origin within this state to + a point in another state or foreign Containers and packaging materials country. actually accompanying products + A point of origin in another state or sold, without which their delivery foreign country, moving through would be impracticable on account Tennessee, to a point in a different of their character, and for which state or foreign country . there is no separate charge. [Tenn. Code Ann. Section 67-6-329] Natural Disasters Pollution Control
Refunds of state and local sales tax paid + to retailers are available as a result of Sales of chemicals and supplies purchases of major appliances, residential used in air and water pollution furniture, or residential building supplies control. [Tenn. Code Ann. Section used in the claimant’s primary residence 67-6-329] to replace, repair, or restore such items that were damaged or destroyed in a federally-declared natural disaster in Tennessee occurring on or after January 1,
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SALES AND USE TAX
Exempt Products and Services (continued)
cooperative direct mail advertising. Preservation of Historic Property [Tenn. Code Ann. Section 67-6-344] + + Tangible personal property or Direct mail delivery charges, taxable services sold, given, or including postage and mailing donated to an entity that is directly services, for direct mailing to a or indirectly owned and controlled mass audience printed materials, by a nonprofit entity, is organized such as advertising, are exempt if
for the purpose of preserving or the delivery charges are separately rehabilitating a historic property itemized on the invoice. [Tenn. listed on the National Register of Code Ann. Section 67-6-102] + Historic Places, and the controlling Hospital records, as defined in nonprofit entity has received Tenn. Code Ann. Section 68-11-302, approval of its historic certification provided to an attorney, agent, or application by the U.S. Department other authorized representative of the Interior National Park acting in a lawsuit on behalf of an Service. [Tenn. Code Ann. Section exempt nonprofit hospital. [Tenn. 67-6-322] Code Ann. Section 67-6-329(a)]
Publications Railroad Tank Cars
+ + Magazines and books distributed to Materials used for the lining or consumers via the United States protective coating of railroad tank Postal Service or common carriers cars and charges made for installing by sellers or distributors whose or repairing such linings or only Tennessee activities involve protective coatings. [Tenn. Code the printing, storing, labeling, or Ann. Section 67-6-329]
delivering of these items to the Sales in Interstate Commerce postal service or common carrier , maintenance of stock or + When title and possession of newsgathering activities. [Tenn. property passes from seller to Code Ann. Section 67-6-329] buyer outside Tennessee, the sale + Publications printed on newsprint is considered to be in interstate or bond paper and advertising commerce and exempt from state supplements or other printed and local sales or use tax in the inserts delivered with the state where the seller is located. publications on a biweekly or more frequent basis. [Tenn. Code Ann. Sales Tax Holiday Section 67-6-329] + Direct mail advertising, in the form Effective April 28, 2016, Tennessee holds of discount coupons or advertising an annual sales tax holiday from 12:01 leaflets for more than one business, a.m. on the last Friday of July through distributed in Tennessee from out 11:59 p.m. on the following Sunday. of state by a person engaged solely During the holiday, these items are and exclusively in the business of exempt from sales and use tax:
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Exempt Products and Services (continued) Telephone Cooperatives
+ + Clothing with a price of $100 or less Sales of tangible personal property per item. to telephone cooperatives organized + School supplies with a price of $100 under Tennessee law, for their own or less per item. use or consumption. [Tenn. Code + School art supplies with a price of Ann. Section 67-6-325]
$100 or less per item. + Telecommunications Computers with a price of $1,500 or less per item. + Charges made by local telephone
exchanges to long-distance resellers Articles normally sold together as a single and cellular telephone companies unit, cannot be priced and sold separately for local access and use of to obtain the exemption. For shipping intercompany facilities. [Tenn. Code charges, if all items in a shipment qualify Ann. Section 67-6-342] individually for exemption, the shipping + Charges for Internet access or charge is also exempt. If both exempt and information services are exempt taxable items are shipped, the percentage from sales and use tax. [Tenn. Code of the shipping charge determined to be Ann. Section 67-6-102] allocated to the taxable items is also part of the tax base. Transactions between Parent Companies and Wholly Owned Subsidiaries Items specifically excluded from the holiday exemption include computer + The sale, transfer, or lease of software, clothing accessories, protective construction machinery between equipment, sports and recreation parent companies and wholly equipment, school instructional material, owned subsidiaries is not taxable and school computer supplies. The provided the Tennessee sales or use exemption also does not apply to items tax was paid on the property at its used in a trade or business or to items initial purchase. [Tenn. Code Ann. that are rented. [Tenn. Code Ann. Section Section 67-6-311] 67-6-393, as amended by Public Chapter + Services, which would otherwise be 1048, Acts of 2016.] taxable, are not subject to the sales tax if the corporations involved Specified Digital Products meet certain ownership and control
requirements. The services must not + Sales of specified digital products be performed for profit. [Tenn. Code are exempt from tax when the Ann. Section 67-6-395(b)] same product in tangible form is exempt from tax. [Tenn. Code Ann. Time-share Accommodations Section 67-6-329] + Specified digital products provided + Charges for the use of, or the value to the customer without charge on of any time-share estate and a trial basis. [Tenn. Code Ann. charges for the use of or the value Section 67-6-329] of the use of a perpetual interest in specified entities whose substantial
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Exempt Products and Services
(continued)
Vending Items + purpose is the ownership or control of real property, are not included in + The proceeds of vending machines the definition of “retail sale,” “sale at operated for the benefit of a retail,” and “retail sales price.” A charitable nonprofit organization by definition of “time-share estate” which merchandise of the market was added to Tenn. Code Ann. value of not more than 25 cents is Section 67-6-102 and is consistent sold or delivered to customers are with the Tennessee Time Share Act subject to a gross receipts tax of of 1981. [Tenn. Code Ann. Section 1.5% rather than the sales or use 67-6-102] tax. [Tenn. Code Ann. Section 67-4-
506] Used Property
Warranty Services + Sales of used factory-manufactured structures to the extent the + Parts supplied to consumers for Tennessee sales or use tax was replacement, under warranty, of paid on the initial purchase of the faulty parts are not taxable if the structure in Tennessee. [Tenn. Code sales or use tax was originally paid Ann. Section 67-6-336] on the item under warranty. [Tenn. + Retail sales of used clothing by Code Ann. Section 67-6-324] 501(c)(3) nonprofit organizations that have been issued an Watershed Districts exemption certificate by the Commissioner of Revenue. [Tenn. + Sales of tangible personal property Code Ann. Section 67-6-348] for use by watershed districts. [Tenn. Code Ann. Section 67-6-328] Utility Poles
+ Utility poles, anchors, guys, and
conduits are exempt from sales or
use tax. [Tenn. Code Ann. Section 67-6-329]
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Flea Markets
the flea market are properly registered Flea Market Registration with the Department. The flea market [Tenn. Code Ann. Sections 67-6-102, 220] operator is empowered to accept Dealers who sell at flea markets will applications for registration with all register and pay an annual registration required fees. The operator will supply the fee of $45. This registration fee shall be dealer with a copy of the application for credited against that person’s actual registration, together with evidence of the annual sales tax liability. This registration amount of fee submitted. This copy shall shall be valid at any location in the state be displayed by the dealer and shall serve during the period for which it is issued. as evidence of proper registration
Sales on Less than Permanent Basis The provisions of this section do not apply to dealers who sell prepared foods at flea Dealers engaging in retail sales at flea markets for consumption. markets on less than a permanent basis may register, at their option, as follows: Submission of Flea Market Returns [Tenn. Code Ann. Sections 67-6-102, 220]
(A) On a quarterly basis for a fee of $15. Dealers Registering Annually This registration fee is to be paid per location at which retail sales are made. A If the annual sales tax liability is less than person may register a maximum of three $45 for a dealer registering annually, that times per year at each location. A dealer, person is not required to file an annual needing to register more than three times sales tax return. In no case will any person per year at any one location, must receive a refund of any portion of the purchase an annual registration registration fee. Should any dealer’s tax certificate. No refund is payable from the liability exceed $45, then that dealer will registration fee. This registration fee shall, file an annual return. The return will be however, be credited against any such due by January 20 and reflect the gross person’s actual sales tax liability. sales during the preceding calendar year. A dealer beginning business after January (B) On a monthly basis for a fee of $5. This 1 will be responsible for transmitting an registration fee is to be paid per location annual return on or before January 20 of at which retail sales are made. A person the subsequent calendar year for all may register a maximum of three times months in which the dealer made taxable per year at each location. A person sales or purchases through December 31 needing to register in excess of three of the preceding year. times must purchase either a quarterly or an annual registration certificate. No Dealers Registering Quarterly or refund is payable from the registration Monthly fee. This registration fee shall, however, be credited against any such person’s Dealers registering on a quarterly or actual sales tax liability. monthly basis shall file quarterly returns if their tax liability exceeds the amount of The flea market operator is responsible the registration fees paid during that for ensuring that all dealers operating at quarter. The quarterly returns will be due
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Flea Markets (continued) by the 20th day of the month next Commissioner that a flea market operator following the end of each quarter and will has been negligent shall be deemed show the gross sales from all taxable sales presumptively correct. Such or purchases during the preceding determination may be rebutted only if the quarter. flea market operator makes a showing of due care. As used, “due care” means that At the time of transmitting any of the the flea market operator has made every returns, the dealer shall remit the amount reasonable effort to ensure that every of tax due. Failure to so remit the tax or to dealer renting space from the operator is file the return will make the tax properly registered for tax purposes. delinquent. Failure to remit the tax or to file the return will subject the dealer to penalties and interest and the possibility of further actions.
Penalty for Late Filing
The flea market operator will submit the registration fees collected on the operator’s monthly return to the
Commissioner, together with the registration applications received by the operator. Failure to comply will subject the flea market operator to the penalty provided by law for delinquent tax payments.
The penalty to the dealer will be $10 per booth per day for violations of tax remittance requirements. The Department may also impose a penalty upon the flea market operator of $10 per booth per day, up to a maximum fine of $100 per day at any location where it is determined by the Commissioner that the flea market operator has been negligent in allowing dealers to operate at the flea market without proper registration.
The term “negligent” includes, but is not limited to, any failure of the flea market operator to make a reasonable attempt to ensure that every dealer renting space from the operator is properly registered for tax purposes. A determination by the
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Contractors other users can be purchased on a resale
certificate; sales tax will be collected and Generally, contractors are persons who remitted on the retail sales. perform installations of personal property as an improvement to realty. Contractors Contractor-dealers who cannot separate may include persons performing the portions of their materials and management services. The term supplies that they will consume in “contractor” also includes subcontractors. fulfillment of their contracts and those they will resell to other consumers may Contractors as Consumers [Tenn. Code Ann. Section 67-6-209] give a resale certificate to the seller of such materials and supplies. The Contractors and subcontractors who contractor-dealer will then collect and improve realty, or otherwise use personal report sales tax on the materials resold property in the performance of a contract, and use tax on the materials used in are considered the users and consumers fulfillment of their contracts. of the materials that are used or installed as part of the real property. If the sales tax Suppliers making sales to contractor- is not paid when the materials are dealers and delivering the materials to a purchased, the contractor or job site for use, or tagging particular subcontractor owes the use tax on the supplies for a particular job performed by cost of their materials. The labor costs of the contractor-dealer, must collect the installation or erection and markup on applicable sales tax on those sales, even if materials are not taxable. The sales or use the contractor-dealer presents a tax cannot be itemized separately and certificate for resale. [Sales Tax Rule 1320- collected from the contractee. 5-1-.08]
Liability for the Sales or Use Tax Exemptions [Tenn. Code Ann. Sections 67-6-102, 209, Generally speaking, the contractor or 384] subcontractor remains liable for the sales Under specific circumstances outlined in or use tax on materials used in providing the law, contractors or subcontractors are the contracted service even when the not liable for the sales or use tax on contractee is an otherwise exempt entity, construction materials. These specific such as federal, state, county, or city exemptions are: governments, and most exempt organizations. This is true even when the + If materials are purchased by a tax-exempt entity buys the materials and church and are used in church turns them over to the contractor or construction, the materials are subcontractor for use. exempt from both state and local
sales or use tax. Similarly, carpet A contractor-dealer is one who improves installed by a contractor for church realty and is also engaged in selling construction is exempt. building materials and supplies to other contractors, consumers, or users.
Materials that may be sold at retail to
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Contractors (continued) market value $5 per ton plus the cost of + If materials are purchased by a materials as the tax base. private, nonprofit college or university and are used in college or Asphalt fabricators that sell asphalt to university construction, they are other contractors or customers without exempt from the state sales or use performing installation and who also tax but not from the local tax. install asphalt may purchase their materials on a certificate of resale. The Specific exemptions from sales or use tax asphalt contractor must collect sales tax are available to contractors for specific on the total sales price of the asphalt types of contracts. Examples are: fabricated and sold to other contractors. If the asphalt fabricator uses the asphalt + Electrical generating facilities and rather than sells it, the asphalt fabricator distribution systems owned by a will owe the use tax as previously government entity. indicated. + Wastewater and sewage systems, and sanitary sewer pipes owned by Use of asphalt by an asphalt fabricator or a county or city. installer in a contract with a government + Coal gasification plants and or other tax-exempt entity subjects the distribution systems owned by fabricator or installer to payment of the government entities. use tax. Use tax is due even if the asphalt + A neutron spallation facility funded is provided by the government or tax- by the federal government or an exempt entity. However, if asphalt is sold instrumentality thereof. directly to the exempt entity with no installation or use by the seller, the Tax on Fabricated Materials purchase is tax-exempt. [Tenn. Code Ann.
Section 67-6-209 and Sales Tax Rule 1320- Contractors fabricating raw materials for 5-1-1.03(1)(a)] use in building construction are liable for the sales or use tax on the cost of the raw Installation of Industrial Machinery materials. On the other hand, contractors fabricating materials for use in non- Contractors installing qualified tax-exempt building projects, such as bridge steel, are industrial machinery for qualified liable for tax on the fabricated value of the manufactures must apply to the materials. Department of Revenue for their own industrial machinery authorization Asphalt Fabricators number for each project.
Asphalt fabricators must remit use tax Lump Sum or Unit Price Construction based on the fair market value of asphalt Contracts on Realty in Effect on July 15, they use in fulfilling their contracts. The 2002 tax amount must be computed on the amount the fabricator would charge for All construction contractors and the asphalt if it were sold and delivered in subcontractors will pay to their vendors an arms length transaction. The the increased state tax of 7% on Department of Revenue will accept as fair materials purchased on or after July 15,
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Contractors (continued) prior to July 15, 2002, and documentation 2002. Vendors of materials who have a in the form of schedules and invoices to lump sum or fixed price contract to support the payment of sales tax in provide materials are required to collect excess of the 6% state rate. A separate and remit the new rate of tax. claim form will be required for each contract. General or prime construction contractors making improvements to real Contractors and subcontractors who have property under a lump sum or unit price made purchases without the payment of construction contract entered into prior tax on tangible personal property that will to July 15, 2002, or contracts awarded by be used in the performance of qualifying the state or a political subdivision lump sum or unit price construction pursuant to a bid opening which occurred contracts that became binding prior to prior to July 15, 2002, if the provisions of July 15, 2002, should report and remit the such provide that the amount payable use tax at the 6% state rate and the remains fixed without regard to costs, applicable local option tax rate. Dealers may file a claim for refund with the are required to keep records to Department of Revenue for tax paid to demonstrate the tangible personal any of the contractor’s vendors at a rate property was subject to the 6% state rate. in excess of the 6% state rate and the Such records include a copy of the applicable local option sales tax in effect contract with the dates that the contract July 1, 2002. A claim for refund must be was entered into, records indicating the supported by a copy of the contract that materials used in the performance of the was signed prior to July 15, 2002, and qualifying lump sum contract, and documentation in the form of schedules records demonstrating that the state rate and invoices to support the payment of of 6% and the applicable local tax rate sales tax in excess of the 6% state rate. A was reported and paid to the Department separate claim form will be required for each contract. “Lump sum or unit price construction contract” is defined as a written contract Subcontractors entering into lump sum for the construction of, or improvements or unit price contracts to make to, real property under which the amount improvements to realty prior to payable to the contractor, subcontractor, September 1, 2002, with general or prime or material vendor is fixed without regard contractors that have entered into to costs incurred in the performance of contracts described in the preceding the contract and apply to equipment or paragraph prior to July 15, 2002, may file other property used to conduct the test. a claim for refund with the Department of [Tenn. Code Ann. Sections 67-6-209; 67-6- Revenue for tax paid in excess of the 6% 541] state rate and the applicable local option sales tax in effect July 1, 2002. A claim for Property Owned by the United States refund must be supported by a copy of Government the subcontractor’s contract that was signed prior to September 1, 2002, a copy An exemption from contractor’s use tax is of the contractor’s contract entered into available for any tangible personal property that is owned by the United
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Contractors (continued) disaster. The project must involve a States and is provided to a contractor on a minimum of $50 million or more in the temporary basis to be tested, provided restoration of the property. that the exemption applies only to contracts awarded under the Small The investment may include, but is not Business Innovation Research Program, limited to, the cost of constructing or and does not apply to equipment or other refurbishing a building and the cost of property used to conduct the test. [Tenn. building materials, labor, equipment, Code Ann. Section 67-6-209] furniture, fixtures, computer software, and other tangible personal property There is also an exemption from within the building. The investment may contractor’s use tax for tangible personal not include land or inventory. property that is provided to a contractor on a temporary basis to be tested, “Qualified tangible personal property” provided that the testing facility is owned means building materials, machinery, by the United States or any agency equipment, computer software, furniture, thereof. The exemption does not apply to and fixtures used exclusively to replace or property consumed or destroyed during restore real or tangible personal property the test. that suffered damages as a result of the disaster and purchased or leased prior to “Testing” is limited to diagnostic, substantial completion of the qualified analytical, and/or scientific testing in a disaster restoration project. controlled environment dedicated to such testing for the purpose of providing “Qualified tangible personal property” information and findings supportive of does not include payments with respect to the aerodynamic, hypersonic, aero leases of qualifying tangible personal propulsion, space, missile, aircraft, and property that extend beyond substantial aerospace technologies and/or industries. completion of the disaster restoration [Tenn. Code Ann. Section 67-6 209] project.
Qualified Disaster Restoration No other sales or use tax credits,
exemptions, or reduced rates that may be An entity that engages in a qualified available may be taken as a result of the disaster restoration project in Tennessee same purchases or minimum investment. is eligible for a credit of all Tennessee state sales or use tax except for one-half Persons seeking the credit must submit percent on the sale or use of qualified an application to the Commissioner of tangible personal property used in the Revenue to qualify the project as a project. qualified disaster restoration project, together with a plan describing the A “qualified disaster restoration project” is investment to be made. In the case of a a project undertaken in connection with leased building, the lessor must also the restoration of real or tangible submit an application and plan if any personal property located within a taxes paid by the lessor are to be claimed declared federal disaster area that as part of the credit. suffered damages as a result of the
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Contractors (continued)
Upon approval of the application and plan, the Commissioner will issue a letter to the applicant stating that the applicant has tentatively met the requirements for the credit.
To receive the credit, the taxpayer must submit a claim for the credit and documentation showing that Tennessee sales or use taxes have been paid to the state on qualified tangible personal property. The claim may include taxes paid by the taxpayer, the lessor in the case of a leased building, contractors, and subcontractors.
Documentation verifying that the minimum investment requirements have been met can include employment records, invoices, bills of lading, lease agreements, contracts, and all other pertinent records and schedules required by the Commissioner.
The Commissioner will review the claim for credit and notify the taxpayer of the approved credit amount and directions for taking the credit. Such notification must be given before the taxpayer can take the credit.
If any of the qualifying requirements for this claim are not met, the taxpayer will be subject to an assessment of any sales or use tax, penalty, and interest that would have been due and for which credit was taken.
The taxpayer does not have to establish its commercial domicile in Tennessee to be eligible for the credit. [Tenn. Code Ann. Section 67-6-235]
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Returns and Payments
Returns and Payment The Commissioner may also, under [Tenn. Code Ann. Sections 67-6-504, 505, emergency or extraordinary reasons, and 506] extend a taxpayer’s time for filing a return As of October 1, 2013, all sales and use for up to 30 days. In the latter case, any taxpayers are required to file returns and interest payment will be added to the remit the associated tax payments amount of payment due. electronically. If this requirement creates a hardship on any taxpayer subject to this The Commissioner can require aviation requirement, the taxpayer can request fuel dealers to file sales reports monthly permission to continue to file using paper rather than quarterly for purposes of return forms. The Commissioner can distributing revenue to the transportation require that any paper return be equity trust fund and impose a $500 accompanied by a manual handling fee of penalty if such report is not filed as $25 to account for the additional cost of required. [Tenn. Code Ann. Section 67-6- preparing, printing, receiving, reviewing, 407] and processing the paper return. If a taxpayer has paid a legally imposed [Tenn. Code Ann. Section 67-1-115(a)] sales or use tax to another state for
property imported into this state, that Taxpayers whose average tax liability is payment may be claimed as a credit $500 or more per return must file returns against the tax on the Tennessee return. and remit payments electronically by The taxpayer must be able to furnish the statute. Failure to do so carries a statutory name of the vendor from whom the penalty of $500 per incident. property or service was purchased and an
affidavit or bill of sale showing the After completing the registration process, tax has been paid. [Tenn. Code Ann. you will receive reporting information. Section 67-6-507] You must file a timely return, beginning with the date entered in Item 4 of the If a taxpayer fails to report and pay the application, even if no sales were made sales or use tax as required or files a and no tax is due. grossly incorrect or fraudulent report, the
Commissioner will estimate the amount of Sales or use taxes are due on the first day tax due plus interest and penalties, if of each month for the preceding month. applicable, and the taxpayer will be The last day for electronic returns to be assessed accordingly. [Tenn. Code Ann. timely filed with the Department of th Section 67-6-517] Revenue is the 20 of each month. The amount of tax due will be paid with the Electronic Data Interchange (EDI) return. Failure to do so will make the return delinquent. The Electronic Data Interchange program
is a method of filing tax returns The Commissioner may decide, when it is electronically from one computer to in the best interest of the state, that another. Tennessee sales or use tax specific taxpayers may file returns on taxpayers are required to make their tax other than a monthly basis. The
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Returns And Payments (continued) day prior to the due date for “Filing and payments by Electronic Funds Transfer Payment” transactions, and by 11: 59 p.m. and are required to file their returns Eastern Time on the due date for “Filing through EDI. Only” transactions.
The EDI setup involves several steps Electronic Funds Transfer (EFT) including selecting a certified software vendor or Internet tax service provider, The Tennessee General Assembly has completing the registration process, authorized the Commissioner of Revenue establishing communications, and to require certain tax payments to be performing a test of the chosen software. made by funds readily available to the It is the taxpayer’s responsibility to choose state. Electronic Funds Transfer is a a software vendor or Internet tax services method approved by the Commissioner provide to develop its own software. for accomplishing this. Rules for the administration of this legislation went into Each taxpayer filing sales tax returns effect on January 1, 1992. electronically must have a Registration for Sales Tax Electronic Filing Application on Two payment options are available that file with the Department of Revenue. If use the Automated Clearing House (ACH) using a software vendor, the taxpayer system to electronically transfer tax must also complete a Transmission payments. The ACH system is a Specification Questionnaire for the nationwide network designed for this Department. Additionally, each taxpayer purpose and is the preferred transaction that pays sales taxes electronically must method for many financial institutions have an Electronic Funds Transfer (EFT) and corporations. A third payment option, agreement on file with the Department. federal wire transfer, should be used only Taxpayers who file electronically must pay as an emergency option. electronically. Penalty and interest charges may be Software vendors and Internet tax incurred if the taxpayer fails to remit by services usually offer both “Filing Only” the chosen method. No matter which and “Filing and Payment” options. If the method is chosen, the taxpayer must “Filing Only” option is selected, the complete the Electronic Funds Transfer software or tax service will only initiate a Agreement with the Department of transaction for filing the return. The Revenue. associated EFT payment will need to be initiated via the Department’s EFT A taxpayer filing returns for multiple program. locations and required to file returns electronically from one location, outlet, or To avoid late delivery of the return and place of business must to file electronic payment, taxpayers using a tax service returns and make electronic payments must contact their provider for cutoff from each of the taxpayer’s locations. deadlines. Taxpayers using software must [Tenn. Code Ann. Section 67-6-504(f)] transmit to the Department’s filing service by 4:15 p.m. Eastern Time on the business
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Returns And Payments (continued)
The Department of Revenue offers date the taxes are paid. The maximum payment warehousing for sales and use penalty is 25% of the tax amount due; the tax payments. Taxpayers are able to file a minimum penalty is $15. return upon its completion and delay the accompanying payment until it is due. Interest is imposed on any taxes not paid by the date required by law even though a Additional information on EDI and EFT, filing date extension has been granted. and the required forms, may be obtained The interest rate on deficient tax by contacting the Department of payments is established each year on July Revenue’s Electronic Commerce Unit at 1st . (866) 368-6374.
When a taxpayer fails to submit a timely Online Filing return and penalties and/or interest are applied, the penalties and interest Online filers can file all periodic returns become a part of the tax due. The and make payments directly from Department of Revenue has no discretion checking accounts. They can update to refund or waive any interest charges. business information, such as location [Tenn. Code Ann. Section 67-1-804] and mailing addresses. They can also file past due and amended returns. Returns Audits and Assessments can be filed right up to midnight of the return due date to ensure timely filing. All tax returns filed with the Department Online filing will also calculate the return of Revenue undergo some type of audit or and provide an immediate confirmation of examination to ensure that the correct tax receipt by the Department of Revenue. has been paid. This may be a computer Online filing is free without purchasing math audit, a manual examination by a additional software. Information about trained auditor, or both. The taxpayer will initiating online filing is available on the be contacted if additional information is Department’s Web site. needed to complete the audit. The
taxpayer will receive written notification of Filing Date any adjustments made to the return.
If the due date for a return falls on Taxpayers selected for field audits will be Saturday, Sunday, or a holiday, the due contacted by the Department to set up a date is automatically extended until the convenient time for the audit. Taxpayers next business day. [Tenn. Code Ann. will receive advance notice of which Section 67-1-107] records will be needed for the audit. A Penalty and Interest field audit generally involves examination of documentation and records used to file A penalty is imposed for the late filing of a returns for three previous years. tax return and for late payment of taxes owed the state. The penalty is computed At the completion of the audit, the auditor at a rate of 5% per month, or any portion will leave the taxpayer a written report for of a month, from the due date until the review. Once the auditor has made any
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Returns And Payments (continued)
necessary changes to the report, the Keeping Records notice of assessment for any underpaid taxes will be issued. [Tenn. Code Ann. Taxpayers are required to establish and Section 67-1-1301] maintain records that are adequate for
auditors to use in determining the correct Right to a Conference amount of a business’s tax liability This [Tenn. Code Ann. Section 67-1-1801] responsibility includes not only those liable for sales tax but also businesses or Taxpayers are entitled to an informal individuals subject to use tax – persons conference to discuss an assessment. If importing untaxed tangible personal this request is made in writing within 30 property for storage, use, or other days from the date of the Notice of consumption in the state. Records of Proposed Assessment, the conference will business transactions must be kept for a be granted. If made after 30 days, the minimum of three years from December conference may be granted at the 31 of the year in which the associated Commissioner’s discretion. sales and use tax return was filed [Tenn.
Code Ann. Section 67-6-523] and must If the taxpayer timely requests an include: informal conference, the proposed assessment will become final after the + A daily record of all cash and credit informal conference process concludes. sales including those under a
finance or installment plan. Taxpayers wishing to contest a final + A record of the amount of all assessment without making payment merchandise purchased including have 90 days to file suit in chancery court, bills of lading, invoices, and as provided by statute. Interest will purchase orders. continue to accrue at the prevailing rate + A record of all deductions and until payment is received. A lien may be exemptions allowed or claimed filed against the taxpayer’s property including exemption and resale during this 90-day period. certificates. + A record of all property used or If the taxpayer does not file suit within the consumed in the conduct of the 90 days of the proposed assessment business. becoming final, the taxpayer may pay the + A true and complete yearly final assessment, request a refund, and inventory of the value of stock on then file suit in chancery court if the hand. refund is not paid following the procedures set forth in the law (Tenn. All such records shall be open for Code Ann. Section 67-1-1802). You are not inspection, at all reasonable hours, to the required to request an informal Commissioner of Revenue or authorized conference before contesting a final representatives of the Commissioner. assessment in court. [Tenn. Code Ann. Section 67-6-523]
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Returns And Payments (continued)
If the taxpayer maintains any such records in an electronic format, the taxpayer shall comply with reasonable requests by the Commissioner, or the Commissioner’s authorized agents, to provide those electronic records in a standard record format. Tenn. Code Ann. Section 67-1-113]
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THE TAXPAYER BILL OF RIGHTS
You, as a taxpayer, have certain rights that are protected by state law.
TAXPAYER RIGHTS [Tenn. Code Ann. Section 67-1-110]
Tennessee guarantees that you, the taxpayer, have the right to:
• Receive fair and courteous treatment from all Department of Revenue employees; • Receive tax forms and information written in plain language; • Receive prompt and accurate responses to all questions and requests for tax assistance; • Request public records; • Be assured that the Department will keep confidential the financial information you give it; • Know the Department’s policies with respect to use and retention of personally identifiable information; • Receive tax notices that provide an explanation of the amount being billed; • Receive a clear set of rules and procedures to resolve tax problems that arise from the interpretation and administration of Tennessee’s tax laws; • Dispute any proposed assessment by filing a timely request for an information conference; • Know that the Department’s employees are not paid or promoted as a result of money billed to or collected from taxpayers; • Suggest ideas about how the Department of Revenue can better serve you; • Prompt notification by the Department of any refund to which you are entitled; • Attend annual meetings held by the Department of Revenue in convenient locations to voice your suggestions; • A 10-day notice before a levy on assets is enforced; • A 30-day notice before seized assets are liquidated; • A speedy, informal, and inexpensive review of a proposed assessment in an informal conference with an impartial representative of the Department and to be represented by an attorney, certified public accountant, or other representative; and • Any other rights the Commissioner of Revenue deems necessary and appropriate.
TAXPAYER RIGHT TO A CONFERENCE [Tenn. Code Ann. Section 67-1-1801]
Taxpayers are entitled to an informal conference to discuss a proposed assessment. If this request is made in writing within 30 days from the date of the Notice of Proposed Assessment, the conference will be granted. If it is made beyond the 30 days, the conference may be granted within the discretion of the Commissioner.
Requests for conferences may be sent to: Administrative Hearing Office Tennessee Department of Revenue 500 Deaderick Street, Suite 11.451 Nashville, TN 37242 Phone (615) 741-3810 Fax (615) 741-6463 [email protected]
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If you request an informal conference in a timely manner, the proposed assessment will become final after the informal conference process concludes. If the Commissioner does not allow an adjustment, the proposed assessment will become final as of the date of the Commissioner’s written decision. If the Commissioner allows an adjustment, a written determination will be issued stating the amount of tax due, and that amount will be the final assessment.
If you do not request an informal conference, or if you make an untimely request for an informal conference, that proposed assessment will automatically become a final assessment on the 31st day after the date of the notice of proposed assessment. If you cancel your timely informal conference, the proposed assessment will become a final assessment on the date you notify the Department in writing of the cancellation or on the 31st day after the date of the notice of proposed assessment, whichever is later.
If you wish to contest an assessment without making payment, you have 90 days to file suit in chancery court, either in Davidson County or in the Tennessee county where you reside or principally conduct your business. Interest will continue to accrue at the prevailing rate until payment is received. A lien may be filed against your property during this 90-day period.
If you do not file suit without 90 days of the assessment becoming final, you may pay the final assessment, request a refund, and then file suit in chancery court if the refund is not paid, following the procedures set forth in the law (See Tenn. Code Ann. Section 67-1-1802). You are not required to request an informal conference before contesting a final assessment in court.
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