2010 Legislative Summaries

Classification of Gasoline and Diesel Fuel

Public Chapter 1134, Section 43, clarifies for business tax purposes that gasoline and diesel fuel sold at wholesale is taxable under the rate applicable for Classification 1(B). Under prior law, this type of business was listed under two different classifications, 1(A) and 1(B).

Effective date: June 30, 2010.

Captive REIT

Public Chapter 1134, Sections 5-18, repeals the dividend paid deduction taken by captive real estate investment trusts (REIT) for franchise and excise tax purposes. Also, the public chapter requires combined filing by captive REIT affiliated groups.

Effective date: July 1, 2010, and applies to tax years ending on or after July 1, 2010.

Reasonable Rent

Public Chapter 1134, Section 19, clarifies that tangible personal property is not subject to the “reasonable rent” provisions for franchise and excise tax purposes.

Effective date: June 30, 2010.

Individual as an Affiliate

Public Chapter 1134, Section 20, clarifies that the term “affiliate,” for franchise and excise tax purposes, can include an individual who owns, directly or indirectly, more than a 50% interest in the taxpayer. One business entity is also an affiliate of another business entity if an individual owns, directly or indirectly, more than a 50% interest in both business entities. Indirect ownership by an individual includes ownership by any family member of the individual.

Effective date: June 30, 2010.

Tax Credits in Lieu of Payments

Public Chapter 1134, Section 52, authorizes the establishment of a program for the development of facilities using a state funding mechanism under which the value of tax credits may be applied, in lieu of payments, toward the purchase or lease of such facilities by the taxpayer.

Effective date: June 30, 2010.

Small Business Opportunity Fund

Public Chapter 1134, Section 34, expands the 10% franchise and excise tax credit allowed to financial institutions that contribute to the Tennessee rural opportunity fund to include contributions made to the Tennessee small business opportunity fund.

Effective date: June 30, 2010.

TNInvestco

Public Chapter 1134, Sections 35-36, provides a franchise and excise tax exemption for any qualified TNInvestco that has received an allocation of investment tax credits and continues to participate in the program established by the Tennessee Small Business Investment Company Credit Act.

Effective date: June 30, 2010.

Clean Energy Technology

Public Chapter 1134, Sections 38-41, allows machinery and equipment for the production of electricity using clean energy technology to be treated the same as pollution control equipment for sales tax, franchise and excise tax and property tax purposes. Clean energy technology means technology used to generate energy from geothermal, hydrogen, solar, and wind sources.

Effective date: June 30, 2010.

Brownfield Tax Credit

Public Chapter 1134, Section 65, allows a franchise and excise tax credit equal to 50% or 75%, depending on the amount of capital investment ($25,000,000 or $200,000,000, respectively), of the purchase price of Brownfield property purchased in Tennessee for the purpose of a qualified development project. The public chapter caps the total value of credits authorized at $10,000,000 per year and allows the credit to be used for development projects using non-prime agricultural properties in any year in which credits remain available. "Brownfield property" is defined as real property that is the subject of an investigation or remediation as a Brownfield project under a voluntary agreement or consent order pursuant to Tenn. Code Ann. Section 68-212-224.

Effective date: June 30, 2010.

Job Tax Credit and Headquarters Facility Relocation Expense Credit

Public Chapter 1134, Sections 27-28, authorizes the Commissioner of Revenue to lower the wage and investment criteria contained in the additional annual job tax credit authorized by Tenn. Code Ann. Section 67-4-2109(b)(2)(B) and the headquarters facility relocation expense credit authorized by Tenn. Code Ann. Section 67-4-2109(h) if the qualifying jobs are created within a central business district or an economic recovery zone. In addition, the public chapter authorizes the Commissioner of Revenue to allow a relocation expense credit to any scrap metal processing facility that relocates from a central business district.

Effective date: June 30, 2010.

Airlines

Public Chapter 1134, Section 29, authorizes any airline company that has established a qualified headquarters facility in this state to convert any available and unused job tax credit into a refundable credit discounted to net present value using the interest rate in effect pursuant to Tenn. Code Ann. Section 67-1-801 if the Commissioner of Revenue and the Commissioner of Economic and Community Development determine that the election is in the best interests of the state.

Effective date: June 30, 2010.

Insurance Companies

Public Chapter 1134, Section 30, extends the refundable headquarters facilities relocation expense credit to any insurance company that is a qualified headquarters facility for sales and use tax purposes.

Effective date: June 30, 2010.

Integrated Customer

Public Chapter 1134, Section 37, allows an integrated customer to qualify for the additional annual job tax credit authorized by Tenn. Code Ann. Section 67-4-2109(b)(2)(B)(iii). An integrated customer is a customer located within the project site of a company making a required capital investment in excess of $1 billion.

Effective date: June 30, 2010.

Enhancement County

Public Chapter 1134, Section 56, broadens the current law authorizing job tax credits by repealing the requirement under Tenn. Code Ann. Section 67-4-2109 that a qualified business enterprise be in an enhancement county in order to receive the credit if the business promotes high-skill, high-wage jobs in high-technology areas, emerging occupations or skilled manufacturing jobs.

Effective date: June 30, 2010.

Qualified Production Company Credit

Public Chapter 1134, Sections 31-32, repeals the July 1, 2012, sunset provision applicable to the franchise and excise tax movie and episodic television production credit.

Effective date: June 30, 2010.

Qualified Medical Trade Center: Key Tenant

Public Chapter 1134, Sections 24-25, provides a refundable franchise and excise tax credit to a key tenant of a qualified medical trade center equal to the amount of relocation expenses incurred by the key tenant. The credit cannot exceed $10 for each square foot of space leased and occupied within the facility. To the extent that any amount allowed as a credit to a key tenant for any tax year exceeds the key tenant’s combined franchise and excise tax after application of all available credits, the amount of such excess shall be considered an overpayment and refunded to the key tenant. Top Qualified Medical Trade Center: Advertising Expenses Credits Public Chapter 1134, Section 26, provides a refundable franchise and excise tax credit for qualified advertising expenses incurred by an entity for the purpose of co-promoting a qualified medical trade center and the state of Tennessee or the city of Nashville. A credit of 15% of any qualified advertising expenses shall be allowed against the combined franchise and excise tax liability of any taxpayer that incurs and pays qualified advertising expenses. To the extent that any amount allowed as a credit to the taxpayer for any tax year exceeds the taxpayer’s combined franchise and excise tax after application of all available credits, the amount of such excess shall be considered an overpayment and refunded to the taxpayer.

Effective date: June 30, 2010.

Ignition Interlock Fee

Public Chapter 921 establishes an ignition interlock fee of $40 to be assessed for each violation of Tenn. Code Ann. Section 55-10-401 (driving under the influence) occurring on or after July 1, 2010, that results in a conviction.

Effective date: Section 9 (imposing the fee) takes effect July 1, 2010.

Drug Testing Fee

Public Chapter 1004 increases the drug testing fee imposed by Tenn. Code Ann. Section 39-17-420 from $100 to $250. This fee is assessed upon a conviction of or upon the granting of pretrial diversion under Tenn. Code Ann. Section 40-15-105 or judicial diversion under Tenn. Code Ann. Section 40-35-313 for a violation of any part of the Tennessee Drug Control Act, compiled in title 39, chapter 17, part 4 and title 53, chapter 11, parts 3 and 4.

Effective date: July 1, 2010.

Cash Bond Forfeiture Fee

Public Chapter 1019 establishes a fee of $13.75 under Tenn. Code Ann. Section 38-6-103 upon the forfeiture of a cash bond or other surety entered as a result of a municipal traffic citation pursuant to Tenn. Code Ann. Section 40-11-118(c).

Effective date: July 1, 2010.

Blood Alcohol and Drug Concentration Fee

Public Chapter 1020 increases the blood alcohol or drug concentration test (BADT) fee from $100 to $250 imposed by Tenn. Code Ann. Section 55-10-419. This fee is assessed upon a conviction for a violation of Tenn. Code Ann. Sections 39-13-106, 39-13-213(a)(2), 39-13-218, 39-17-418, 55-10-205, or 55-10-401 for each offender who has taken a breath alcohol test on an evidential breath testing unit provided, maintained, and administered by a law enforcement agency for the purpose of determining the breath alcohol content or has submitted to a chemical test to determine the alcohol or drug content of the blood or urine.

Effective date: July 1, 2010.

Prepaid Wireless Emergency Telephone Service

Effective July 1, 2011, Public Chapter 774 amends the emergency telephone service charge law. Under current law, the Emergency Communications Board for a particular district may levy a service charge not to exceed 65 cents per month for residence classification users and two dollars per month for business classification users for the privilege of accessing the 911 emergency telephone service. The law also provides that a flat statewide rate, not to exceed the business classification rate, be imposed upon prepaid customers - those who pay for the service prospectively. Public Chapter 774 amends current law by providing that a flat statewide rate of 53 cents be imposed upon every retail sale of “prepaid wireless telecommunications service.” Public Chapter 774 also provides that if the emergency telephone service charge as determined under current law is increased or reduced, the 53 cent charge shall be increased or reduced in proportion to such change. “Prepaid wireless telecommunications service” is defined as “a wireless telecommunications service that allows a caller to dial 911 to access the 911 system, which service must be paid for in advance and is sold in predetermined units or dollars of which the number declines with use in a known amount.”

Public Chapter 774 provides that the prepaid wireless emergency telephone service charge shall be collected by the seller with respect to each retail transaction occurring in this state. The retail transaction occurs in this state if: (1) the transaction is effected in person by a consumer at the seller’s business location in this state; or (2) the consumer otherwise enters into a contract for the purchase of prepaid wireless emergency telephone service in this state.

The seller of prepaid wireless emergency telephone service will be required to collect the emergency telephone service charge from the consumer with respect to each retail transaction and to remit the funds to the Department of Revenue in the same manner as the sales and use tax. The Department of Revenue shall then, within 30 days of receipt and after deducting two percent of the collected charges as an administrative fee, remit the funds to the Emergency Communications Board. The audit and appeal procedures generally applicable to other types of taxes will be applicable to the emergency telephone service charge.

Effective date: July 1, 2011. 

Inheritance Tax

Public Chapter 657 allows the court to modify the terms of a will in order to reach the testator’s tax objectives.

Effective date: July 1, 2010.

Estate Tax

Public Chapter 1134, Section 48, repeals an obsolete provision in the estate tax concerning interest due in connection with a refund. Interest paid on refund claims is governed by general statutes applicable to all taxes administered by the Department of Revenue.

Effective date: June 30, 2010.

Hall Income Tax

Public Chapter 1134, Sections 46-47, repeals an obsolete provision in the Hall income tax (Tenn. Code Ann. Section 67-2-106) that requires corporations to give the Department of Revenue a list of all shareholders to whom dividends are paid.

Effective date: June 30, 2010.

Recordation Tax

Public Chapter 1134, Section 60, provides that funding from the recordation tax for the state lands acquisition fund, wetland acquisition fund, local parks land acquisition fund, and agricultural resources conservation fund shall be subject to the annual appropriations act for the next two fiscal years. The public chapter reinstates automatic funding beginning on July 1, 2012.

Effective date: June 30, 2010.

Beer Barrelage Tax

Public Chapter 1134, Section 61, allows a credit for beer barrelage tax paid on beer that was destroyed in the warehouse by the May 2010 flood and was never sold.

Effective date: June 30, 2010.

Beer Barrelage and Bottled Soft Drink Tax

Public Chapter 616 extends until June 30, 2016, or until June 30 of any year following the enactment of any state or federal law imposing mandatory deposits by consumers on beverage containers sold in Tennessee, the existing temporary tax on: (1) barrels of beer, as imposed by Tennessee Code Ann. Section 57-5-201(a)(2); and (2) bottled soft drinks, as imposed by Tenn. Code Ann. Section 67-4-402(b)(1).

Effective date: June 1, 2010, and shall apply to all tax returns filed on or after June 1, 2010.

Cigarette Tax

For the fiscal year beginning July 1, 2010, Public Chapter 1134, Section 64, decreases the statutory floor imposed on the annual allocation from the revenue generated by the 2007 increase of the cigarette tax to the Tennessee agriculture enhancement program from $16,300,000 to $10,000,000.

Effective date: June 30, 2010.

Top Greenbelt Law

Public Chapter 928 amends Tenn. Code Ann. Section 67-5-1008, commonly known as the “Greenbelt Law,” to provide that the value of the property as determined under this law shall not be deemed determinative of fair market value for any purpose other than the administration of property taxes.

Effective date: July 1, 2010.

Tennessee Small Business Investment Company Credit Act (TNInvestco Act)

Public Chapter 1142 includes several amendments to the TNInvestco Act:

• Authorizes the Commissioner of Revenue and the Commissioner of Economic and Community Development to allocate additional investment tax credits in the total amount of $80,000,000. The tax credits are to be allocated in equal amounts to the four TNInvestcos that were chosen as finalists but did not originally receive an allocation of tax credits during the selection phase of the program.
• Requires the Department of Economic and Community Development to make available specified information on its web site and also to provide specified information upon request to the Comptroller of the Treasury and the State Treasurer.
• Requires any qualified TNInvestco that has received an allocation of tax credits to maintain a web site that provides biographical and professional backgrounds of each member of the executive management team and each member of the governing body of the TNInvestco.
• Requires each qualified TNInvestco to establish a procedure for choosing a successor should any key person die, become legally incapacitated, or cease to be involved in the management of the TNInvestco for more than 90 consecutive days.
• The Commissioner of Economic and Community Development, in consultation with the Commissioner of Revenue and the state treasurer, or any other appropriate professional advisors, is required to conduct an annual review of each qualified TNInvestco, at the conclusion of each fiscal year, to determine whether the investment strategy used by the TNInvestco is in substantial compliance with the TNInvestco’s scorecard.
• Requires that all qualified TNInvestcos, and the qualified businesses in which they invest, strive to maximize the participation of minority-owned businesses and woman-owned businesses to reflect the racial, ethnic and gender diversity of Tennessee’s population.
• The Department of Economic and Community Development must promote awareness of the TNInvestco program among minority-owned businesses and woman-owned businesses.
• Each TNInvestco must provide information on its website concerning the program and the availability of capital to businesses including minority-owned businesses and woman-owned businesses.

Effective date: June 30, 2010, and shall apply to any entity certified as a TNInvestco, and to tax credits awarded, on or after July 9, 2009.

G&T Cooperatives

Public Chapter 1035 amends the Electric G&T Cooperative Act to require each person, including each governmental and cooperatively organized person, engaged in the business of making covered wholesale sales of electric current to a municipality, electric cooperative, or other customer to remit to the state a payment in lieu of tax of 5% of the Tennessee apportioned gross receipts of the person making covered wholesale sales of electric current. The purpose of the payment in lieu of tax is to make whole the state and local governments from any diminution of in lieu of tax payments that would have been made by TVA if not for sales made instead by an electric G&T cooperative. The required in lieu of tax payments do not apply to any wholesale sale of electric current to or by the TVA or to any power property held by or attributed to the TVA.

Effective date: June 11, 2010.

Tobacco Master Settlement Agreement

Public Chapter 707 authorizes the attorney general to disclose to cigarette manufacturers information provided by licensed agents concerning the number of cigarettes or roll-your-own units from that manufacturer for which the licensed agent affixed stamps or otherwise paid the tax due, so long as the manufacturer agrees to sign a confidentiality agreement.

Effective date: June 1, 2010.

Flood Relief

Public Chapter 1114 authorizes a refund of sales tax paid on eligible items purchased between May 1, 2010 and September 30, 2010 to any natural person receiving disaster assistance through the Federal Emergency Management Agency (FEMA) as a result of a disaster occurring between May 1, 2010 and May 8, 2010. A claimant must submit a refund application and receipts for qualifying purchases to the Department of Revenue prior to November 30, 2010. Only one refund claim is allowed per claimant. Eligible items are: major appliances, residential furniture, and residential building supplies as defined by the statute. An otherwise eligible person is also entitled to a refund for sales tax paid by a contractor to a dealer on an eligible item that the contractor installs on behalf of that person if the contractor itemizes the charge for the item and the sales tax upon a receipt.

Effective Date: June 29, 2010

Sale for Resale

Public Chapter 1134, Section 1, amends the current definition of “sale for resale” (Tenn. Code Ann. Section 67-6-102) to clarify that a service provider cannot purchase items on a resale certificate when those items are used by the taxpayer in providing its service. Property used in the business of selling services includes, but is not limited to, property that is regularly furnished to purchasers of the service without separate charge. However, the public chapter specifically allows the following property to be purchased with a resale certificate, regardless of whether a separately stated charge is subsequently made for the property:

Repair parts or other property sold to a dealer if such property is subsequently conveyed to a customer in conjunction with the dealer’s performance of repair services;
Installation parts or other property sold to a dealer if such property is subsequently transferred to the customer in conjunction with the installation of property that remains tangible personal property following such installation;
Mobile telephones and similar devices sold to a dealer if such property is subsequently transferred to the customer in conjunction with the sale of commercial mobile radio services (CMRS); and
Food or beverages sold to a hotel, motel, inn or other dealer that provides lodging accommodations if such food or beverages are subsequently transferred to the customer in conjunction with the dealer's sale of lodging accommodations to the customer.

Public Chapter 1134, Section 1, also clarifies that a dealer of tangible personal property or computer software is the end user and consumer of services used in the business of selling, leasing, or renting tangible personal property and cannot buy those services on a resale certificate. Services used in the business of selling, leasing, or renting include, but are not limited to, cleaning, maintaining, or repairing property that is held as inventory for sale, lease, or rental.

Effective date: July 1, 2010.

Convention Centers

Public Chapter 1134, Section 42, authorizes the allocation of sales tax revenue to retire the debt on a convention center if the revenue is generated by sales at a hotel that undertakes a significant capital improvement program in connection with the construction of the convention center and is located within the footprint of the convention center.

Effective date: June 30, 2010.

Disaster Restoration

Public Chapter 1134, Section 54, creates a sales and use tax credit equal to the amount of state sales tax paid on building materials, equipment, furniture, fixtures, and other tangible personal property used in a disaster restoration project involving a minimum investment of $50,000,000.

Effective date: July 1, 2010 and applies to business plans filed on or after July 1, 2010.

Zoos and Aquariums

Public Chapter 1134, Section 57, allocates a portion of the state sales tax revenue generated from the sale of tangible personal property or amusements on the premises of a non-profit zoo or aquarium to such zoo or aquarium for the exclusive purpose of the operation and capital projects of the zoo or aquarium.

Effective date: June 30, 2010.

Clean Energy Technology

Public Chapter 1134, Sections 38-41, allows machinery and equipment for the production of electricity using clean energy technology to be treated the same as pollution control equipment for sales tax, franchise and excise tax and property tax purposes. Clean energy technology means technology used to generate energy from geothermal, hydrogen, solar, and wind sources.

Effective date: June 30, 2010.

Warehouse or Distribution Facilities

Public Chapter 1134, Section 33, expands the sales and use tax exemption for material handling equipment and racking systems to include the expansion of an existing warehouse or distribution facility in this state through an investment in excess of $20,000,000.

Effective date: July 1, 2010 and applies to business plans filed on or after July 1, 2010.

Commercial Development Zone

Public Chapter 1033 authorizes the designation by an eligible county of an area in which a private mixed use development will be located as a commercial development zone. Public Chapter 1033 also authorizes the allocation of state sales tax revenues derived from sales within the commercial development zone to the eligible counties in which the commercial development zone is located for the purpose of retiring debt associated with the financing of the development or public improvements associated with the development. To be eligible, at least 25% of the county must consist of federally-owned land, at least 30.6% of the county’s population that is 18 years or younger must live in poverty, and the Federal Highway Administration must have approved an interstate exit in close proximity to the area proposed for a commercial development zone based on the need to stimulate local economic development opportunities. The Commissioner of Revenue, with approval by the Commissioner of Economic and Community Development, must determine that the special allocation of sales tax is in the best interests of the state. In addition, the county legislative body must adopt a resolution designating a commercial development zone for mixed-use development by June 30, 2011.

Effective date: June 11, 2010.

Offset

Public Chapter 1113 requires a taxpayer filing a claim for refund of $200.00 or more to submit a Report of Debts form, indicating all debts owed to state agencies and departments. Public Chapter 1113 authorizes the Department of Revenue to offset the amount approved for refund by the amount of debts reported and also authorizes the Department of Revenue to assess a taxpayer who fails to report a debt upon notification by the claimant agency or department.

Effective date: June 28, 2010 and shall apply to any claim for refund filed with the Department of Revenue on or after July 1, 2009, that has not been finally determined.

Secretary of State

Current law requires certain legal entities to submit documentation issued by the Department of Revenue concerning the entities' tax obligations to the Secretary of State when changing the entities' legal status. Public Chapter 741 amends current law by requiring all entities that register with the Secretary of State to submit such documentation. The public chapter also clarifies when a confirmation of good standing or tax clearance must be filed.

Effective date: July 1, 2010.

Omnibus License Plate

Public Chapter 1151 authorizes nineteen new specialty license plates and extends the time to meet the minimum order requirements an additional year for six specialty license plates. The bill also authorizes widows/widowers of qualified recipients to purchase additional purple heart specialty plates; authorizes owners of motorcycles to receive the International Association of Firefighters specialty plate; authorizes a civilian veteran of the United States army corps of engineers to receive the honorably discharged veteran specialty plate; authorizes human resource agencies, development districts, and community action agencies to receive governmental service plates for vans used for agency activities; authorizes vertical motorcycle plates; reallocates the funds from the sale of the Trout Unlimited specialty plate; authorizes state guard members to receive a state guard motorcycle specialty plate; requires the department, once the current inventory is depleted, to redesign the temporary plates to display distinctive alpha-numerical characters; authorizes a surviving spouse of a military member to be issued a military specialty plate until the surviving spouse remarries.

Effective date: July 5, 2010.

Abandoned Vehicles

Public Chapter 984 changes the time period within which to give notification to title owners and lienholders of abandoned vehicles from fifteen days of receipt of the abandoned vehicle to three days after receiving verification of ownership.

Effective date: May 31, 2010.

Golf Carts

Public Chapter 628 amends the definition of “golf cart” and establishes a year-long pilot program that allows certain municipalities to adopt an ordinance that would allow golf carts to be driven on certain public roadways.

Effective date: July 1, 2010.

Effective January 1, 2005, the Tennessee General Assembly enacted an excise tax on the possession of unauthorized substances for the purpose of generating revenues to assist state and local law enforcement agencies in their efforts to combat drug crimes. In July of 2009, the Tennessee Supreme Court found the tax to be unconstitutional because the tax did not fall within the legislature's taxing power as a tax on merchants, peddlers, or privileges, as authorized by the Constitution of Tennessee. Public Chapter 962 revises the statute in response to this decision.

Public Chapter 962 specifies that the bill is not a criminal statute but is a civil taxing measure contributing to the general revenue fund and a civil remedial measure designed to mitigate against the enormous costs of law enforcement related to drug control for state and local government.

Public Chapter 962 makes the tax applicable to “merchants” instead of “dealers” and defines “merchants” as a merchant or peddler within the scope of Article II, Section 28 of the Constitution of Tennessee. The term includes any person who sells, barters, trades, or distributes to another for consideration any unauthorized substances in a quantity sufficient to create a principal tax liability of at least $10,000. Any person who possesses, at a particular time, any unauthorized substances in a quantity sufficient to create a principal tax liability of at least $10,000 is presumed to be a merchant. This presumption may be rebutted only by clear and convincing evidence that such person did not sell, barter, trade, or distribute for consideration such substances or intend to do so.

Public Chapter 962 removes the provision whereby a claim for a refund must be filed within six months of the date the tax was paid. Claims for refund of unauthorized substances tax must now be filed within three years of December 31 of the year in which the tax payment was made as provided in Tenn. Code Ann. Section 67-1-1802.

Effective date: July 1, 2010.