2015 Legislative Summaries
Confidentiality Statute
Public Chapter 273 makes updates to the confidentiality statute related to disclosure of returns and tax information when a third-party vendor is used to procure software.
Effective: April 28, 2015
Confidentiality of Bank Account Information
Public Chapter 50 requires any bank account information that is received, compiled or maintained by a state governmental agency, to be kept confidential, and members of the public will not be able to inspect bank account information as an open record.
Effective: March 27, 2015
Municipal Finance Officer Certification Act
Public Chapter 208 requires the Department to comply with instructions from the Comptroller of the Treasury to withhold up to 15 percent of annual sales tax revenue allocated to municipalities found to be in violation of the Title 6, Ch. 56, Part 4.
Effective: April 20, 2015
Revises the Border Region Retail Tourism Development District Act
Public Chapter 405 permits municipalities to report the cost of an economic development project within 30 days of the end of each fiscal year, and it clarifies that municipalities may disclose the amount of a payment made to a private party, even if the payment is derived from sales and use taxes collected from a single parcel of property.
Effective: May 8, 2015
Beer Manufacturer's Ability to Operate as a Retailer
Public Chapter 176 deletes Tenn. Code Ann. § 57-5-101(c)(3), making applicable statewide, instead of in certain areas only, the authority for a beer manufacturer to operate as a retailer at the manufacturer's location or a site contiguous thereto.
Effective: April 16, 2015
Manufacturer’s Ability to Purchase Alcoholic Beverages
Public Chapter 269 allows manufacturers to buy alcoholic beverages under TENN. CODE ANN. § 57-3-602(a) and requires a person to have a nonresident seller's permit if selling or distributing any alcoholic beverages to a licensed manufacturer.
Effective: April 24, 2015
Wine Samples and Certain Wine Sold in Sealed Containers
Public Chapter 270 clarifies that samples of wine are not subject to the privilege tax levied on the sale of alcoholic beverages under Tenn. Code Ann. § 57-4-301(c) for on premise consumption at the winery or on the farm winery producer's premises other than the bonded areas, and clarifies that wine sold in sealed containers for consumption at the winery or on the farm winery producer's premises is not subject to such tax. The law clarifies that it is applicable to any sales made on or after May 24, 2014.
Effective: April 24, 2015
Revenue Modernization Act - Economic Nexus Standard
Public Chapter 514 modernizes the franchise and excise and business taxes. Out-of-state businesses not already subject to Tennessee taxes will be subject to franchise and excise and business taxes to the fullest extent allowed by the Constitution. Such nexus includes, but is not limited to, a bright-line test for presence in the state as follows:
Receipts: > $ 500,000 or 25% of total receipts from sales in TN
Property: > $ 50,000 or 25% of total property by value in TN
Payroll: > $ 50,000 or 25% of compensation paid in TN
The law also repeals from the excise tax statutes an application process that certain taxpayers formerly followed before they could deduct intangible expenses paid to an affiliate company. This process will no longer be necessary when the economic nexus provisions of the bill become effective.
Effective: For tax years beginning on and after January 1, 2016
Revenue Modernization Act - Economic Nexus Standard
Public Chapter 514 modernizes the franchise and excise and business taxes. Out-of-state businesses not already subject to Tennessee taxes will be subject to franchise and excise and business taxes to the fullest extent allowed by the Constitution. Such nexus includes, but is not limited to, a bright-line test for presence in the state as follows:
Receipts: > $ 500,000 or 25% of total receipts from sales in TN
Property: > $ 50,000 or 25% of total property by value in TN
Payroll: > $ 50,000 or 25% of compensation paid in TN
The law also repeals from the excise tax statutes an application process that certain taxpayers formerly followed before they could deduct intangible expenses paid to an affiliate company. This process will no longer be necessary when the economic nexus provisions of the bill become effective.
Effective: For tax years beginning on and after January 1, 2016
Revenue Modernization Act – Market-based Sourcing
Public Chapter 514 adopts market-based sourcing for sourcing sales other than sales of tangible personal property. The law also adopts a specific sourcing rule for certain taxpayers engaged in the telecommunications business.
Effective: For tax years beginning on and after July 1, 2016
Revenue Modernization Act – Triple-weighted Sales Factor
Public Chapter 514 changes the state apportionment formula by triple-weighting the sales factor.
Effective: For tax years beginning on and after July 1, 2016
Revenue Modernization Act – Distribution Incentive
Public Chapter 514 implements a special elective apportionment rule for taxpayers who sell very large volumes of product to regional distribution centers. This elective apportionment only applies to taxpayers who sell more than one billion dollars of product to Tennessee distributors and source more than 10 percent of all sales to Tennessee. If the election is made, specified sales to distribution centers will be excluded from the F&E sales factor and subject to a special excise tax.
Effective: For tax years beginning on and after January 1, 2016
Schedule of REIT Distributions
Public Chapter 273 removes the requirement that certain partnerships provide a schedule of public REIT distributions when filing the franchise and excise tax (“F&E”) return.
Effective: April 28, 2015
“Community Resurgence Job Tax Credit Act of 2015”
Public Chapter 521 establishes a community resurgence job tax credit equal to $2,500 for qualifying jobs created by new or existing businesses located in a high-poverty area. “High poverty area” is defined as a census tract with a total population poverty level in excess of 30 percent. This credit shall apply to the business’ franchise and excise tax liability.
Effective: July 1, 2015
Excise Tax Exemption - Low-income Community Historic Structures
Public Chapter 449 establishes a franchise and excise tax exemption for certain interests in qualified low-income community historic structures. “Qualified low-income community historic structure” is defined as a certified historic structure located in a low-income community, with respect to which more than $100,000,000 of qualified rehabilitation expenditures are incurred after January 1, 2015.
Effective: Tax periods ending on or after July 1, 2015.
Identifying Revenue Growth Estimates as Recurring or Nonrecurring
Public Chapter 92 requires the Department to include in its estimates of franchise and excise tax revenue growth a description of whether the growth is recurring or nonrecurring. These estimates are presented to the State Funding Board, who in turn presents its findings to the Governor and the Chairs of the Finance, Ways and Means Committees of the Senate and House of Representatives.
Effective: April 9, 2015
Tax Incentives
Public Chapter 504 revises varying tax credits by: adding equipment used for research and development to the definition of industrial machinery; adding back-office operations (accounting, legal, IT, etc.) to the list of qualified business enterprises for franchise and excise tax job tax credit purposes; eliminating several rarely or never used credits; and requiring the Department of Economic and Community Development to periodically review franchise and excise and sales tax incentives and report to the General Assembly.
Effective: July 1, 2015
Hall Income Tax Exemptions
Public Chapter 434 increases, for tax years beginning January 1, 2015, and thereafter, the maximum allowable income exemption levels for Hall income taxpayers 65 years of age or older. These income levels will change to $37,000 for single filers and to $68,000 for people filing jointly.
Effective: May 18, 2015 and applies to tax years beginning on and after January 1, 2015
Minimum Mark-up of Cigarettes by the Retailer
Public Chapter 347 raises the “cost of doing business by the retailer” (minimum mark-up amount) from 8 percent to 15 percent of the basic cost of cigarettes. It provides for a three year, phased increase between July1, 2015 and July 1, 2017:
July 1, 2015 – June 30, 2016: 11 percent
July 1, 2016 – June 30, 2017: 13 percent
July 1, 2017 and thereafter: 15 percent
Effective: July 1, 2015
“Tire Environmental Act”
Public Chapter 525 establishes a tire environmental fee on the purchase of a new motor vehicle to be titled and registered in Tennessee. The fees collected by the seller shall be remitted to the Department of Revenue and credited to the tire environmental fund. These fees will be exempt from sales and use tax and business tax liability.
$5.00 for a motor vehicle with four or fewer wheels.
$10.00 for a motor vehicle with more than four but fewer than 11 wheels.
$15.00 for a motor vehicle with 11 or more wheels.
Effective: October 1, 2015
Lump Sum Partial Payment of Litigation Taxes
Public Chapter 257 allows a court clerk to accept a lump-sum partial payment in full settlement of the outstanding balance due on a case. The settlement must be equal to or greater than 50 percent of the combined outstanding balance of all fines, costs, and litigation taxes due on the case. Such a settlement may only be reached after fines, costs, or litigation taxes have been in default for at least five years.
Effective: July 1, 2015
Incentives and Co-employment Relationships
Public Chapter 84 gives the Departments of Revenue and Economic and Community Development the discretion to decide whether the professional employer organization (PEO) or the client-business receives credit for a job for purposes of administering tax credits and other economic development incentives.
Effective: July 1, 2015.
Streamlined Sales Tax Effective Date
Public Chapter 273 delays, from July 1, 2015 to July 1, 2017, the effective date of statutory changes that would bring Tennessee into further compliance with the Streamlined Sales and Use Tax Agreement.
Effective: April 28, 2015
Taxability of Warranty Contracts
Public Chapter 273 provides clear guidance on the taxability of warranty and service contracts for sales tax purposes. It specifies that warranty or service contracts covering the repair and maintenance of tangible personal property is subject to tax in Tennessee when:
The warranty or service contract is sold as part of, or in connection with, the sale of tangible personal property that is subject to sales tax, or
The warranty or service contract applies to tangible personal property located in Tennessee.
The warranty or service contract is for tangible personal property where the location of the property is unknown, and the purchaser has a Tennessee address.
If a warranty or service contract applies to tangible personal property located both inside and outside of Tennessee, dealers or users may allocate to Tennessee a percentage of the sales price or purchase price of the warranty or service contract that equals the percentage of tangible personal property located inside the state.
Effective: October 1, 2015
Retail Accountability Program
Public Chapter 342 makes updates to the Department’s Retail Accountability Program. It authorizes the Commissioner to require wholesalers to report the sales of an expanded range of products. The public chapter also allows the Department to receive data from credit card payment processing companies and cigarette manufacturers, which can be used to verify the correct reporting of sales for tax purposes.
Effective: May 4, 2015
Diabetic Testing Supplies Exemption
Public Chapter 274 exempts diabetic testing supplies from sales and use tax. Such supplies include lancets, test strips for blood glucose monitors, visual read test strips, and urine test strips.
Effective: July 1, 2015
Cap on Sales Tax on Aviation Fuel
Public Chapter 462 limits the total amount of the 4.5% sales and use tax imposed and remitted on any one person’s purchase, use, consumption, or storage of aviation fuel to the following amounts:
For the period from July 1, 2015 to June 30, 2016: $21,375,000;
For the period from July 1, 2016 to June 30, 2017: $17,750,000;
For the period from July 1, 2017 to June 30, 2018: $14,125,000;
For the period from July 1, 2018 to June 30, 2019: $10,500,000.
Effective: May 18, 2015
Revenue Modernization Act – Remote Accessed Software and Video Games
Public Chapter 514 amends the sales and use tax statute to tax software and video games consistently, regardless of the delivery method. As a result, software and video games accessed remotely are subject to sales and use tax effective July 1, 2015.
Effective: July 1, 2015
Revenue Modernization Act – Sales and Use Tax Nexus
Public Chapter 514 creates a rebuttable presumption that out-of-state dealers have nexus and must collect sales and use tax from Tennessee customers if the dealer pays an in-state party a fee or commission to route customers to the dealer, and such dealer derives more than $10,000 over the past 12 months from the referred customers.
Effective: July 1, 2015
Sales Tax Exemption – Time Frame for Removal of Airplanes and Helicopters
Public Chapter 48, for purposes of sales tax exemptions, extends from 15 to 30 days the period of time within which a helicopter, airplane, or related equipment that a non-resident purchases must be removed outside of Tennessee.
Effective: January 1, 2016
Sales Tax Exemption for Community Foundation Auctions
Public Chapter 52 states that, for sales and use tax purposes, “business” does not include community foundation sales made during biannual auctions. Such sales must take place during no more than two auctions, lasting up to 24 hours, in any calendar year in each county.
Effective: July 1, 2015
Sales Tax Exemption for Water Pollution and Sewage Machinery
Public Chapter 81 clarifies a sales and use tax exemption for machinery used by water and wastewater treatment authorities, created by private act or pursuant to the Water and Wastewater Treatment Authority Act, for use in water pollution control or sewage systems.
Effective: July 1, 2015
Sales Tax Exemption for Co-Generation Equipment
Public Chapter 420 clarifies a sales and use tax exemption for certain co-generation equipment that a qualified manufacturing facility purchases or leases, and that is used for generating, producing, and distributing utility service directly to the qualified manufacturing facility. Such facilities must be located in a non-attainment area and make a minimum capital investment exceeding $30 million.
Effective: July 1, 2015
Sales Tax Exemption for Sale or Repair of Large Airplanes
Public Chapter 506 exempts from sales and use tax the sale, use, storage, or consumption of parts, components, software, systems, accessories, materials, equipment and supplies that are sold to or sold by an authorized large aircraft service facility or affiliate. The public chapter also exempts certain repair and refurbishment service labor performed by an authorized large aircraft service facility. These exemptions do not apply to fuel and other petroleum products or to shop equipment and tools.
An “authorized large aircraft service facility” means a repair station located within this state that is engaged in repair and refurbishment services of large aircraft mainframes, large aircraft engine equipment, and large aircraft accessories under a valid air agency certificate issued by the Federal Aviation Administration in accordance with 14 CFR Part 145 of the federal aviation regulations, with an authorized class rating of Air Frame Class IV, and organization designation authority, or similar, or successor certificate, rating, and authority as the Federal Aviation Administration may provide for from time to time.
Effective: July 1, 2015
Sales and Use Tax on Major Procurement Contracts
Public Chapter 515 requires a state governmental entity to include in any major procurement contract with a vendor a provision that says the vendor and the vendor’s subcontractors must collect and remit sales and use taxes on sales of goods or services made by the vendor or subcontractors.
“Major procurement contract” is defined as any good or service costing more than $75,000.
“State governmental entity” means a state agency, department, board, or commission, or a public corporation or quasi-public instrumentality that performs essential public functions entrusted to it by the state.
Effective: July 1, 2015
Research and Development Equipment
Public Chapter 504 creates a new sales and use tax exemption for machinery and equipment that is necessary to and primarily for the purpose of research and development. The exemption extends to all associated parts and appurtenances to the machinery and equipment, repair parts and labor, and installation labor for the machinery and equipment.
Special Investigations Unit
Public Chapter 294 clarifies the law enforcement powers of the Department’s Special Investigations unit as it relates to motor vehicle title, registration, and anti-theft provisions in the law.
Effective: April 24, 2015
Grace Period for Vehicle Registration
Public Chapter 294 grants new Tennessee residents a 30-day grace period in which to meet motor vehicle registration requirements.
Effective: April 24, 2015
Titling Fees
Public Chapter 294 changes the fee for the notation of a lien from $5.50 to $11.00. This will cover the cost of both noting the lien and subsequently discharging it.
Effective: July 1, 2015
Special License Plates Omnibus Bill
Public Chapter 383 authorizes the following new special license plates (subject to minimum order requirements):
- 2014 College World Series Champions - Vanderbilt University
- Alzheimer’s Association
- Combat Action Badge
- Combat Infantry Badge
- Combat Medical Badge
- Cystic Fibrosis Awareness
- Donate Life
- Friends of Sycamore Shoals Historic Area, Inc.
- Germantown Charity Horseshow
- Historic Collierville
- Make-A-Wish Foundation
- Multiple Sclerosis Foundation Inc.
- Music City Inc. Foundation
- Rotary International
- Scenic and Historic Gallatin
- Soulsville, U.S.A.
- Supporters of the Blind and Visually Impaired
- Tennessee Association of Realtors (Motorcycle)
- Vanderbilt University Athletic Department
- Wingz of Love
The public chapter also extends the time for meeting the minimum order requirement to July 1, 2016, for the following plates:
- Native American Indian Association
- Niswonger Children’s Hospital
- Tennessee Tech University
Effective: May 8, 2015
James Lee Atwood Jr. Law – Uninsured Motorists
Public Chapter 511 requires the Department to develop and implement an online electronic motor vehicle insurance verification program. The program must be installed and fully operational by January 1, 2017. The public chapter authorizes a system by which uninsured motorists will be fined or penalized for driving uninsured.
Effective: Fully functional online verification program effective January 1, 2017
Regulation of Motor Vehicle Dismantlers and Recyclers
Public Chapter 466 requires motor vehicle dismantlers and scrap metal processors purchasing motor vehicles for parts, dismantling, or scrap to obtain proof of ownership from the seller in the form a properly endorsed vehicle title. The bill also requires the dismantler or processor to pay a biennial fee of $500 to the Tennessee Motor Vehicle Commission beginning July 1, 2015, until June 30, 2017.
Effective: Fee provision effective July 1, 2015; all other provisions effective July 1, 2016.