Tennessee State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Tennessee, with full citations and the original source on every page.
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When several financial institutions jointly fund a loan to refinance affordable housing in Tennessee, which of them can claim the franchise & excise community investment tax credit, and how is it divided?
It depends on the loan structure. The 'community investment tax credit' (Tenn. Code Ann. § 67-4-2109(h)) lets a financial institution offset its Tennessee franchise & excise tax when it makes a qualif…
How does Tennessee's excise tax treat a company's federal Subpart F income from foreign subsidiaries — is it a dividend, and when can the company deduct it?
Two answers. (1) YES — for Tennessee excise tax, a company's 'Subpart F income' (the foreign-subsidiary earnings the federal tax code makes a U.S. parent report currently) is treated as a DIVIDEND, co…
If a public REIT owns Tennessee rental-property LLCs and limited partnerships through a partnership, and those entities are disregarded for federal tax, can they deduct from Tennessee excise tax the earnings the partnership distributes up to the REIT?
Yes. The single-owner LLCs and limited partnerships (the 'Taxpayers') qualify for Tennessee's excise-tax deduction under § 67-4-2006(a)(5)(A) for net earnings the partnership distributes — directly or…
A company invested heavily in software it built to deliver its own services and created new jobs. Does that investment make it a 'computer services' business eligible for Tennessee's franchise and excise job tax credit?
No — building software to run your own business isn't a 'computer services' enterprise, so it doesn't earn the job tax credit. Tennessee's franchise & excise job tax credit ($4,500 per qualified job) …
A single-member LLC owned by a partnership has no Tennessee activity and just does securitization. Does it qualify for Tennessee's franchise and excise exemption for partnerships and trusts?
Yes — a disregarded SMLLC owned by a partnership is treated as a partnership for this exemption. Tennessee exempts certain asset-backed securitization entities from franchise & excise (F&E) tax if the…
A corporate group makes a consolidated net worth election for Tennessee franchise tax, and some affiliates are exempt from the tax. Are the exempt affiliates still included in the group, and do their assets count?
Include them in the group, but leave their numbers out. The taxpayer heads a corporate group making a consolidated net worth election for Tennessee franchise tax (§ 67-4-2103(d)), and some lower-tier …
An out-of-state for-hire trucking company drives through Tennessee and sometimes picks up or delivers there. When does it owe Tennessee franchise and excise tax?
It depends on what the trucks actually DO in Tennessee, not just that they drive through. An over-the-road, for-hire trucking company based in another state — with no Tennessee office, property, or em…
A governmental pension trust that is exempt from federal income tax owns a single-member LLC that operates in Tennessee. Is that LLC disregarded for Tennessee franchise and excise tax, and is the exempt trust taxed on the LLC's earnings?
Yes, the LLC is disregarded — but the exempt owner can still owe tax on unrelated-business income. A governmental pension trust (exempt from federal income tax under I.R.C. § 501(a)) is the sole membe…
A financial institution files a combined Tennessee franchise and excise return with its unitary affiliates, and some of those affiliates are tax-exempt securitization trusts. Does it still include the exempt trusts in the group, and do their income, net worth, and receipts count?
Include them in the group, but leave their numbers out. The taxpayer is a savings association that files a combined Tennessee franchise & excise (F&E) return with its unitary financial-institution aff…
A Tennessee corporation will convert several subsidiaries that do business in Tennessee into single-member LLCs disregarded for federal income tax, effective December 31, 2016. How do those conversions affect its Tennessee franchise and excise tax returns and consolidated net-worth election?
It depends on the tax year. For the tax year ending December 31, 2016 (the reorganization is effective that day), the corporation and each converting entity are still SEPARATE entities, so they file S…
An Irish private limited company that owns property in Tennessee will elect to be a disregarded entity for U.S. federal income tax. Will it still be a separate taxpayer for Tennessee franchise and excise tax, or can it be disregarded?
It will be a separate taxpayer — it cannot be disregarded for Tennessee franchise and excise (F&E) tax. Tennessee follows federal entity classification, but with one key exception: a federally disrega…
An S corporation's shareholders are selling their stock and making a federal § 338(h)(10) election (treating the stock sale as an asset sale), with part of the price paid as a later earn-out. Is that gain — including the earn-out — counted in the company's Tennessee excise-tax net earnings?
Yes. When an S corporation's owners sell their stock and make a federal I.R.C. § 338(h)(10) election (which treats the stock sale as a deemed sale of the company's assets), the gain the S corporation …
In a stack of affiliated REITs and LLCs, which entities are 'captive REITs,' which are 'public REITs,' and who has to add back the dividends-paid deduction and file a combined Tennessee franchise and excise tax return?
It depends on each entity's ownership and how its shares trade. A REIT is a 'captive REIT' if it has a federal REIT election, is at least 80% owned (directly or indirectly) by one entity or individual…
A company's stock was bought in a deal where the parties made a federal § 338(h)(10) election, so the company was 'deemed' to acquire its own manufacturing assets. Can it claim Tennessee's franchise & excise industrial-machinery credit on those assets?
No. A company whose stock was bought in a deal where the buyer and seller jointly made a federal I.R.C. § 338(h)(10) election cannot claim Tennessee's franchise & excise industrial-machinery credit on…
A tiered multinational group with corporations, LLCs, and disregarded single-member LLCs wants to compute its Tennessee franchise-tax net worth on a consolidated basis. Which entities are disregarded, who is in the affiliated group, and how are foreign holdings and disregarded SMLLCs treated in consolidated net worth?
Three answers. (1) The group's single-member LLCs that are disregarded for federal income tax and owned by a corporation (here, LLCs taxed as corporations) are ALSO disregarded for Tennessee franchise…
A buyer and seller will make a federal I.R.C. § 338(h)(10) election treating a stock sale as a deemed asset sale, after the target pre-distributes assets to the seller in a tax-free liquidation. How do the resulting federal gains (and non-gains) flow into net earnings for Tennessee excise tax?
Tennessee excise-tax 'net earnings' start from federal taxable income, so the federal election's results flow straight through. (1) The gain the target recognizes on the deemed asset sale under the fe…
How does Tennessee's franchise & excise job tax credit apply to a company expanding its Tennessee headquarters — what investment and job thresholds apply, how much is the credit per job, and which jobs count?
Yes, with conditions — and the size of the credit depends on whether the company also hits the bigger 'additional annual credit' targets. A company expanding its qualified Tennessee headquarters facil…
Can a REIT's federally disregarded subsidiary take the REIT dividends-paid deduction — or the public-REIT exclusion or exemption — when figuring its Tennessee excise tax?
No to both. This advisory ruling addresses subsidiaries of real estate investment trusts (REITs) that run sale-leaseback financing and own Tennessee real estate. Each is DISREGARDED for federal income…
When a Tennessee manufacturer drop-ships goods for an affiliated buyer, which sales count toward its Tennessee franchise & excise tax — does title passing in Tennessee control, or the final delivery destination?
It depends entirely on where the goods are ultimately delivered — not on where title passes or who the buyer is. This Tennessee manufacturer sells products to an affiliated sales company ('SalesCo') t…
An IC-DISC exporter's shareholder-officers take their pay as dividends rather than salary, as the federal rules require. Can the company deduct those dividends from its Tennessee excise-tax net earnings?
No. Dividends an Interest Charge Domestic International Sales Corporation (IC-DISC) pays to its shareholders — even when those dividends stand in for the shareholders' compensation, as the federal IC-…
When a company sells its trade accounts receivable to an affiliated company at a discount to maintain loan collateral, is that discount an 'intangible expense' that has to be added back when calculating Tennessee franchise and excise tax — and pre-approved to be deducted again?
No — the discount isn't an 'intangible expense' at all, so the affiliate add-back rule doesn't apply to it. The Department ruled that when a company sells its trade accounts receivable (arising from o…
If an out-of-state company only licenses patents to an affiliate, and the affiliate's downstream sales eventually reach Tennessee, does the patent licensor owe Tennessee franchise and excise tax?
No — the patent licensor isn't subject to Tennessee franchise and excise tax under these facts. The Department ruled that Company A, which licenses patents to an affiliate (Company B) that arranges ma…
If a chain of disregarded single-member LLCs is ultimately owned by a tax-exempt governmental pension plan, is the bottom-tier LLC subject to Tennessee franchise and excise tax?
It's a not-for-profit, generally exempt — but not completely. The Department ruled that an LLC at the bottom of a chain of single-member LLCs, all disregarded for federal income tax purposes up to a t…
If a company generates a Tennessee job tax credit through a disregarded single-member LLC and then sells that LLC, can the parent company still use the leftover credit carryforward on its own future tax returns?
Yes. The Department ruled that a corporation may continue using a Tennessee job tax credit carryforward on its own franchise and excise tax returns even after selling the single-member LLC whose busin…
If a Tennessee LLC taxed as a partnership makes a federal IRC Section 754 election, do the resulting basis step-ups under Sections 743(b) and 734(b) also affect the LLC's Tennessee excise tax net earnings?
It depends on which kind of Section 754 basis adjustment is involved. An IRC Section 743(b) adjustment (triggered when a member's interest is SOLD) only steps up the PURCHASING MEMBER's own personal/i…
When a corporate group emerges from Chapter 11 bankruptcy with discharged debt, does Tennessee follow the federal rules that exclude cancellation-of-debt income but also shrink the group's net operating losses, basis, and loss carryforwards after an ownership change?
Tennessee's excise tax excludes discharge-of-indebtedness income from net earnings the same way federal law does (Tenn. Code Ann. § 67-4-2006(b)(1) doesn't require adding it back), but Tennessee does …
Is an LLC that's wholly owned by an individual's IRA (through a custodian) exempt from Tennessee franchise and excise tax as a family-owned entity, if its only income is residential rent?
Yes, conditionally. An LLC wholly owned (through a custodial IRA) by one individual qualifies as a "family-owned noncorporate entity" exempt from Tennessee franchise and excise tax under Tenn. Code An…
Can a Tennessee series LLC with dozens of individual series file one combined franchise and excise tax return, or does every series have to file its own separate return?
No, a single combined return isn't allowed. Each individual series of the series LLC -- potentially up to thirty of them -- must file its OWN separate Tennessee franchise and excise tax return, and so…
If a Tennessee limited partnership keeps doing business after the fixed termination date in its partnership certificate, does it become subject to franchise and excise tax as a general partnership, or does it stay exempt?
Once a Tennessee limited partnership formed before 1988 (still governed by the old Uniform Limited Partnership Act) passes the fixed termination date stated in its certificate, it automatically dissol…
When a company expands its Tennessee headquarters with more than $10 million invested and 100+ new high-wage headquarters jobs, can it claim the enhanced $5,000-per-job tax credit, what jobs count, and how much of its franchise and excise tax can it wipe out?
Yes -- a headquarters expansion that invests more than $10 million and creates at least 100 qualified jobs that are 'headquarters staff employees' paying at least 150% of Tennessee's average occupatio…
When a qualified data center expands with new capital investment and new jobs, how does Tennessee's franchise and excise job tax credit treat positions temporarily filled by contract employees, multi-facility job counts, and prior-round jobs that shouldn't double-count?
An 8-part ruling on Tennessee's franchise and excise (F&E) job tax credit (Tenn. Code Ann. Section 67-4-2109(b)) as applied to a major data center expansion. Key holdings: the company qualifies for bo…
When a qualified data center makes a large new capital investment in Tennessee, what counts toward the 'required capital investment' for the enhanced industrial machinery franchise and excise tax credit, does custom software qualify, and how much of the company's F&E tax bill can the credit offset?
A 5-part ruling on Tennessee's enhanced industrial machinery franchise and excise (F&E) tax credit (Tenn. Code Ann. Section 67-4-2009(4)(I)), which scales from 3% to 10% of qualifying purchase price d…
What does a film or TV production company have to do -- in terms of headquarters status, spending thresholds, and documentation -- to claim Tennessee's 15% production incentive credit, and does the $1 million spending threshold apply once or to every production?
A 7-part ruling walking through the full eligibility framework. The Department confirmed the Taxpayer qualifies as a Tennessee 'headquarters facility' for purposes of the 15% movie/episodic-TV product…
What does a company have to show to qualify as a 'bona fide Tennessee advertising agency' so that a film or TV production company's payments to it count toward Tennessee's 15% movie/TV production tax incentive?
Yes, the venture qualifies — and the Department laid out the test for any similar agency. Payments by a qualified film/TV production company to a Tennessee advertising agency count as 'qualified expen…
Does an out-of-state limited partnership qualify as an exempt "family-owned" entity for Tennessee franchise and excise tax when a father's ownership only reaches the partnership indirectly, through a trust and a tiered second partnership?
No, the partnership does NOT qualify as an exempt family-owned entity. Tennessee's family-owned exemption requires that at least 95% of the entity's OWNERSHIP UNITS be held DIRECTLY by qualifying fami…
When a parent company's foreign-possessions subsidiary uses the federal Profit Split Method to allocate income from intangibles, how do the parent's resulting receipts get sourced in Tennessee's excise tax apportionment formula?
The Taxpayer's Profit Split Method income splits into two separately-sourced pieces for Tennessee's excise tax receipts factor. The half of the subsidiary's product-sales income assigned to the Taxpay…
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These are official tax letter rulings and advisory opinions issued by Tennessee's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.