Do computer hardware, software, and telecommunications systems installed during a corporate headquarters relocation/expansion count toward Tennessee's $50 million qualified headquarters facility sales and use tax credit?

Subject

Whether computer hardware, software, and telecommunications equipment qualify for the headquarters facility sales and use tax credit.

Plain-English summary

The Tennessee Department of Revenue ruled that computer hardware, software, and telecommunications systems installed during a corporate headquarters relocation count as "qualified tangible personal property" for purposes of Tennessee's qualified headquarters facility sales and use tax credit -- even though the statute never mentions computers or software by name.

The Taxpayer, a company relocating its global headquarters to Tennessee, had already received the headquarters credit once (in 2001) for its original facility, capped by an investment cutoff date. Its new relocation project -- moving 90+ executive positions and building out executive offices, telecommunications infrastructure, and a "virtual headquarters" computer system -- required a fresh, separate application under Tenn. Code Ann. § 67-6-224, independently satisfying the $50 million minimum investment threshold.

The statute defines "qualified tangible personal property" as building materials, machinery, equipment, furniture, and fixtures used exclusively in the qualified facility during the investment period, but doesn't define "equipment" itself. The Department turned to dictionary definitions (Black's Law Dictionary, Webster's, American Heritage) that describe "equipment" broadly as the articles or physical resources serving to equip a person or business for its operations, and to the Tennessee Supreme Court's similar reading in Tibbals Flooring Co. v. Huddleston. Applying that ordinary meaning, the Department concluded computer hardware, computer software, and telecommunications systems purchased for use in the qualifying facility all count as "equipment" -- and therefore as qualified tangible personal property eligible for the credit -- as long as they're used exclusively in the facility and purchased or leased during the investment period.

What this means for you

Companies building or relocating a Tennessee headquarters

If you're pursuing the § 67-6-224 headquarters facility credit, don't assume it's limited to bricks-and-mortar construction costs. IT infrastructure -- computer hardware, software licenses, and telecom systems installed exclusively in the qualifying facility during your investment period -- counts toward the $50 million minimum investment and generates its own credit, alongside building materials, machinery, furniture, and fixtures. Remember the credit doesn't cover local sales/use tax, land, inventory, supplies, repair parts, or property that replaces previously-credited property.

Accountants and tax professionals

Useful for computing the minimum-investment threshold and preparing the required application, business plan, and claim-for-credit documentation under § 67-6-224(d). Note the credit runs against the 0.5%-reduced state sales/use tax rate only (not the 0.5% earmarked for education, and not local tax), and that a prior credit for an earlier phase of the same physical campus doesn't preclude a new, independently-qualifying investment period for a later expansion or relocation project.

Common questions

Q: Does the headquarters facility credit only cover construction materials?
A: No. "Qualified tangible personal property" also includes machinery, equipment (including computer hardware, software, and telecom systems), furniture, and fixtures used exclusively in the facility.

Q: Can a company get the headquarters credit twice for the same physical campus?
A: Yes, if a later project -- like an expansion or relocation -- independently satisfies the $50 million minimum investment during its own investment period, separate from an earlier approved investment period.

Q: Does the credit reduce local Tennessee sales tax too?
A: No. It applies only to state sales/use tax (except the 0.5% rate that's earmarked for education, which the credit cannot reduce).

Q: What must a company do procedurally to claim this credit?
A: Submit an application and business plan, obtain a Department letter confirming tentative qualification, submit documentation showing the sales/use tax actually paid on qualified property, and obtain the Department's final approval letter before taking the credit.

Q: Does this ruling apply to other companies seeking the headquarters credit?
A: No. A Tennessee letter ruling binds the Department only as to the taxpayer addressed and cannot be relied on by any other taxpayer, though the "equipment" interpretation is broadly instructive.

Citations and references

Statutes:

• Tenn. Code Ann. § 67-6-224 (qualified headquarters facility sales/use tax credit)
• Tenn. Code Ann. § 67-6-224(b)(11) (definition of "qualified tangible personal property")
• Tenn. Code Ann. § 67-6-224(b)(7) (definition of "minimum investment," $50 million or $20 million + 200 new jobs)
• Tenn. Code Ann. § 67-6-224(b)(6) (definition of "investment period," capped at 6 years)
• Tenn. Code Ann. § 67-6-224(b)(1), (3), (4), (5), (9) (definitions of "facility," "headquarters facility," "headquarters related functions," "headquarters staff employees," "qualified headquarters facility")

Cases:

• Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196 (Tenn. 1994) (defining "equipment" as physical resources serving to equip a person)
• Worrall v. Kroger Co., 545 S.W.2d 736 (Tenn. 1977) (statutory construction gives effect to legislative intent)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/06-36.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 06-36

WARNING
Letter rulings are binding on the Department only with respect to the
individual taxpayer being addressed in the ruling. This presentation of the
ruling in a redacted form is informational only. Rulings are made in
response to particular facts presented and are not intended necessarily as
statements of Department policy.

SUBJECT
Whether the materials and equipment installed in [THE TAXPAYER’s] relocated
headquarters during the applicable investment period or otherwise used in the
construction of the headquarters during that period, including computer hardware
and software, constitute “qualified tangible personal property” as defined in Tenn.
Code Ann. § 67-6-224(11).
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to
a specific set of existing facts furnished to the Department by the taxpayer. The
rulings herein are binding upon the Department, and are applicable only to the
individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time.
Such revocation or modification shall be effective retroactively unless the
following conditions are met, in which case the revocation shall be prospective
only:
(A) The taxpayer must not have misstated or omitted
material facts involved in the transaction;
(B) Facts that develop later must not be materially
different from the facts upon which the ruling was
based;
(C) The applicable law must not have been changed
or amended;
(D) The ruling must have been issued originally with
respect to a prospective or proposed transaction; and
(E) The taxpayer directly involved must have acted in
good faith in relying upon the ruling and a retroactive
revocation of the ruling must inure to his detriment.

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FACTS
[THE TAXPAYER] is a [STATE - NOT TENNESSEE] corporation with its global
headquarters in [CITY], Tennessee. [IRREVELENT INFORMATION].
On [DATE], [THE TAXPAYER] announced that it was moving its global
headquarters from [STATE – NOT TENNESSEE] to [CITY], Tennessee. This
move (the “Relocation”) will be [IRREVELENT INFORMATION] the culmination
of a long effort by [THE TAXPAYER] to consolidate its operations in
[TENNESSEE CITY].
The Relocation, will involve the transfer of over 90 executive positions, including
the Chief Executive Officer and all key executives. The average yearly salary of
the positions transferred will be in excess of $125,000. The Relocation will
permit [THE TAXPAYER’s] top management to work on a daily basis with
divisional managers, the majority of whom are already in [TENNESSEE CITY].
This is consistent with [THE TAXPAYER’s] ongoing efforts to streamline its
operations and increase profitability in a highly competitive, mature industry.
To accommodate its divisional headquarters, [THE TAXPAYER] has constructed
a number of headquarters office buildings in [TENNESSEE CITY]. The buildings
constructed include facilities located on a campus at [ADDRESS] and other
locations throughout the [TENNESSEE CITY] Metropolitan Statistical Area
(“MSA”) (collectively, the buildings housing [THE TAXPAYER’s] headquarters
operations are the “Headquarters”).
Modifications to these headquarters
buildings are ongoing and will include construction activity to facilitate the
Relocation. Specifically, a series of executive office suites, communications
facilities and a sophisticated computer system for tracking worldwide operations
will be installed in the Headquarters to allow for the efficient management of the
company’s far-flung international operations.
In connection with the construction of its [ADDRESS] headquarters facilities,
[THE TAXPAYER] applied for Tennessee’s qualified headquarters facility sales
tax credit in 2001. The Tennessee Department of Revenue (the “Department”)
recognized that the company had exceeded the $50,000,000 investment
threshold set out in Tenn. Code Ann. § 67-6-224 and, in a letter from Patsy Clark,
Director of the Department’s Taxpayer Services Division, to [PERSON’S NAME]
in [THE TAXPAYER’s] Tax Department dated [DATE], granted [THE
TAXPAYER’s] application for the credit. In that authorizing letter from the
Department, it was stated that project expansions would require separate
application:
The credit shall apply only to building materials, machinery and equipment
used exclusively in the qualifying facility, purchased or leased between the
investment period of [DATE] through [DATE]. Any subsequent projects

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qualifying under Tenn. Code Ann. § 67-6-224 will require submitting a
separate application and investment plan.
Accordingly, [THE TAXPAYER] received the credit for qualifying state sales tax
paid on materials used in the construction of the Headquarters.
The Relocation involves [THE TAXPAYER’s] global headquarters.
The
renovations and equipment purchases in connection with the Relocation will
occur after the [DATE] cut-off set out by the Department in its [DATE] approval
letter. However, [THE TAXPAYER] intends to make a new investment, in
connection with the Relocation, that will independently satisfy the $50,000,000
investment requirement set out in Tenn. Code Ann. § 67-6-224. Therefore, [THE
TAXPAYER] submits herewith an application and investment plan (“New
Application”). During the investment period related to the New Application (the
“Investment Period”), [THE TAXPAYER] will significantly improve and renovate
the Headquarters, making the following material improvements:
•

Newly renovated executive offices at the [ADDRESS] facility for the
management team relocating from [STATE – NOT TENNESSEE].

•

Newly created telecommunications systems to permit [THE TAXPAYER’s]
headquarters personnel to more effectively communicate through voice
and data with worldwide manufacturing and sales units.

•

A “virtual headquarters” system involving hardware and software that will
permit [THE TAXPAYER] executives worldwide to track sales, inventories,
and customer needs on a real time basis. Once operational, this system
will effectively permit managers temporarily or permanently located
outside [TENNESSEE CITY] to broadly access critical business data
without assistance from Headquarters employees who currently track and
store such information on an array of incompatible systems.

All of these investments, while functionally part of the qualified headquarters
facility designated by the Department in [YEAR], will independently satisfy the
$50,000,000 investment threshold required by the headquarters credit statute in
Tenn. Code Ann. § 67-6-224.
QUESTION PRESENTED
Will the materials and equipment installed in the Headquarters during the
Investment Period or otherwise used in the construction of the Headquarters
during that period, including computer hardware and software, constitute
“qualified tangible personal property” as defined in Tenn. Code Ann. § 67-6224(11)?

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RULING
Yes, provided that all statutory requirements explained in this Letter Ruling are
met.
ANALYSIS
Applicable Statute1
Tenn. Code Ann. § 67-6-224 makes the following provisions for a sales and use
tax qualified headquarters facility credit:
(a) A taxpayer who establishes a qualified headquarters facility in this state
shall be eligible for a credit of all state sales or use taxes paid to the state
of Tennessee, except tax at the rate of one-half percent (0.5%), on the
sales or use of qualified tangible personal property.
(b) For purposes of this section, the following definitions shall apply:
(1) "Facility" means a building or buildings, either newly constructed,
expanded, or remodeled, housing headquarters staff employees and
located in a county, or metropolitan statistical area in this state. A
facility may include parking facilities exclusively for the use of
headquarters staff employees and visitors; provided, that the parking
facilities are built in conjunction with the newly constructed, expanded,
or remodeled building or buildings. An expansion of a headquarters
facility may be connected to or separate from a headquarters facility or
other facilities located in a county or metropolitan statistical area in this
state. The facility must be utilized as a headquarters facility for a period
of at least ten (10) years beginning from the date of substantial
completion;
(2) "Full-time employee job" means a permanent, rather than seasonal or
part-time, employment position, providing employment as a
headquarters staff employee, for at least twelve (12) consecutive
months, to a person for at least thirty-seven and one half (37.5) hours
per week, with minimum health care, as described in title 56, chapter 7,
part 22;
(3) "Headquarters facility" means a facility in this state that houses the
international, national, or regional headquarters of a taxpayer, where
headquarters staff employees are located and employed, and where

1

The language of Tenn. Code Ann. § 67-6-224 set forth in this Letter Ruling includes
amendments contained in §§ 36 and 37 of Chapter 1019 of the Public Acts of 2006 effective
June 27, 2006.

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the primary
performed;

headquarters

related

functions

and

services

are

(4) "Headquarters related functions and services" means those functions
involving administrative, planning, research and development,
marketing, personnel, legal, computer or telecommunications services
performed by headquarters staff employees on an international,
national, or regional basis. For purposes of this subsection (b), regional
means a geographic area comprised of at least Tennessee and one (1)
or more of its contiguous states. "Headquarters related functions and
services" does not include functions involving manufacturing,
processing, warehousing, distribution, wholesaling, or operating a call
center;
(5) "Headquarters staff employees" means executive, administrative, or
professional workers performing headquarters related functions and
services. An executive employee is a full-time employee who is
primarily engaged in the management of all or part of the enterprise.
An administrative employee is a full-time employee who is not primarily
involved in manual work and whose work is directly related to
management policies or general headquarters operations. A
professional employee is an employee whose primary duty is work
requiring knowledge of an advanced type in a field of science or
learning. This knowledge is characterized by a prolonged course of
specialized study;
(6) "Investment period" means that the investment must be made during
the period beginning one (1) year prior to the start of the construction,
expansion, or remodeling and ending one (1) year after substantial
completion of the construction, expansion, or remodeling of the facility.
However, in no event shall the investment period exceed six (6) years;

(7) (A) "Minimum investment" means:
(i) A minimum investment by the taxpayer and lessor to the
taxpayer of fifty million dollars ($50,000,000) or more in a
building or buildings, either newly constructed, expanded, or
remodeled; or
(ii) A minimum investment by the taxpayer and the lessor to the
taxpayer of twenty million dollars ($20,000,000) in a building or
buildings, either newly constructed, expanded, or remodeled,
along with the creation of not fewer than two hundred (200) new
full-time employee jobs created during the investment period,
with average wages or salaries equal to or greater than two
hundred percent (200%) of the average wage in the county or

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the metropolitan statistical area in which the taxpayer is located,
whichever is higher, as reported in the Monthly Labor Report
published by the department of labor and workforce
development for the month of January of the year in which such
full-time employee jobs are created;
(B) The minimum investment may include, but is not limited to, the
purchase price of an existing building, and the cost of building
materials, labor, equipment, furniture, fixtures, parking facilities, and
landscaping, but shall not include land or inventory;
(8) "New full-time employee job" means full-time headquarters staff
employee jobs that are new to the state of Tennessee and, for at least
ninety (90) days prior to being filled by the taxpayer, did not exist in
Tennessee as a job position of the taxpayer or of another business
entity. The new full-time employee jobs must be created and filled
within the investment period. An employee in a new full-time employee
job may be employed at a temporary location in this state, pending
completion of construction or renovation work at the qualified
headquarters facility;
(9) "Qualified headquarters facility" means a headquarters facility where
the taxpayer has made the minimum investment during the investment
period;
(10) "Qualified headquarters facility relocation expenses" means those
expenses that both the commissioner of revenue and the
commissioner of economic and community development determine, in
their sole discretion, are necessary to relocate headquarters staff
employees to a qualified headquarters facility in conjunction with the
initial establishment of such facility in this state; and
(11) "Qualified tangible personal property" means building materials,
machinery, equipment, furniture, and fixtures used exclusively in the
qualified headquarters facility and purchased or leased during the
investment period. Qualified tangible personal property does not
include supplies or repair parts. Qualified tangible personal property
does not include any payments with respect to leases of qualifying
tangible personal property that extend beyond the investment period.
Qualified tangible personal property does not include any materials,
machinery, equipment, furniture or fixtures that replace tangible
personal property that previously generated a credit under this section.
(c) A taxpayer qualifying for this credit must be subject to the taxes imposed
by chapter 4, parts 20 and 21 of this title or be an insurance company as
defined in § 56-1-102(2). The taxpayer shall not be permitted to take

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advantage of any additional sales tax or other state tax credits,
exemptions, or reduced rates that would otherwise be valuable as a result
of the same purchases or minimum investment, except the tax credits
provided under §§ 67-4-2009(1) and (4)(A)(ii) and 67-4-2109(a)-(c). A
taxpayer qualifying for this reduced rate shall also not be permitted to
utilize the credits available to hospital companies under § 67-4-2009.
(d) (1) A taxpayer seeking this credit shall first submit to the commissioner of
revenue an application to qualify as a headquarters facility, together
with a plan describing the investment to be made, and, if applicable,
documentation verifying employment and wage information. In the
case of a leased facility, the lessor shall also file an application and
plan, if any taxes paid by the lessor are to be claimed as part of the
credit provided in subsection (a). The application and plan shall be
submitted on forms prescribed by the commissioner and shall
demonstrate that the requirements of the law will be met.
(2) After approval of the application and business plan, the commissioner
shall issue a letter to the taxpayer stating that the taxpayer has
tentatively met the requirements for the credit provided for in this
section.
(3) In order to receive the credit, the taxpayer must submit a claim for
credit, along with documentation as required by the commissioner
showing that Tennessee sales or use taxes have been paid to the
state on qualified tangible personal property. The taxpayer's claim for
credit of sales or use taxes paid to Tennessee may include such taxes
paid by the taxpayer, lessor, in the case of a leased facility,
contractors, and subcontractors on sales or use of qualified tangible
personal property. Documentation verifying that the minimum
investment requirements have been met shall include, but are not
limited to, employment records, invoices, bills of lading, lease
agreements, contracts, and all other pertinent records and schedules
as required by the commissioner.
(4) The commissioner shall review the claim for credit, and notify the
taxpayer of the approved tax credit amount and provide direction for
taking the credit. The taxpayer may not take the credit until the
commissioner has notified the taxpayer of the amount approved and
provided direction to the taxpayer on the proper methodology for taking
the credit. The credit may only be taken by the taxpayer establishing
the qualified headquarters facility.
(e) If the minimum investment requirements are not made within the
investment period, or the terms of this section are not met, the taxpayer
shall be subject to assessment for any sales or use tax, penalty, or

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interest that would otherwise have been due and for which credit was
taken. The statute of limitations shall not begin to run on these
assessments until December 31 of the final year of the ten-year period
provided for in subdivision (b)(1).
(f)

Credits under this section shall not reduce the taxes earmarked and
allocated to education, pursuant to § 67-6-103(c).

(g) Nothing in this section shall require that the taxpayer establish its
commercial domicile in this state in order to receive the credit.
Application of Statutory Provisions
To obtain the credit provided by Tenn. Code Ann. § 67-6-224, subsection (a)
requires that [THE TAXPAYER] establish a “qualified headquarters facility” in
Tennessee. Tenn. Code Ann. § 67-6-224(b)(9) defines such a facility as one in
which “. . . the taxpayer has made the minimum investment during the investment
period.” In order to do this, [THE TAXPAYER] must satisfy the following
requirements:

1. Construct a “qualified headquarters facility” in Tennessee. A “qualified
   headquarters facility” is defined by Tenn. Code Ann. § 67-6-224(b)(9) to
   mean:
   “Qualified headquarters facility” means a headquarters facility where
   the taxpayer has made the minimum investment during the investment
   period[.]
   Tenn. Code Ann. § 67-6-224(b)(3) defines a “headquarters facility” as
   follows:
   “Headquarters facility” means a facility in this state that houses the
   international, national or regional headquarters of a taxpayer, where
   headquarters staff employees are located and employed, and where
   the primary headquarters related functions and services are
   performed[.]
   “Headquarters related functions and services” are defined by Tenn. Code
   Ann. § 67-6-224(b)(4) as follows:
   "Headquarters related functions and services" means those functions
   involving administrative, planning, research and development,
   marketing, personnel, legal, computer or telecommunications services
   performed by headquarters staff employees on an international,
   national, or regional basis. For purposes of this subsection (b), regional
   means a geographic area comprised of at least Tennessee and one (1)

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or more of its contiguous states. "Headquarters related functions and
services" does not include functions involving manufacturing,
processing, warehousing, distribution, wholesaling, or operating a call
center[.]
Tenn. Code Ann. § 67-6-224(b)(1) defines a “facility,” as the term is used
by Tenn. Code Ann. § 67-6-224(b)(3) and (9), as follows:
"Facility" means a building or buildings, either newly constructed,
expanded, or remodeled, housing headquarters staff employees and
located in a county, or metropolitan statistical area in this state. A
facility may include parking facilities exclusively for the use of
headquarters staff employees and visitors; provided, that the parking
facilities are built in conjunction with the newly constructed, expanded,
or remodeled building or buildings. An expansion of a headquarters
facility may be connected to or separate from a headquarters facility or
other facilities located in a county or metropolitan statistical area in this
state. The facility must be utilized as a headquarters facility for a period
of at least ten (10) years beginning from the date of substantial
completion[.]
“Headquarters staff employees” are defined by Tenn. Code Ann. § 67-6224((b)(5) as follows:
“Headquarters staff employees” means executive, administrative, or
professional workers performing headquarters related functions and
services. An executive employee is a full-time employee who is
primarily engaged in the management of all or part of the enterprise.
An administrative employee is a full-time employee who is not primarily
involved in manual work and whose work is directly related to
management policies or general headquarters operations. A
professional employee is an employee whose primary duty is work
requiring knowledge of an advanced type in a field of science or
learning. This knowledge is characterized by a prolonged course of
specialized study[.]
Under the facts presented, it appears that [THE TAXPAYER] will meet the
statutory requirements applicable to constructing a qualified headquarters facility
in Tennessee. In accordance with the requirements of Tenn. Code Ann. § 67-6224(b)(3), the buildings constructed or renovated by [THE TAXPAYER] will
house the international headquarters and will be located in a MSA in Tennessee
as is required by Tenn. Code Ann. § 67-6-224(b)(1). The employees located in
such buildings will meet the definition of “headquarters staff employees” set forth
in Tenn. Code Ann. § 67-6-224(b)(5) and will perform “headquarters related
functions” such as those described in Tenn. Code Ann. § 67-6-224(b)(4). And,
as required by Tenn. Code Ann. § 67-6-224(b)(9) and further explained in item

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#2 below, [THE TAXPAYER] will make the minimum investment of $50,000,000
in its qualified headquarters facility.
Tenn. Code Ann. § 67-6-224(b)(7)(A) requires the buildings in which the
minimum investment is made to be “. . . newly constructed, expanded, or
remodeled[.]” BLACK’S LAW DICTIONARY 1164 (5th ed. 1979) defines the
word “remodel,” among other things, to mean “. . . reconstruct, to reform,
reshape, . . . to make over in a somewhat different way.” WEBSTER’S NINTH
NEW COLLEGIATE DICTIONARY 996 (9th ed. 1991) defines the word “remodel”
to mean “. . . alter the structure of. . .” or to “remake.” The word “construction” is
defined by BLACK’S LAW DICTIONARY 332 (8th ed. 2004) to mean “[t]he act of
building or arranging parts or elements; the thing built.” “Construct” is defined by
WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY 281 (9th ed. 1991) to
mean “to make or form by combining or arranging parts or elements: build . . ..”
WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY 436 (9th ed. 1991)
defines “expanded” to mean “extended” and “expand” is defined as to “enlarge.”
These definitions make it clear that, for purposes of the headquarters credit, a
building that is constructed, renovated or expanded or that is altered structurally
or aesthetically through the addition of paint, carpet, partitions, lighting or other
similar improvements will be considered “remodeled,” as the term is used in the
statute, and that such improvements were intended by the legislature to qualify
for the minimum investment described in Tenn. Code Ann. § 67-6-224(b)(7)(A)(i)
for purposes of obtaining the state sales and use tax headquarters credit.
The applicable statutes cited above do not limit a “qualified headquarters facility”
to a single location. Thus, such a facility may involve locations separate from
[THE TAXPAYER’s] main headquarters campus as long as all other applicable
requirements of Tenn. Code Ann. § 67-6-224 are met.

2. Make the “minimum investment.” Tenn. Code Ann. § 67-6-224(b)(7)(A)(i)
   defines such an investment as follows:
   (i) A minimum investment by the taxpayer and lessor to the taxpayer
   of fifty million dollars ($50,000,000) or more in a building or
   buildings, either newly constructed, expanded, or remodeled[.]
   Tenn. Code Ann. § 67-6-224(b)(7)(A)(ii) describes an alternative minimum
   investment of a lesser amount with additional requirements. This alternative
   minimum investment is inapplicable to [THE TAXPAYER] because [THE
   TAXPAYER] plans to meet the $50,000,000 threshold and the other
   requirements described in Tenn. Code Ann. § 67-6-224(b)(7)(A)(i) for purposes
   of obtaining the state sales and use tax headquarters credit.
   The statutory provisions regarding the types of property that qualify for the
   minimum investment are rather broad. However there are limitations. Tenn.

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Code Ann. § 67-6-224(b)(7)(B) states that the minimum investment “. . . shall not
include land or inventory.” Tenn. Code Ann. § 67-6-224(b)(11) states that
qualified tangible personal property does not include “. . . supplies or repair parts
. . . payments with respect to leases [of tangible personal property] that extend
beyond the investment period . . . [or] materials, machinery, or equipment that
replaces tangible personal property that previously generated a [sales or use tax
qualified headquarters facility] credit . . ..”
The statute does not specifically use the terms “computer hardware,” “computer
software” and “telecommunications systems” when referring to the minimum
investment required by Tenn. Code Ann. § 67-6-224(b)(7). Tenn. Code Ann. §
67-6-224(b)(7)(A)(i) states that the $50,000,000 “minimum investment” includes
“. . . a building or buildings, either newly constructed, expanded or remodeled . .
..” Tenn. Code Ann. § 67-6-224(b)(7)(B) states that the minimum investment “. . .
may include, but is not limited to, . . . the cost of . . . equipment and Tenn. Code
Ann. § 67-6-224(b)(11) states that “qualified tangible personal property” includes
“. . . building materials, machinery, equipment, furniture, and fixtures used
exclusively in the qualified headquarters facility and purchased or leased during
the investment period[.]” However, none of the terms used in the statutes, such
as “remodeled” and “machinery and equipment” are defined.
The most basic rule of statutory construction is to ascertain and give effect to the
intention and purpose of the legislature. Worrall v. Kroger Co., 545 S.W.2d 736
(Tenn. 1977). Legislative intent or purpose is to be ascertained primarily from
the natural and ordinary meaning of the language used, without forced or subtle
construction that would limit or extend the meaning of the language. National
Gas Distributors, Inc. v. State, 804 S.W.2d 66 (Tenn. 1991). In seeking to
determine the “natural and ordinary meaning” of statutory language, the usual
and accepted source for such information is a dictionary. State v. Givens, Slip
op. 1994 WL406187 (Tenn.Crim.App. Aug. 4, 1994).
As previously mentioned in #1 above, BLACK’S LAW DICTIONARY 1164 (5th ed.
1979) defines the word “remodel,” among other things, to mean “. . . reconstruct,
to reform, reshape, . . . to make over in a somewhat different way.” WEBSTER’S
NINTH NEW COLLEGIATE DICTIONARY 996 (9th ed. 1991) defines the word
“remodel” to mean “. . . alter the structure of. . .” or to “remake.” The word
“construction” is defined by BLACK’S LAW DICTIONARY 332 (8th ed. 2004) to
mean “[t]he act of building or arranging parts or elements; the thing built.”
“Construct” is defined by WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY
281 (9th ed. 1991) to mean “to make or form by combining or arranging parts or
elements: build . . ..” WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY
436 (9th ed. 1991) defines “expanded” to mean “extended” and “expand” is
defined as to “enlarge.”
Applying these definitions, it appears that the construction, renovation, expansion
or remodeling of a building, which clearly qualifies for the minimum investment

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under Tenn. Code Ann. § 67-6-224(b)(7)(A)(i) would, for purposes of the
headquarters credit, include a building that is constructed, renovated or
expanded or that is altered structurally or aesthetically through the addition of
paint, carpet, partitions, lighting or other similar improvements will be considered
“remodeled” and that such improvements were intended by the legislature to
qualify for the $50,000,000 minimum investment for purposes of obtaining the
state sales and use tax headquarters credit..”
BLACK’S LAW DICTIONARY 578 (8th ed. 2004) defines “equipment” to mean
“[t]he articles or implements used for a specific purpose or activity (esp. a
business operation).” WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY
421 (9th ed. 1991) defines “equipment” to mean “. . . the set of articles or physical
resources serving to equip a person or thing. . ..” THE AMERICAN HERITAGE
DICTIONARY 462 (2nd ed. 1982) defines “equipment” as “[s]omething with which
a person, organization, or thing is equipped.” In Tibbals Flooring Company v.
Huddleston, 891 S.W.2d 196 at 199 (Tenn. 1994), the Tennessee Supreme
Court, citing Tibbals Flooring Company v. Olsen, 698 S.W.2d 60 (Tenn. 1985),
states that “equipment” is “. . . the physical resources serving to equip a person .
. . .”
Applying these definitions, it appears that “equipment”, qualifying for the required
minimum investment under Tenn. Code Ann. § 67-6-224(b)(7)(B), would include
computer hardware, computer software and telecommunications systems when
purchased for use in the qualified headquarters facility of a business enterprise.
The facts presented show that [THE TAXPAYER] plans to make the minimum
investment in a qualified headquarters facility as required by applicable statutes.
Although [THE TAXPAYER] satisfied this requirement when it first qualified for
the headquarters credit in [YEAR], its new investment in building construction,
expansion, remodeling and renovations, and in telecommunications equipment,
compute hardware and computer software in connection with its Relocation will
independently satisfy the $50,000,000 minimum investment requirement set forth
in Tenn. Code Ann. § 67-6-224.

3. Make the minimum investment within the “investment period.” Tenn. Code
   Ann. § 67-6-224(b)(6) defines such a period as follows:
   "Investment period" means that the investment must be made during
   the period beginning one (1) year prior to the start of the construction,
   expansion, or remodeling and ending one (1) year after substantial
   completion of the construction, expansion, or remodeling of the facility.
   However, in no event shall the investment period exceed six (6)
   years[.]
   [THE TAXPAYER’s] investment period will begin one year prior to the start of the
   construction, expansion, or remodeling described in the facts presented and in

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the New Application and will end one year after substantial completion of such
construction, expansion, or remodeling of the facility. However, the investment
period cannot exceed six (6) years[.] In order to qualify for the credit, [THE
TAXPAYER] will need to make its new investment of at least $50,000,000
described in the facts presented and in the New Application during this period.
From the facts presented, it appears that [THE TAXPAYER] intends to do this.
In almost all situations, the first step in beginning a substantial construction,
expansion or remodeling project will be the engagement of architectural and/or
engineering services. A construction, expansion or remodeling project involving
an investment in excess of $50,000,000 cannot take place without such services
and would certainly require the architects and/or engineers engaged to do
substantial design work. It follows that [THE TAXPAYER’s] “investment period,”
as the term is defined in Tenn. Code Ann. § 67-6-224(b)(6), will start one year
prior to the engagement of architectural and/or engineering services for the new
project described in the facts presented.
The construction, expansion,
renovation or remodeling of its Headquarters buildings will include design work
done by the architects and/or engineers engaged in connection with the new
project.
In most situations, the “substantial completion” of a construction, expansion,
renovation or remodeling project involving an investment in excess of
$50,000,000 will be evidenced by the issuance of a certificate of occupancy.
However, in some situations a certificate of occupancy may be issued for the
completed part of a Headquarters building that still has a build-out portion to be
completed. The Headquarters buildings and the qualified headquarters facility
are not substantially completed until substantial completion of the remaining
build-out portion of a Headquarters building. Although the delayed build-out of
any portion of any building that is part of the Headquarters buildings will extend
the investment period, as previously mentioned, in no case can an investment
period exceed the 6 year limitation set forth in Tenn. Code Ann. § 67-6-224(b)(6).

4. Submit an application and business plan as required by Tenn. Code Ann.
   67-6-224(d)(1) and (2) which make the following provisions:
5. A taxpayer seeking this credit shall first submit to the commissioner
   of revenue an application to qualify as a headquarters facility,
   together with a plan describing the investment to be made, and, if
   applicable, documentation verifying employment and wage
   information. In the case of a leased facility, the lessor shall also file
   an application and plan, if any taxes paid by the lessor are to be
   claimed as part of the credit provided in subsection (a). The
   application and plan shall be submitted on forms prescribed by the
   commissioner and shall demonstrate that the requirements of the
   law will be met.

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(2) After approval of the application and business plan, the
commissioner shall issue a letter to the taxpayer stating that the
taxpayer has tentatively met the requirements for the credit
provided for in this section.
[THE TAXPAYER] has met this requirement by submitting the New Application
with their request for this Letter Ruling. After approval of the application and
business plan, Tenn. Code Ann. § 67-6-224(d)(3) and (4), set forth below, will
require [THE TAXPAYER] to take two additional steps in order to actually receive
the credit:
(3) In order to receive the credit, the taxpayer must submit a claim for
credit, along with documentation as required by the commissioner
showing that Tennessee sales or use taxes have been paid to the
state on qualified tangible personal property. The taxpayer's claim
for credit of sales or use taxes paid to Tennessee may include such
taxes paid by the taxpayer, lessor, in the case of a leased facility,
contractors, and subcontractors on sales or use of qualified tangible
personal property. Documentation verifying that the minimum
investment requirements have been met shall include, but are not
limited to, employment records, invoices, bills of lading, lease
agreements, contracts, and all other pertinent records and
schedules as required by the commissioner.
(4) The commissioner shall review the claim for credit, and notify the
taxpayer of the approved tax credit amount and provide direction
for taking the credit. The taxpayer may not take the credit until the
commissioner has notified the taxpayer of the amount approved
and provided direction to the taxpayer on the proper methodology
for taking the credit. The credit may only be taken by the taxpayer
establishing the qualified headquarters facility.
The requirements of Tenn. Code Ann. § 67-6-224(d)(1) through (4) may be
summarized as follows:

1. On forms prescribed by the Commissioner of Revenue, [THE TAXPAYER]
   must submit for approval an Application to Qualify as a Headquarters
   Facility.
2. On forms prescribed by the Commissioner of Revenue, [THE TAXPAYER]
   must submit for approval a Business Plan describing the investment to be
   made along with documentation verifying employment information.
3. [THE TAXPAYER] must obtain a letter from the Commissioner of Revenue
   stating that it has tentatively met the requirements for the headquarters
   credit.

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4. [THE TAXPAYER] must submit a claim for the headquarters credit along
with documentation required by the Commissioner to show that
Tennessee sales or use taxes have been paid on the qualified tangible
personal property purchased in connection with its Relocation.

5. [THE TAXPAYER] must obtain a letter from the Commissioner of Revenue
   stating the amount of headquarters credit approved and providing
   direction for taking the credit.
   Once the above requirements are met, the only restrictions contained in Tenn.
   Code Ann. § 67-6-224(d) are that the credit can be taken only by the taxpayer
   establishing the qualified headquarters facility and the credit cannot reduce the
   taxes earmarked and allocated to education pursuant to Tenn. Code Ann. § 67-6103(c). Tenn. Code Ann. § 67-6-224(a)(1) states that “[a] taxpayer who
   establishes a qualified headquarters facility in this state shall be eligible for a
   credit of all state sales or use taxes paid to the state of Tennessee, except tax at
   the rate of one-half percent (0.05%), on the sales or use of qualified tangible
   personal property.” The credit does not apply to local Tennessee sales and use
   taxes.
   Sales and use tax qualified headquarters credits earned by [THE TAXPAYER] for
   building materials, machinery, equipment, furniture and fixtures meeting the
   definition of “qualified tangible personal property” under Tenn. Code Ann. § 67-6224(b)(11) and used exclusively in constructing and/or remodeling a “qualified
   headquarters facility” defined in Tenn. Code Ann. § 67-6-224(b)(9) may be used
   by [THE TAXPAYER] to offset its liability for sales or use tax paid on such
   tangible personal property regardless of where purchased or used by [THE
   TAXPAYER] in Tennessee.
   Tenn. Code Ann. § 67-6-224(b)(11) requires the building materials, machinery,
   equipment, furniture and fixtures used by [THE TAXPAYER] in the construction,
   expansion , renovation or remodeling of buildings to be “. . . used exclusively in
   the qualified headquarters facility and purchased or leased during the investment
   period.” In order to qualify for the headquarters credit, Tenn. Code Ann. § 67-6224(b)(1) requires the facility to be utilized as a headquarters facility for a period
   of at least 10 years beginning from the date of its substantial completion.

Arnold B. Clapp
Special Counsel to the Commissioner

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APPROVED: Loren L. Chumley, Commissioner

DATE: 10-4-06

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