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?

Plain-English summary

A Tennessee limited partnership was formed before 1988 -- back when the old Uniform Limited Partnership Act (ULPA) governed limited partnerships, before it was replaced by the Revised Uniform Limited Partnership Act (RULPA). The partnership bought real property, and its final amended certificate said the partnership would terminate either after a set number of years or when it sold the property, whichever came first. The stated termination date arrived, the partnership had not yet sold the property, and it just kept doing business past that date. Years later it finally sold the property and formally dissolved.

The question: for the years between the certificate's stated termination date and the actual sale/dissolution, was the partnership subject to Tennessee's franchise and excise (F&E) tax?

The Department said no -- because for F&E tax purposes, the partnership had already become something else: a general partnership, which isn't a taxable "person" under the F&E statute at all. Here's the chain of reasoning:

1. Because the partnership was formed before 1988 and never filed a certificate electing into the new RULPA, it stayed governed by the old ULPA.
2. Under the ULPA (and a 1929 Tennessee Court of Appeals case interpreting it, Bank of Commerce & Trust Co. v. North), a limited partnership dissolves automatically when it hits the express termination date stated in its certificate -- no separate filing needed, unlike under the newer RULPA.
3. Also under the ULPA and that same case, once the partnership dissolves by hitting its stated term, the limited partners become fully liable as general partners for the partnership's debts.
4. Tennessee's F&E tax defines a "general partnership" as one where all partners are fully liable for the partnership's debts -- and general partnerships are not on the list of "persons" subject to F&E tax (limited partnerships, LLCs, and corporations are; general partnerships aren't).
5. So from the termination date forward, the entity was legally a general partnership, not subject to F&E tax -- even though it kept operating and didn't formally wind down until later.

The Department also noted this wouldn't help a partnership that continued operating with a forfeited, revoked, or suspended charter (a separate rule keeps those on the hook for F&E tax) -- but that rule didn't apply here, because the certificate wasn't revoked or suspended, it was simply cancelled by operation of the ULPA once the stated term ended.

What this means for you

Older Tennessee limited partnerships (formed before 1988)

If your limited partnership was formed before 1988 and never elected into the RULPA, check whether its certificate set a fixed termination date or event. If that date has passed and the partnership kept operating, you may have already converted to a general partnership for F&E tax purposes -- which can mean you've been paying (or should stop paying) F&E tax you don't owe. This is fact-specific and turns on your certificate's exact language and filing history.

Accountants and tax professionals

This ruling only works because of a specific quirk of the old ULPA: automatic dissolution (no cancellation filing required) plus automatic conversion of limited partners to general-partner liability, both confirmed by Bank of Commerce & Trust Co. v. North. The Department flagged that the outcome would be different for a partnership governed by the newer RULPA, which requires an affirmative certificate of cancellation before termination is effective (Tenn. Code Ann. § 61-2-801(b)). Don't extend this reasoning to a post-1988 (or RULPA-elected) limited partnership without re-checking that distinction.

Common questions

Q: Does a Tennessee limited partnership automatically stop owing franchise and excise tax when it hits its certificate's stated termination date?
A: Only if it's still governed by the old ULPA (formed pre-1988, never elected into RULPA). Under the ULPA, hitting the stated term dissolves the partnership and converts the limited partners to general-partner liability, making the entity a general partnership -- which isn't subject to F&E tax.

Q: What if the partnership elected into the RULPA, or was formed after 1988?
A: This ruling doesn't cover that case, and flags that the outcome would differ: RULPA requires filing an actual certificate of cancellation before termination takes legal effect, so simply passing a stated date wouldn't automatically convert the entity to a general partnership.

Q: Does it matter that the partnership kept doing business and didn't formally wind up right away?
A: No, according to this ruling -- because dissolution and the shift to general-partnership status happened automatically under the ULPA the moment the certificate's stated term ended, regardless of when the partnership actually finished winding up its affairs.

Q: Can another partnership rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified by the Commissioner. Confirm your own partnership's formation date, governing statute, and certificate language with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2007(a) (Supp. 2010) (excise tax on persons doing business in Tennessee); §§ 67-4-2105(a) (Supp. 2010), 67-4-2106(a) (2006) (franchise tax on net worth)
• § 67-4-2004(37) (Supp. 2010) (definition of "person" subject to F&E tax, including limited partnerships, LLCs, corporations)
• § 67-4-2004(18) (definition of "general partnership" -- all partners fully liable for partnership debts)
• § 61-2-101 et seq. (Tennessee Revised Uniform Limited Partnership Act (RULPA), enacted 1988); § 61-2-1204(c) (RULPA) (pre-1988 partnerships stay under the old ULPA absent an election into RULPA)
• § 61-2-102(a)(2), § 61-2-102(a)(1)(E), § 61-2-124(a), § 61-2-124(b)(8) (ULPA, 1987 version -- formation, stated term, certificate cancellation)
• §§ 67-4-2007(b), 67-4-2105(c) (doing business while charter is forfeited/revoked/suspended still owes F&E tax -- distinguished, didn't apply here)
• § 61-2-801(b) (2002) (RULPA requires a certificate of cancellation for termination to be effective -- the key distinction from the ULPA outcome in this ruling)

Tennessee case cited by the ruling:

• Bank of Commerce & Trust Co. v. North, 1929 WL 1704 (Tenn. Ct. App. 1929) (under the ULPA, a limited partnership dissolves by express limitation on its stated termination date, and limited partners become liable as general partners at that point)

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/fae/11-26fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-26

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
Application of the Tennessee franchise and excise taxes to a limited partnership formed prior to
the enactment of the Tennessee Revised Uniform Limited Partnership Act.
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 the taxpayer’s
detriment.
FACTS
[TAXPAYER] was formed as a Tennessee limited partnership pursuant to a Limited Partnership
Agreement dated [PRIOR TO 1988]. In [YEAR], the Taxpayer acquired a tract of real property
located in Tennessee (the “Real Property”). The Taxpayer recorded a certificate of limited
partnership and [NUMBER OF] subsequent amended certificates. On [DATE], the Taxpayer

recorded a final Amended and Restated Certificate of Limited Partnership (the “Amended and
Restated Certificate”), which provided that the Taxpayer’s existence was to terminate either in
[NUMBER OF] years (i.e., on [TERMINATION DATE] or upon the disposition of the Real
Property, whichever occurred earlier.1 The Taxpayer did not dispose of the Real Property prior to
[TERMINATION DATE], and continued to conduct business after that date.
The Taxpayer sold the Real Property in [DATE]. Following the sale, the Taxpayer dissolved and
terminated its existence.
QUESTIONS
1.

Is the Taxpayer considered a general partnership for Tennessee franchise and excise tax
purposes with respect to taxable periods following the [TERMINATION DATE] set forth
in the Amended and Restated Certificate?

2.

With respect to taxable periods following the [TERMINATION DATE] set forth in the
Amended and Restated Certificate, is the Taxpayer subject to the Tennessee franchise
and excise taxes?
RULINGS

1.

Yes. The Taxpayer is considered a general partnership for Tennessee franchise and excise
tax purposes with respect to taxable periods following the [TERMINATION DATE], set
forth in the Amended and Restated Certificate.

2.

No. With respect to taxable periods following the [TERMINATION DATE], set forth in
the Amended and Restated Certificate, the Taxpayer is not subject to the Tennessee
franchise and excise taxes.
ANALYSIS

Tennessee imposes an excise tax on all persons, as defined under TENN. CODE ANN. § 67-42004(37) (Supp. 2010), doing business within Tennessee. TENN. CODE ANN. § 67-4-2007(a)
(Supp. 2010). Tennessee also imposes a franchise tax at the rate of $0.25 per $100, or major
fraction thereof, on the net worth of a taxpayer doing business in Tennessee, pursuant to TENN.
CODE ANN. §§ 67-4-2105(a) (Supp. 2010) and 67-4-2106(a) (2006).2 Thus, to be subject to the
franchise and excise taxes, an entity must come within the scope of the definition of “person” as
set forth in TENN. CODE ANN. § 67-4-2004(37). Among the entities included in this definition are
limited partnerships, limited liability companies, and corporations.

1

The Taxpayer’s Amended and Restated Certificate did not contain an election to become subject to the Tennessee
Revised Uniform Limited Partnership Act.
2

Note that, under TENN. CODE ANN. § 67-4-2108(a)(1) (Supp. 2010), the franchise tax base “shall in no case be less
than the actual value of the real or tangible property owned or used in Tennessee, excluding exempt inventory and
exempt required capital investments.” For purposes of this section, “property” is to be “valued at cost less
accumulated depreciation in accordance with generally accepted accounting principles.” TENN. CODE ANN. § 67-42108(a)(3).

2

General partnerships, however, are not included in the definition and are therefore not subject to
franchise and excise taxation. TENN. CODE ANN. § 67-4-2004(18) defines the term “general
partnership” in pertinent part as “a partnership in which all the partners, as defined by state law,
are fully liable for the debts of, or the claims against, the partnership.” Thus, for the Taxpayer to
be considered a general partnership for franchise and excise tax purposes beginning on
[TERMINATION DATE], all of its limited partners must have become fully liable for the debts
and obligations of the Taxpayer under Tennessee law on that date.
The Tennessee Uniform Limited Partnership Act (the “ULPA”), governs whether the Taxpayer’s
limited partners became fully liable for the debts and obligations of the Taxpayer on
[TERMINATION DATE]. The ULPA was enacted in 1919 and remained in force until the
enactment in 1988 of the Tennessee Revised Uniform Limited Partnership Act, TENN. CODE
ANN. § 61-2-101 et seq. (the “RULPA”). Importantly, Section 61-2-1204(c) of the RULPA
provides that the ULPA would continue to apply to a limited partnership formed prior to January
1, 1988, unless the partnership filed a certificate of limited partnership expressly stating its
election to become subject to the RULPA. The Taxpayer was formed as a limited partnership in
[YEAR PRIOR TO 1988] and did not file a certificate of limited partnership electing to become
subject to the RULPA. As a result, the Taxpayer continues to be governed by the ULPA.
Under Section 61-2-102(a)(2)3 of the ULPA, a limited partnership was formed upon the
recording of a certificate of limited partnership in the office of the county register. Among other
things, Section 61-2-102(a)(1)(E) of the ULPA provided that the certificate of limited
partnership could set forth the term for which the partnership was to exist. In the event the
partners wished to change the partnership’s term of existence, Section 61-2-124(b)(8) of the
ULPA required that the partners record an amended certificate setting forth the new termination
date. Unlike the RULPA, the ULPA did not contain specific requirements regarding the
termination of the limited partnership. Rather, Section 61-2-124(a) of the ULPA simply provided
that the certificate of limited partnership “shall be cancelled when the partnership is dissolved”
or when the partnership no longer had limited partners.
Under the ULPA, a limited partnership dissolved at the conclusion of the express term of
existence set forth in the certificate of limited partnership. In Bank of Commerce & Trust Co. v.
North, 1929 WL 1704, 6 (Tenn. Ct. App. 1929) (applying the ULPA), the Tennessee Court of
Appeals held that a limited partnership “terminated by express limitation” on the date set forth in
the partnership agreement. Thus, the Taxpayer dissolved on [TERMINATION DATE], in
accordance with the express terms set forth in the Amended and Restated Certificate. As a result
of the Taxpayer’s dissolution, the Taxpayer’s certificate was also cancelled on that date under
Section 61-2-124(a) of the ULPA.
Importantly, the Tennessee Court of Appeals has also held that, under the ULPA, the limited
partners become liable as general partners with respect to the creditors of the partnership upon
the termination by express limitation of a limited partnership. Bank of Commerce & Trust Co.,
1929 WL 1704 at 6 (holding that a limited partner became a general partner following the
express date of termination of the limited partnership). Thus, in the Taxpayer’s case, the limited

3

All citations to the ULPA are to the version in effect in 1987, immediately prior to the enactment of the RULPA.

3

partners of the Taxpayer became fully liable for the debts and obligations of the Taxpayer under
Tennessee law on [TERMINATION DATE].
As noted above, TENN. CODE ANN. § 67-4-2004(18) defines the term “general partnership” in
pertinent part as “a partnership in which all the partners, as defined by state law, are fully liable
for the debts of, or the claims against, the partnership.” Because all of the partners of the
Taxpayer became fully liable for the debts and obligations of the Taxpayer under Tennessee law
on [TERMINATION DATE], the Taxpayer is properly considered a general partnership for
Tennessee franchise and excise tax purposes beginning on that date.
Note that TENN. CODE ANN. §§ 67-4-2007(b) and 67-4-2105(c) provide that a taxpayer doing
business in Tennessee while its charter or other registration is “forfeited, revoked or suspended”
is not relieved from the obligation of a filing and return and paying any franchise and excise
taxes due. However, in the Taxpayer’s case, the Amended and Restated Certificate was not
forfeited, revoked or suspended on [TERMINATION DATE]; rather, the Taxpayer’s certificate
of limited partnership was cancelled on such date. Accordingly, TENN. CODE ANN. §§ 67-42007(b) and 67-4-2105(c) do not operate to subject the Taxpayer to the franchise and excise
taxes during the periods following the [TERMINATION DATE], cancellation of the certificate
of limited partnership.4
Accordingly, with respect to taxable periods following the [TERMINATION DATE], set forth in
the Amended and Restated Certificate, the Taxpayer is not subject to the Tennessee franchise
and excise taxes.5

Kristin Husat
Senior Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

06/16/11

4

Note as well that TENN. COMP. R. & REGS. 1320-6-1-.11(1) (1977) requires corporations to file an Intent to
Dissolve in order to terminate a corporate charter. Obviously, this rule does not apply in the case of the Taxpayer, a
limited partnership.

5

Note that the outcome would be different if the RULPA applied to the Taxpayer. The RULPA requires the
recording of a certificate of cancellation in order for a limited partnership’s termination to become effective. TENN.
CODE ANN. § 61-2-801(b) (2002).

4