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?

Plain-English summary

The taxpayer is an over-the-road, for-hire trucking company incorporated and based in another state. It has no Tennessee office, property, employees, or shareholders. It runs interstate routes all over the country and some intrastate routes within Tennessee. Its Tennessee trips fall into four patterns: (1) just passing through (trip starts and ends out of state, no Tennessee stops); (2) originating in Tennessee, ending elsewhere; (3) originating elsewhere, ending in Tennessee; and (4) both starting and ending in Tennessee. It asked when it owes Tennessee franchise & excise (F&E) tax.

The rule: it's about what the trucks do in Tennessee, not where the company is based. A person owes F&E tax only if it is doing business in Tennessee AND has substantial nexus with the state. The Department ruled that this out-of-state carrier — even with no Tennessee office, property, or employees — has substantial nexus and owes F&E tax if it does any of these:

• provides intrastate transportation within Tennessee,
• makes deliveries into Tennessee of goods that originated in another state, or
• transports goods from Tennessee for delivery into another state.

Why? Because for those trips the carrier uses Tennessee's public highways, so it receives the benefit and protection of Tennessee's laws and is physically present in the state — no other state protects its trucks and drivers during an intrastate Tennessee trip or a Tennessee pickup or delivery.

The pass-through safe harbor. Simply driving through Tennessee on a trip that begins and ends out of state — making no pickups or deliveries and conducting no other business — is not doing business in Tennessee. The Department's example: in 2017 the company's trucks run from Indiana through Kentucky and Tennessee to Alabama with no Tennessee pickups or deliveries — not doing business in Tennessee, no F&E tax. Stopping to refuel or buy a meal doesn't change that. But if in 2018 the trucks start making Tennessee pickups or deliveries, the carrier has nexus, is doing business, and owes F&E tax for that year.

Bright-line presence is one way in, but not the only way. Tennessee says a taxpayer automatically has substantial nexus if it has at least $50,000 of property or payroll in the state, at least $500,000 of receipts in the state, or at least 25% of its total property, payroll, or receipts in Tennessee (§ 67-4-2004(49)(A)(v)). But a carrier can have substantial nexus with less than those amounts if any connection requires it to remit tax under the U.S. Constitution.

Apportionment once you're in. A carrier that is subject to F&E apportions its net worth (franchise) and net earnings (excise) using Tennessee's special common-carrier motor-carrier formula (§§ 67-4-2013(a)(2), -2113(2)): the average of two ratios —

• (A) intrastate gross receipts (from trips that both begin and end in Tennessee) ÷ gross receipts everywhere, and
• (B) in-state miles ÷ total miles everywhere.

A key wrinkle: while pass-through miles don't create nexus, once you're taxable they do count in the mileage ratio — the (B) numerator includes all miles driven within Tennessee, including miles driven while merely passing through with cargo, and the (B) denominator is total miles everywhere (also including pass-through miles).

The throughline: for an out-of-state trucker, a Tennessee pickup, delivery, or intrastate haul creates F&E nexus; pure pass-through (plus fuel/meal stops) does not — but pass-through miles still feed the apportionment formula once you're taxable.

What this means for you

Out-of-state trucking companies and motor carriers

If you're based outside Tennessee with no Tennessee office, property, or employees, you can still owe Tennessee F&E tax the moment your trucks pick up or deliver in Tennessee or run an intrastate Tennessee haul. The absence of a physical location doesn't protect you — using Tennessee highways for those trips is enough. Track your Tennessee activity by trip type so you know when nexus is triggered.

The pass-through safe harbor (and its limit)

Trips that only cross Tennessee — starting and ending out of state, with no Tennessee pickups or deliveries — are not doing business here, and refuel/meal stops don't change that. But the safe harbor is narrow: a single Tennessee pickup or delivery during your tax year flips you into "doing business" for that year. And note the asymmetry — those same pass-through miles count in the apportionment formula once you're otherwise taxable.

Bright-line presence thresholds

You automatically have substantial nexus if you hit $50,000 property or payroll, $500,000 receipts, or 25% of total property/payroll/receipts in Tennessee. Watch the $500,000 receipts line in particular — a carrier can cross it through Tennessee pickups/deliveries without ever having a Tennessee location. And you can owe tax below these thresholds if a constitutional connection exists.

If you should have been filing

If you realize you've had Tennessee F&E nexus in prior years, you must register and remit, and you can use the Department's voluntary disclosure agreement process to come forward on past periods.

Accountants and tax professionals

The analysis: F&E requires doing business in Tennessee (§ 67-4-2004(14)(A)) and substantial nexus (§ 67-4-2004(49)(A)) (§§ 67-4-2007(a), -2105(a)). A non-domiciliary motor carrier with no in-state office/property/employees nonetheless has substantial nexus by using Tennessee highways for intrastate hauls, inbound deliveries, or outbound shipments; pure pass-through with no pickups/deliveries is not doing business (fuel/meal stops don't count). Bright-line presence (§ 67-4-2004(49)(A)(v)) is a sufficient but not necessary condition. Apportionment uses the common-carrier motor-carrier formula (§§ 67-4-2013(a)(2) excise, -2113(2) franchise): average of (A) intrastate gross receipts over everywhere receipts and (B) in-state miles over everywhere miles, with the mileage ratio including pass-through cargo miles on both sides.

Common questions

Q: My trucks just drive through Tennessee. Do I owe Tennessee F&E tax?
A: No — pure pass-through is not doing business in Tennessee, as long as you make no pickups or deliveries and conduct no other business there. Stopping to refuel or buy a meal doesn't create nexus.

Q: What if I pick up or deliver in Tennessee, or run an intrastate haul there?
A: Then you have substantial nexus and owe Tennessee F&E tax. Delivering goods into Tennessee from another state, carrying goods out of Tennessee to another state, or providing intrastate transportation all create nexus.

Q: I have no office, employees, or property in Tennessee. Doesn't that protect me?
A: No. By using Tennessee's public highways for taxable trips, you receive the protection of Tennessee's laws and are physically present in the state, which is enough for substantial nexus.

Q: What are the bright-line presence thresholds?
A: At least $50,000 of property or payroll, $500,000 of receipts, or 25% of your total property, payroll, or receipts in Tennessee. Hitting any one gives you substantial nexus automatically — but you can have nexus below these amounts too.

Q: Once I'm taxable, how do I apportion?
A: Use Tennessee's special motor-carrier formula: the average of (A) intrastate gross receipts ÷ gross receipts everywhere and (B) in-state miles ÷ total miles everywhere. Your pass-through Tennessee miles count in the mileage ratio even though they don't create nexus.

Q: Can I rely on this revenue ruling?
A: No. A Tennessee revenue ruling is advisory and is not binding even on the Department, and it interprets the law at a point in time. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2007(a), § 67-4-2105(a) (franchise & excise tax imposed on persons doing business in Tennessee with substantial nexus)
• § 67-4-2004(14)(A) ("doing business in the state" — any activity purposefully engaged in within Tennessee with the object of gain, benefit, or advantage)
• § 67-4-2004(49)(A) ("substantial nexus" — any direct or indirect connection sufficient under the U.S. Constitution); § 67-4-2004(49)(A)(v) (bright-line presence: $50,000 property or payroll, $500,000 receipts, or 25% of total property/payroll/receipts)
• § 67-4-2013(a)(2) (excise apportionment for common-carrier motor carriers); § 67-4-2113(2) (franchise apportionment for motor carriers) — average of an intrastate gross-receipts ratio and an in-state-miles ratio

Department resources referenced: Online Tax Registration; Application for Franchise, Excise Tax Registration; Voluntary Disclosure Agreement process.

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/17-08fe.pdf

Original ruling text

Revenue rulings are not binding on the Department. This ruling is based on the particular
facts and circumstances presented, and is an interpretation of the law at a specific point in
time. The law may have changed since this ruling was issued, possibly rendering it obsolete.
The presentation of this ruling in a redacted form is provided solely for informational
purposes, and is not intended as a statement of Departmental policy. Taxpayers should
consult with a tax professional before relying on any aspect of this ruling.

Application of the Tennessee franchise and excise taxes to a for-hire trucking company.

Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.

The Taxpayer is an over-the-road, for-hire trucking company incorporated and based in
[REDACTED—STATE]. It does not own or rent property in Tennessee and has no employees or
shareholders in Tennessee. The Taxpayer primarily provides interstate motor carrier services
throughout the United States but also provides intrastate motor carrier services within Tennessee.
In some cases, the Taxpayer only travels through Tennessee, with trips originating and concluding in
other states. In other cases, the Taxpayer originates trips in Tennessee but concludes those trips in
another state or originates trips in a state other than Tennessee and concludes those trips in
Tennessee. Finally, in other situations, the Taxpayer both originates and concludes trips inside of
Tennessee.

Under what circumstances is the Taxpayer subject to the Tennessee franchise and excise taxes?
Ruling: The Taxpayer has substantial nexus with Tennessee and is subject to Tennessee
franchise and excise taxes if it provides intrastate transportation services within Tennessee,
makes deliveries of goods into Tennessee that originate in another state, or transports
goods from Tennessee for delivery into another state.

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All persons doing business in Tennessee and having substantial nexus in the state are subject to the
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Tennessee franchise and excise taxes.
“Doing business in the state” is “any activity purposefully engaged in within Tennessee, by a person
with the object of gain, benefit, or advantage, consistent with the intent of the general assembly to
subject such persons to the Tennessee franchise/excise tax to the extent permitted by the United
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States Constitution and the Constitution of Tennessee.”
A person has “substantial nexus in this state” if the person has “any direct or indirect connection . . .
to this state such that the taxpayer can be required under the Constitution of the United States to
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remit the tax imposed under this part and part 21 of this chapter.” TENN. CODE ANN. § 67-42004(49)(A) includes a non-exclusive list of connections that establish substantial nexus. Such
connections include the taxpayer having a bright-line presence in the state as set forth in TENN. CODE
ANN. § 67-4-2004(49)(A)(v).
The bright-line presence standards for substantial nexus operate such that if a taxpayer has at least
$50,000 of property or payroll in the state, at least $500,000 of receipts in the state, or at least
twenty-five percent (25%) of its total property, payroll, or receipts in Tennessee, it has substantial
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nexus with Tennessee without considering any other connections with the state. However, it is not
required that a taxpayer have bright-line presence in order to have substantial nexus with
Tennessee. A taxpayer may have substantial nexus with Tennessee with lesser amounts of property,
payroll, and receipts in Tennessee if it has any connection with the state that requires it to remit tax
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under the United States Constitution.
A motor carrier transporting property for hire that is organized and commercially domiciled outside
of Tennessee and neither maintains an office in Tennessee nor has property or employees in
Tennessee has substantial nexus with Tennessee if it provides intrastate transportation services
within Tennessee, makes deliveries of goods into Tennessee that originate in another state, or
transports goods from Tennessee for delivery into another state. Although such motor carrier is not
located in Tennessee and does not have employees in Tennessee, because it is a user of Tennessee’s
public highways, it receives the benefit of the protection of Tennessee’s laws and is physically
present in Tennessee. No state other than Tennessee provides protection to such motor carrier’s
trucks and drivers when it makes intrastate trips within Tennessee or makes pickups or deliveries in
Tennessee.
Traveling through Tennessee on one or more trips that originate and terminate outside Tennessee,
where the vehicle makes no pickups or deliveries and conducts no other business activity in
Tennessee does not constitute doing business in Tennessee. Thus, if the Taxpayer makes trips that
1

TENN. CODE ANN. §§ 67-4-2007(a), -2105(a) (Supp. 2016).

2

TENN. CODE ANN. §§ 67-4-2004(14)(A) (Supp. 2016)

3

TENN. CODE ANN. § 67-4-2004(49)(A).

4

See TENN. CODE ANN. § 67-4-2004(49)(A)(v).

5

See TENN. CODE ANN. § 67-4-2004(49)(A).

2

both begin and end in Tennessee, delivers goods into Tennessee that originate in another state, or
makes pickups of goods from Tennessee for delivery into another state during its tax year, it is
subject to Tennessee franchise and excise taxes. For example, in 2017, if the Taxpayer operates
trucks that travel from Indiana through Kentucky and Tennessee to a destination in Alabama and
the trucks make no pickups or deliveries in Tennessee, it is not doing business in Tennessee in 2017,
and is not subject to franchise and excise taxes. The fact that the Taxpayer may stop in Tennessee to
refuel or purchase a meal alone does not constitute doing business in Tennessee. In 2018, if the
Taxpayer makes stops in Tennessee to pick up or deliver cargo (or both), it has nexus with
Tennessee and is doing business in the state in 2018, and is subject to franchise and excise taxes.
If at any time the Taxpayer determines that it is subject to franchise and excise taxes in Tennessee, it
must register with the Department and begin remitting franchise and excise taxes. It may register
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electronically using the Department’s Online Tax Registration Page or the Application for Franchise,
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Excise Tax Registration. If the Taxpayer determines that it should have remitted franchise and
excise taxes in prior tax periods but did not do so, it can request to enter a voluntary disclosure
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agreement with the Department.

If the Taxpayer is doing business in Tennessee and has substantial nexus with the state whereby it is
subject to the franchise and excise taxes, it may apportion its net worth for franchise tax purposes
and its net earnings for excise tax purposes. Tennessee has a special apportionment formula for
common carrier motor carriers set forth in TENN. CODE ANN. §§ 67-4-2013(a)(2), -2113(2) (Supp. 2016).
The ratio for common carrier motor carriers is the average of the following two ratios:
(A) the gross receipts from operations on business beginning and ending entirely
within Tennessee as compared with entire gross receipts from such operations
within and without Tennessee; and
(B) the ratio of the total franchise miles, or odometer miles, if there are no franchise
miles, which it holds or uses under lease, contract, or certificate of convenience and
necessity from the Interstate Commerce Commission or the department of safety
inside the state, to the total franchise or odometer miles to which it holds or uses
certificates from such commission or department, and like commissioners,
departments or agencies of other states, in and outside the state, all as shown by the
annual reports made by the corporation to the various commissions from which it
holds certificates.
TENN. CODE ANN. §§ 67-4-2013(a)(2), -2113(2).
In practical application, the Taxpayer should apportion its net worth and income as follows:
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7

The Department’s Online Tax Registration page is available on the Department’s website at https://apps.tn.gov/bizreg/.

The Application for Franchise, Excise Tax Registration is available
https://www.tn.gov/assets/entities/revenue/attachments/FaEapplicationFill-in.pdf.

on

the

Department’s

website

at

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Additional information regarding the Voluntary Disclosure Agreement process is available on the Department’s website at
https://www.tn.gov/revenue/article/voluntary-disclosure

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(A) Gross Receipts from Intrastate Operations

• (B) In-state odometer miles
  Gross Receipts from Operations Everywhere
  Everywhere odometer miles

2

The numerator of (A) includes only the Taxpayer’s gross receipts from trips that both begin and end
in Tennessee. The numerator of (B) includes all miles driven within Tennessee including miles
traveled while merely driving through Tennessee while carrying cargo. The denominator of (B) is
total miles travelled both inside and outside the state. This includes pass through miles, not just
miles associated with pickups or deliveries in Tennessee.

Jennifer Wilson
Senior Tax Counsel

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

06/21/17

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