When a manufacturer sells goods to wholesale distributors that later resell them to end customers, does it source those sales to the distributors or to the final buyers for the Tennessee franchise and excise tax receipts factor?

Plain-English summary

A business that operates both inside and outside Tennessee doesn't pay Tennessee franchise and excise (F&E) tax on all of its income. It apportions — it figures out what share of its nationwide earnings and net worth belongs to Tennessee using a formula. The heaviest-weighted piece of that formula is the receipts factor: Tennessee sales divided by total sales everywhere. So where a sale is "located" directly drives the tax bill, and that is what this ruling is about.

The taxpayer is an out-of-state manufacturer. Its goods are made outside Tennessee, then shipped to a third-party distribution warehouse in Tennessee, where the manufacturer takes title and stores them. The manufacturer then sells mostly to large wholesale distributors — some in Tennessee, some not — at a set "Wholesale Acquisition Cost." Those distributors later resell the goods (often through their own regional warehouses) to retailers and end customers (the "Subsequent Buyers") all over the country. The goods are perishable, so they sit at a distributor only about 14 to 25 days, and the manufacturer even stays in touch with the end customers for service and gets reports on where they are.

The manufacturer wanted to source its sales all the way down to where the end customers are. The Department said no — source to the wholesale distributors the manufacturer actually sells to. Four reasons:

• A sale delivered to a Tennessee distributor is a Tennessee sale. Tennessee uses a "destination rule": a sale of goods is in Tennessee if the shipment terminates here — "even though the property is subsequently transferred by the purchaser to another state." What the distributor does afterward is a separate transaction that isn't the manufacturer's sale.
• It keeps apportionment fair. Sourcing past the distributor to far-flung end buyers would strip the sale out of Tennessee without reliably adding it to any other state, creating untaxed "nowhere income." The destination rule (used in all 44 states plus D.C. that have a receipts factor) prevents that.
• The "ultimate destination" cases don't fit. Cases the taxpayer cited deal with where the purchaser is or with customer-pickup ("dock sale") situations — not with chasing a second, separate resale. Tennessee's own Jack Daniel Distillery case sourced sales to the wholesale distributors, not to the distributors' customers.
• Tennessee only looks through to end users in narrow, defined situations — a high-threshold "certified distribution sales" election (which has a $1 billion in-state sales test) and true drop shipments where the end recipient is designated at the time of the sale. Neither applied here.

The bottom line: receipts from goods delivered to distributors in Tennessee go in the numerator; receipts from goods delivered to distributors outside Tennessee do not.

What this means for you

Manufacturers and suppliers that sell through distributors

If you sell to wholesale distributors, your Tennessee receipts factor follows where you ship to your distributor, not where the product eventually ends up. Goods that terminate at a Tennessee distributor are Tennessee receipts even if the distributor promptly ships them out of state; goods you deliver to an out-of-state distributor are not Tennessee receipts even if they circle back to Tennessee buyers later. You generally cannot "look through" the distribution chain to soften your Tennessee numerator.

Don't count on "de minimis" or FOB arguments

The manufacturer argued the goods were only in Tennessee 14–25 days, so the stay should be ignored. Tennessee courts reject "de minimis presence" arguments unless a statute (or a federal immunity like P.L. 86-272 / 15 U.S.C. § 381) specifically provides one — and the receipts statute does not. Likewise, the result turns on where the shipment terminates "regardless of the F.O.B. point or other conditions of the sale." Staying in contact with the end customers and tracking their locations also did not change the analysis.

Two real "look-through" exceptions to know

• Certified distribution sales (§ 67-4-2023): a very large taxpayer (over $1 billion of in-state gross sales, and a 10% receipts factor) can elect to exclude sales to distributors that are certified as resold for use outside Tennessee — but it then pays excise tax on the excluded amount. This is an opt-in alternative, not the default.
• Drop shipments (Rule 1320-06-01-.33(d)): if your customer directs you to ship straight to its customer, you can source to that ultimate recipient — but only if that recipient is designated at the time of the transaction and you (not your customer) make the shipment. A normal sell-to-distributor model is not a drop shipment.

Common questions

Q: I'm a manufacturer selling to distributors. Where are my sales sourced for Tennessee franchise and excise tax?
A: To the location of the distributor you sell to. If the goods are delivered to a distributor in Tennessee, that is a Tennessee sale in your receipts factor — even if the distributor later resells and ships the goods out of state. If you deliver to a distributor outside Tennessee, it is not a Tennessee sale, even if the goods later reach Tennessee customers.

Q: My product only sits in a Tennessee warehouse for a couple of weeks. Isn't that too brief to count?
A: No. Tennessee has no general "de minimis" exception in its apportionment statutes, and courts have refused to read one in. The sale is sourced where the shipment terminates, regardless of how briefly the goods stay or what the FOB terms say.

Q: We provide customer service to the end buyers and even track where they are. Doesn't that make them our customers?
A: Not for sourcing this sale. The Department said those facts don't change the transaction being sourced, which is your sale to the distributor. The distributor's later resale to the end buyer is a separate transaction not attributed to you.

Q: Can I rely on this ruling?
A: No. A revenue ruling is advisory only and not binding on the Department, and no taxpayer can rely on it as binding. It shows how the Department applies the receipts-factor and destination rules, but your facts may differ and the law can change.

Citations and references

Statutes and rules:
- TENN. CODE ANN. § 67-4-2007 (excise tax, 6.5% of net earnings); § 67-4-2106 (franchise tax, 25¢ per $100 of net worth)
- TENN. CODE ANN. § 67-4-2010(a); § 67-4-2110(a) (apportionment of net earnings / net worth)
- TENN. CODE ANN. § 67-4-2012(a)(3) (three-factor formula: property + payroll + 5× receipts, over 7); § 67-4-2111(a)(2) (same formula for franchise net worth)
- TENN. CODE ANN. § 67-4-2012(g); § 67-4-2111(g) (receipts factor)
- TENN. CODE ANN. § 67-4-2012(h), (h)(1) (sale in Tennessee if delivered to in-state purchaser regardless of F.O.B.; destination rule)
- TENN. COMP. R. & REGS. 1320-06-01-.33(1)(a), (1)(c) (shipment terminating in Tennessee; later transfer out of state irrelevant)
- TENN. COMP. R. & REGS. 1320-06-01-.33(d) (drop-shipment / ultimate-recipient rule)
- TENN. CODE ANN. § 67-4-2023; § 67-4-2023(b)(1), (b)(2) (certified distribution sales election and thresholds)

Cases:
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (Commerce Clause four-part test; fair apportionment)
- Blue Bell Creameries, LP v. Roberts, 333 S.W.3d 59 (Tenn. 2011) (Tennessee excise tax based on UDITPA)
- Vodafone Americas Holdings, Inc. v. Roberts, 486 S.W.3d 496 (Tenn. 2016) (fair apportionment goal)
- Woods v. Jack Daniel Distillery, 1977 WL 558045 (Tenn. Apr. 18, 1977) (source to wholesale distributors, not their customers)
- McCurry Expeditions, LLC v. Roberts, 461 S.W.3d 912 (Tenn. Ct. App. 2014) (no de minimis presence exception)
- Wisconsin Dept. of Revenue v. William Wrigley, Jr. Co., 506 U.S. 214 (1992) (de minimis under 15 U.S.C. § 381)

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/24-06fe.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.

The sourcing of receipts to ultimate end-users with respect to the receipts factor for the Tennessee
franchise and excise taxes apportionment formula.

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 Company (the “Taxpayer”) was formed and operates its principal place of business outside of
Tennessee. The Taxpayer manufactures its products (the “Product”) through an affiliated entity, which
is also located outside of Tennessee. When the manufacturing process, which currently occurs outside
of Tennessee, is complete, the Product is delivered to a third-party distribution facility (the “Facility”)
located in Tennessee. No further finishing, packaging, or alterations to the Product are necessary at
that time. Upon arrival at the Facility, title transfers from the manufacturing entity to the Taxpayer.
The Taxpayer then stores the Product at the Facility until it is sold.
The Taxpayer principally sells the Product to large wholesale distributors located within and outside
of Tennessee (the “Wholesale Distributors”). The Taxpayer maintains title to the Product until it is
delivered directly to the Wholesale Distributors. Some Product may then be distributed throughout
the Wholesale Distributors’ networks of regional distribution centers across the country before
subsequently being sold to retail customers or end-users (together, the “Subsequent Buyers”) inside
and outside of Tennessee. The remaining Product will be sold by the Wholesale Distributors to
Subsequent Buyers inside and outside of Tennessee without first passing through a regional
distribution center.
The sale by the Taxpayer to the Wholesale Distributors is at the Wholesale Acquisition Cost (the
“WAC”). Subsequent sales by the Wholesale Distributors are at the same WAC at which the Wholesale
Distributors acquired the Product from the Taxpayer. The Wholesale Distributors earn revenue for
what the Taxpayer characterizes as payment for distribution services.
The Wholesale Distributors do not alter the Product or packaging in any way. Furthermore, the
lifespan of the Product is limited and can be maintained only under specified conditions. Thus, the

average time that the Taxpayer’s Product remains at a Wholesale Distributor’s distribution center is
from fourteen to twenty-five days.
The Taxpayer receives regular reports listing the location of the Subsequent Buyers from the
Wholesale Distributors. Furthermore, employees of the Taxpayer or its affiliates assist Subsequent
Buyers with the purchase of the Product, and they provide assistance regarding payment, questions
regarding the Product, and other customer service. As a result, the Taxpayer is often in direct contact
with the Subsequent Buyers before and after title is transferred to the Wholesale Distributor. At the
time the Product is sold from the Taxpayer to the Wholesale Distributor, there is no specific
designation of a Product to a specific Subsequent Buyer, and the Taxpayer does not control the
decision as to where the Product will be shipped after it sells the Product to the Wholesale
Distributors.

Is the Taxpayer entitled to source its receipts to the location of the Subsequent Buyers for its receipts
factor ratio for the Tennessee franchise and excise taxes apportionment formula?
Ruling: No. The Taxpayer must source its sales to the location of the Wholesale Distributors to
whom the Taxpayer sells the Product.

Sales to Wholesale Distributors located in Tennessee must be sourced to Tennessee because (1) the
sales of the Product to Wholesale Distributors located in Tennessee are sales made in Tennessee; (2)
sourcing sales to the location of the Wholesale Distributors is part of a fair system of apportionment;
(3) case law supporting sourcing sales to ultimate end-users does not apply to the facts of this ruling;
and (4) Tennessee contemplates sourcing sales to the location of ultimate end-users in situations that
are not applicable to the Taxpayer.
TENN. CODE ANN. § 67-4-2007 (2022) imposes an excise tax on the privilege of doing business in
Tennessee based on 6.5% of a business’s net earnings. TENN. CODE ANN. § 67-4-2106 (2022) imposes
the franchise tax at a rate of twenty-five cents per $100 of the business’s net worth. In order to not
violate the Commerce Clause of the United States Constitution, a state tax on a business’s income
must be, among other things, fairly apportioned. 1
TENN. CODE ANN. § 67-4-2010(a) (2022) provides that a taxpayer that has business activities taxable both
inside and outside the state of Tennessee shall allocate or apportion its net earnings or losses for
Tennessee excise tax purposes. A similar provision applies for apportioning a business’s net worth for
Tennessee franchise tax purposes under TENN. CODE ANN. § 67-4-2110(a) (2022). Because the Taxpayer
has business activities both inside and outside Tennessee, it must apportion its net earnings and net
worth for purposes of the Tennessee franchise and excise taxes.
TENN. CODE ANN. § 67-4-2012(a)(3) (Supp. 2023) provides that net earnings are apportioned to
Tennessee by multiplying the earnings by a fraction, the numerator of which is the property factor
See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (finding that a state tax on a business’s income (1) must be applied
to an activity with a substantial nexus with the taxing state; (2) must be fairly apportioned; (3) does not discriminate against
interstate commerce; and (4) is fairly related to the services provided by the state).
1

2

plus the payroll factor plus five times the receipts factor, and the denominator of the fraction is seven.2
The same apportionment formula applies for apportionment of net worth for Tennessee franchise
tax purposes.3
The factor relevant to this ruling is the receipts factor. The receipts factor is a fraction, the numerator
of which is the total receipts of the taxpayer in this state during the tax period, and the denominator
of which is the total receipts of the taxpayer everywhere during the tax period.4
1. The shipment of the Product to Wholesale Distributors located in Tennessee are sales in Tennessee.
Pursuant to TENN. CODE ANN. § 67-4-2012(h), sales of tangible personal property are in Tennessee if the
property is delivered or shipped to a purchaser, other than the United States government, inside this
state regardless of the F.O.B. point or other conditions of the sale. Similarly, TENN. COMP. R. & REGS.
1320-06-01-.33(1)(a) (2016) provides that sales of tangible personal property are in this state if the
property is shipped to a purchaser within this state regardless of the F.O.B. point or other conditions
of sales. TENN. COMP. R. & REGS. 1320-06-01-.33(1)(c) further provides that:
[p]roperty is delivered or shipped to a purchaser within this state if the shipment
terminates in this state, even though the property is subsequently transferred by the
purchaser to another state.
Example: The taxpayer makes a sale to a purchaser who maintains a central
warehouse in this state at which all merchandise purchases are received. The
purchaser reships the goods to its branch stores in other states for sale. All of
taxpayer’s products shipped to the purchaser’s warehouse in this state are property
“delivered or shipped to a purchaser within this state”.
Here, the Taxpayer sells and delivers the Product to Wholesale Distributors, some of whom are located
in Tennessee. In accordance with TENN. CODE ANN. § 67-4-2012(h) and the clarifying regulations
mentioned above, the deliveries of the Product to Wholesale Distributors located in Tennessee are
unambiguously sales in Tennessee.
The sales of the Product by the Taxpayer to the Wholesale Distributors are made in the ordinary
course of the Taxpayer’s business. Fundamentally, the subsequent sales from the Wholesale
Distributors to the Subsequent Buyers are separate transactions which are not attributable to the
Taxpayer. Accordingly, the Taxpayer’s sales to Wholesale Distributors located in Tennessee should be
sourced to Tennessee.
The Taxpayer has suggested that since its Product remains in the warehouses of the Wholesale
Distributors located in Tennessee from fourteen to twenty-five days that a de minimis principle, or

This formula is for tax years ending on or after Dec. 31, 2023, but before Dec. 31, 2024. Financial institutions, common carriers,
and manufacturers that have elected to use a single sales factor formula are not required to use the three-factor apportionment
formula.
2

3

See TENN. CODE ANN. § 67-4-2111(a)(2) (Supp. 2023).

4

TENN. CODE ANN. §§ 67-4-2012(g) (Supp. 2023), 67-4-2111(g).

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deviation from the standard, should apply because of the duration the Product spends in Tennessee.5
While the Tennessee Department of Revenue has applied the de minimis principle to taxpayers in
Tennessee who sought immunity from a state tax under a federal statute,6 absent a statutory
provision providing for a de minimis standard in a state taxing scheme, Tennessee courts have rejected
taxpayers’ de minimis presence arguments.7 Accordingly, the sales to the Wholesale Distributors
located in Tennessee are properly apportioned sales to Tennessee.
It should also be noted that according to the facts of this ruling, the Taxpayer provides customer
service for Subsequent Buyers and receives reports of their locations. These facts do not alter the
transactions between the Taxpayer and the Wholesale Distributor, and it is those transactions that
are being sourced to Tennessee.
2. Sourcing sales to the location of the Wholesale Distributors is part of a fair system of apportionment.
“Tennessee’s excise tax on corporate earnings is based on the Uniform Division of Income for Tax
Purposes Act (UDIPTA’).” Blue Bell Creameries, LP v. Roberts, 333 S.W. 3d 59, 65 (Tenn. 2011) (citations
omitted). “[T]o further its goal of assuring fair apportionment among states and taxation of neither
more nor less than 100% of the net income of multistate corporations, UDIPTA uses an apportionment
formula.” Vodafone Americas Holdings, Inc. & Subs. V. Roberts, 486 S.W. 3d 496 at 516 (Tenn. 2016).
Tennessee’s sales factor statute for sales of tangible personal property, TENN. CODE ANN. 67-42012(h)(1), embodies the “destination rule,” in which a state attributes receipts from sales to “[t]he
state to which the goods are sold are shipped to the customer (sales destination rule).” Waller
Hellerstein, State Taxation ¶ 8.06[3][a] (3d ed. 2022). The destination rule “is now in use, in one way or
another, in every one of the forty-four states (and the District of Columbia) that employs a sales or
receipts factor in the apportionment formula of their corporate income taxes.”8 The widespread use
of the destination rule for apportioning sales means that deviations from the rule will result in less
than full apportionment.
If sales of goods are sourced to the location of subsequent purchasers after a secondary transaction,
and the subsequent purchasers are in states imposing taxes measured by income, the sales from the
seller to the wholesale distributor would be removed from the Tennessee sales factor but would not
be added to the numerator of the state in which the subsequent purchaser is located. For the seller
of goods, this would create “nowhere income”—income that is not taxed by any state. Sellers of goods,
where the goods ultimately reach subsequent purchasers in Tennessee through a network of
distributors, may not necessarily have any connection or nexus to Tennessee (the distributor would
be connected through its sales to customers in Tennessee). Effectively, sales to wholesale distributors
would only move in one direction—away from Tennessee. In the absence of a comprehensive rule
between the states that allows for sourcing sales to wholesale distributors of goods that are then

See Wisconsin Department of Revenue v. William Wrigley, Jr. Co., 506 U.S. 214 (1992) (recognizing that a de minimis exception
exists within 15 U.S.C. § 381(a));
5

See Tenn. Dept. Rev. Ltr. Rul. 97-16 (June 2, 1997) and Tenn. Dept. Rev. Ltr. Rul. 95-22 (June 2, 1995) (applying the de minimis
principle to taxpayers whose activities fall under the immunity granted by 15 U.S.C. § 381).
6

McCurry Expeditions, LLC v. Roberts, 461 S.W. 3d 912, 920 (Tenn. Ct. App. Nov. 14, 2014) (citing Cole Bros. Circus, Inc. v. Huddleston,
No. 01-A-01-9301-CH00004, 1993 WL 190914, at *4 (Tenn. Ct. App. June 4, 1993), stating that “[t]here is no statutory exception
for a ‘de minimis’ presence in Tennessee.”).
7

8

Id. at ¶ 9.18[1].

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resold out-of-state, it is crucial that the sales from the Taxpayer to Wholesale Distributors be sourced
to the location of the Wholesale Distributors.
3. Cases supporting sourcing sales to ultimate end-users are not applicable to the facts of this ruling
because they do not involve sourcing sales to Subsequent Buyers.
The Taxpayer suggests that the use of “ultimate destination” rhetoric in a collection of nationwide
cases supports sourcing the Taxpayer’s sales to the Subsequent Buyers. However, these cases involve
the location of the purchaser or “dock sale” issues, and they do not involve the sourcing of sales to a
subsequent, separate transaction.9 In fact, several of these cases support the conclusion that the
Wholesale Distributors are the Taxpayer’s customers. Relevant to this ruling, these cases contemplate
where to source sales to wholesale distributors. These cases do not contemplate the states having to
source the secondary sales to subsequent customers by function of the wholesale distribution chain.
For example, in the unpublished Tennessee Supreme Court case of Woods v. Jack Daniel Distillery, the
taxpayer was engaged in manufacturing, bottling, and selling whiskey to wholesale distributors, its
principal customers.10 Some out-of-state wholesale distributors arranged to have their own trucks
pick up the goods from the taxpayer’s warehouse in Tennessee and carry them to the wholesale
distributor’s place of business outside Tennessee.11 The state argued that the customer pickup sales
should be sourced to Tennessee.12 The Court held that the location of the customer (the wholesale
distributor) determines whether the sale is to an out-of-state customer and is thus excluded from the
numerator of the receipts factor.13 Notably, the Court did not contemplate allocating sales based on
the location of the wholesale distributors’ customers. While the Court’s decision is not controlling with
respect to current statutory language, the Court’s reasoning in Woods v. Jack Daniel Distillery supports
that the Wholesale Distributors are the purchasers of Product to whom the Taxpayer’s sales should
be sourced.
4. Tennessee contemplates excluding sales to ultimate consumers from the receipts factor but not in
situations pertaining to the Taxpayer’s facts.
Tennessee allows a taxpayer, who meets a gross sales threshold and a receipts factor threshold, to
elect to exclude “certified distribution sales” from the numerator of its receipts factor. 14 Under TENN.
CODE ANN. § 67-4-2023 (Supp. 2023), “certified distribution sales” means “sales of tangible personal
property made in this state by the taxpayer to any distributor, whether or not affiliated with the
taxpayer, that is resold for ultimate use or consumption outside the state; provided that, the
distributor has certified that such property has been resold for ultimate use or consumption outside
See Lone Star Steel v. Dolan, 668 P.2d 916 (Colo. 1983); Dept. of Revenue v. Parker Banana Co., 391 So. 2d 762 (Fla. App. 1980);
Olympia Brewing Co. v. Commissioner of Revenue, 326 N.W. 2d 642 (Minn. 1982); Rev. Cabinet v. Rohm and Haas Kentucky, Inc., 929
S.W. 2d 741 (Ky. App. 1996); McDonnell Douglas Corp. v. Franchise Tax Bd., 26 Cal. App. 4th 1789 (Ca. App. 1994); Paccar, Inc., v. Al.
Dept. of Revenue, 2006 WL 370805 (Dept. Rev. Admin. Law Div., Jan. 11, 2006); Powerex Corp. v. Dept. of Revenue, 346 P.3d 476
(Or. 2015).
9

10

1977 WL 558045 *1 (Tenn. April 18, 1977).

11

Id.

12

Id.

13

Id. at *2.

The threshold for gross sales made in this state is one billion dollars, and the threshold for the receipts factor is 10%. TENN.
CODE. ANN. §§ 67-4-2023(b)(1) and (2) (Supp. 2023).
14

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this state.” A taxpayer that makes the election to exclude its certified distribution sales from the
numerator of its receipts factor must pay an excise tax on the total amount of the certified distribution
sales that were excluded from the numerator. 15
TENN. CODE ANN. § 67-4-2023 shows that the Tennessee legislature contemplated what to do with sales
of products made to distributors in Tennessee, where the products are resold and ultimately used or
consumed outside of Tennessee. In such transactions, the legislature has provided an alternative
taxing scheme to account for those sales when certain thresholds are met, and an election is made.
As such, TENN. CODE ANN. § 67-4-2023 supports the premise that the Tennessee legislature intended
for sales of products to distributors located in Tennessee be sourced to Tennessee even if those
products are subsequently sold to users in other states.
Tennessee also allows sourcing to an “ultimate recipient” in a drop shipment transaction in which the
purchaser directs its supplier to ship merchandise ordered directly to the purchaser’s customer. 16
TENN. COMP. R. & REGS. 1320-06-01.33(d) states:
[t]he term “purchaser within this state” shall include the ultimate recipient of the
property if the taxpayer in this state, at the designation of the purchaser, delivers to
or has the property shipped to the ultimate recipient within this state.
Example: A taxpayer in this state sold merchandise to a purchaser in State A. Taxpayer
directed the manufacturer or supplier of the merchandise in State B to ship the
merchandise to the purchaser’s customer in this state pursuant to purchaser’s
instructions. The sale by the taxpayer is “in this state”.
The corollary to that rule would be that a sale to an ultimate recipient outside of Tennessee would not
be a sale to a purchaser within this state. This rule is not applicable in the Taxpayer’s situation because
the Taxpayer in this ruling is not engaged in a drop shipment transaction. A drop shipment transaction
to which this rule applies involves a taxpayer, a purchaser, and a designated ultimate recipient. The
rule requires that the taxpayer deliver the product to the ultimate recipient at the direction of the
purchaser.
According to the facts in this ruling, the Wholesale Distributors are the purchasers, but they are not
directing the Taxpayer to ship the Product to the end-user or ultimate recipient. Instead, at the time
the Wholesale Distributors purchase the Product, there is no designated end-user or ultimate
recipient. Even if there was a designated end-user at the time of the purchase, this rule would not
apply because the Taxpayer is not shipping the Product to the end-user, the purchaser is. TENN. COMP.
R. & REGS. 1320-06-01.33(d) supports the premise that in order to source a sale to an ultimate enduser, that end-user must be designated at the time of the transaction.

In light of the above analysis, the Taxpayer’s sales may not be sourced to the location of the
Subsequent Buyers. Sales of the Product to Wholesale Distributors, where the Product is delivered to

15

TENN. CODE ANN. § 67-4-2023(b)(2).

16

See, e.g., Tenn. Dept. Rev. Rev. Rul. 04-12 (April 26, 2004) and Tenn. Dept. Rev. Ltr. Rul. 13-14 (Oct. 11, 2013).

6

Wholesale Distributors located in Tennessee, constitute a sale in Tennessee and are included in the
numerator of the Taxpayer’s receipts factor for calculating franchise and excise taxes. Sales of the
Product, where the Product is delivered to Wholesale Distributors located outside of Tennessee, do
not constitute a sale in Tennessee and are not included in the numerator of the Taxpayer’s receipts
factor for calculating franchise and excise taxes.

Approved:

David Gerregano

Date:

July 31, 2024

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