The Tennessee Department of Revenue (TDOR) issued an Important Notice recently that indicates that TDOR will enter into voluntary disclosure agreements (VDAs) with taxpayers who have not registered for, or who have not been remitting, Tennessee business license tax – Tennessee's locally-imposed gross receipts tax. Traditionally, the business tax has been administered by county clerks and municipal tax-collecting officials, but the Tennessee General Assembly passed legislation earlier this year transferring the administration of the tax to TDOR. It is anticipated that centralized administration will generate more revenue because TDOR can better enforce compliance by identifying taxpayers currently filing other state and federal returns who should also be paying business tax. TDOR estimates raising an additional $40 million in tax revenue each year through centralized administration of the tax, indicating its belief that numerous taxpayers are not in compliance.
Businesses not currently registered for Tennessee business tax should review their business operations to determine whether there is any potential exposure. The business tax is in some ways similar to Tennessee sales and use tax. It is, however, much broader than the sales and use tax in that it applies not only to sales of tangible personal property but also to all service providers with business locations in Tennessee. There are specific exceptions in place for accountants, doctors, lawyers, public utilities, veterinaries and insurance agencies, among others. Thus, consulting services, management services and advertising services - services not subject to sales tax – are subject to the business tax.
TDOR has already begun efforts to identify taxpayers they believe should be registered, and it is anticipated that TDOR will begin sending letters to those taxpayers in the coming weeks to clean-up the business tax records. This is particularly important for taxpayers who have not registered for the business tax as the voluntary disclosure process clearly indicates that they will not be able to participate in the VDA program if they are first contacted by TDOR. Taxpayers qualifying under the VDA program will only be liable for business tax for the three (3) prior tax periods and penalties will be waived. If a taxpayer receives a letter before a formal VDA is submitted, however, the taxpayer's liability will be calculated using "at least" a six-year look-back period and penalties will be assessed.
Since TDOR will soon be sending letters to taxpayers not registered for business tax, taxpayers should act quickly to ensure that they can utilize the VDA program, if necessary. Otherwise, taxpayers may miss a valuable opportunity to limit their exposure. The final deadline to submit VDA requests under the Notice is Dec. 31, 2009.
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