Two companion bills introduced in the Tennessee legislature on
February 2, 2015—Senate Bill 324 and House Bill 213
filed by Tennessee Senate Majority Leader Mark Norris and Tennessee
House Majority Leader Gerald McCormick respectively—seek to
change Tennessee's method of apportioning income and net worth
of multi-state businesses (including corporations and limited
liability companies) operating in Tennessee. The legislation would
significantly benefit businesses headquartered in Tennessee by
adopting a triple weighted sales factor effective for tax years
beginning on or after July 1, 2016. This legislation would likely
also make Tennessee a more attractive location for companies
considering the relocation of larger corporate headquarters and
manufacturing facilities.
Tennessee currently apportions income using a formula, the
numerator of which includes the percentage of in-state to
out-of-state property, payroll, and sales of multi-state entities,
with the sales factor of the formula being double weighted, and the
denominator of which is four (4). This new legislation seeks to
triple weight the sales factor in the numerator and change the
denominator to five (5). The bills would continue to provide for
the inclusion of net earnings of captive real estate investment
trust affiliated groups in the formula, including factors of
members not otherwise taxable in Tennessee.
The adoption of a triple weighted sales factor for apportionment
purposes would place greater emphasis on an entity's market
share inside and outside of Tennessee, with less emphasis being
placed upon such an entity's investments in property or jobs
within a particular state. Such a shift in focus, in effect, places
Tennessee-based businesses (particularly manufacturers and large
corporate headquarters) on a more level field with out-of-state
businesses without property or payroll within Tennessee, but which
maintain a sales market within the state. This increased weighting
on sales is also consistent with trends across the country placing
greater emphasis on market-based taxation. For service entities,
this augers more disputes with taxing authorities, including
Tennessee. For an example of a very large dollar dispute involving
cellular services and the issue where services are performed
through the use of a Tennessee Department of Revenue variance, see
Vodafone Americas Holdings Inc. v. Roberts, a case
presently before the Tennessee Supreme Court in which Waller filed
an amicus brief for the Committee on State Taxation (COST).
For further information visit Waller
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