2010 Tennessee Code
Title 67 - Taxes And Licenses
Chapter 4 - Privilege and Excise Taxes
Part 20 - Excise Tax Law
67-4-2012 - Apportionment formula.

67-4-2012. Apportionment formula.

(a)  Except as may otherwise be provided in this part, all net earnings shall be apportioned to this state by multiplying the earnings by a fraction, the numerator of which shall be the property factor plus the payroll factor plus twice the receipts factor and the denominator of such fraction shall be four (4).

(b)  The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period, and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period. For this purpose, “property” includes a taxpayer's ownership share of the real or tangible property owned or rented by any general partnership, or entity treated as a general partnership for federal income tax purposes, in which such taxpayer has an ownership interest. A return being filed by a limited liability company that has a general partnership as its single member shall include in its property factor only the real and tangible property owned or used by the limited liability company. “Property” also includes a taxpayer's ownership share of the real or tangible property owned or rented by any limited partnership, subchapter S corporation, limited liability company or other entity treated as a partnership for federal income tax purposes, in which the taxpayer has an ownership interest, directly or indirectly through one (1) or more such entities, and that is not doing business in Tennessee and, therefore, is not subject to Tennessee excise tax. The cost value or rental value of such property shall be determined from the books and records of the entity in which the taxpayer has an interest and such property shall be valued in accordance with the provisions of subsection (c).

(c)  (1)  Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight (8) times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals. A lessee's payments to a lessor, or on such lessor's behalf, as part of rent, or in lieu of rent, shall be included as rent in the property factor of the apportionment formula provided by this section. Except with respect to tangible personal property, for purposes of this subsection (c), payments, such as interest, taxes, insurance, repairs or other items, shall be treated as rent paid by the lessee, if they would have been paid by the lessor if the lease contract or other agreement had not specifically provided that they be paid by the lessee.

     (2)  For purposes of this section, the value of owned or leased mobile or movable property located both inside and outside of the state of Tennessee during a tax period shall be determined on the basis of the total percentage of time such property is inside the state during the tax period; provided, that the value of an automobile or truck assigned to a traveling employee shall be considered in Tennessee, if the employee's compensation is assigned to Tennessee for purposes of the taxpayer's apportionment formula payroll factor, or if such vehicle is licensed in Tennessee.

(d)  The average value of property shall be determined by averaging the values at the beginning and ending of the tax period; but the commissioner may require the averaging of monthly values during the tax period, if reasonably required to reflect properly the average value of the taxpayer's property.

(e)  The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period. For this purpose, “compensation” includes a taxpayer's ownership share of the compensation of any general partnership, or entity treated as a general partnership for federal income tax purposes, in which such taxpayer has an ownership interest. A return being filed by a limited liability company that has a general partnership as its single member shall include in its payroll factor only the compensation attributed to the limited liability company. “Compensation” also includes a taxpayer's share of any specific compensation of any limited partnership, subchapter S corporation, limited liability company or other entity treated as a partnership for federal income tax purposes, in which the taxpayer has an ownership interest, directly or indirectly through one (1) or more such entities, and which is not doing business in Tennessee and thus is not subject to Tennessee excise tax.

(f)  Compensation is paid in this state, if:

     (1)  The individual's service is performed entirely inside the state;

     (2)  The individual's service is performed both inside and outside the state, but the service performed outside the state is incidental to the individual's service inside the state; or

     (3)  Some of the service is performed in the state; and

          (A)  The base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the state; or

          (B)  The base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this state.

(g)  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. For this purpose, “gross receipts” includes a taxpayer's ownership share of the gross receipts of any general partnership, or entity treated as a general partnership for federal income tax purposes, in which such taxpayer has an ownership interest. A return being filed by a limited liability company that has a general partnership as its single member shall include in its receipts factor only the gross receipts attributed to the limited liability company. “Gross receipts” also includes a taxpayer's ownership share of gross receipts of any limited partnership, subchapter S corporation, limited liability company, or other entity treated as a partnership for federal income tax purposes, in which the taxpayer has an ownership interest, directly or indirectly through one (1) or more such entities, and that is not doing business in Tennessee and thus is not subject to Tennessee excise tax.

(h)  Sales of tangible personal property are in this state, if:

     (1)  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; or

     (2)  The property is shipped from an office, store, warehouse, factory or other place of storage in this state and the purchaser is the United States government.

(i)  Sales, other than sales of tangible personal property, are in this state, if the earnings-producing activity is performed:

     (1)  In this state; or

     (2)  Both in and outside this state and a greater proportion of the earnings-producing activity is performed in this state than in any other state, based on costs of performance.

(j)  Notwithstanding any provision of law other than § 67-4-2014 to the contrary, any person doing business in Tennessee, who licenses the use of patents, trademarks, tradenames, copyrights, or know-how, or other intellectual property to another person in Tennessee, and who is paid royalties or other income based on the sale of products or other activity in Tennessee by the licensee, shall source such income to Tennessee for purposes of its apportionment formula receipts factor.

[Acts 1999, ch. 406, § 3; 2000, ch. 982, §§ 20-22, 48; 2006, ch. 1019, § 19.]  

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