Tennessee Taxpayers Beware: Tennessee’s Tax Law has Changed Filing Requirements for the 2023 Business Tax

The Tennessee Department of Revenue has begun issuing notices to Tennessee taxpayers, alerting them to recent law changes and urgently encouraging them to reevaluate their Tennessee Business Tax filing requirements for 2023. Failure to act will likely result in unexpected filing obligations, interest, and penalties.

Earlier this year, Tennessee made changes to its Business Tax, which is separate and distinct from its Franchise & Excise Tax, effective for tax periods ending on or after December 31, 2023. In doing so, Tennessee effectively adopted a “Wayfair” standard, similar to what is imposed for sales and use tax, for the Business Tax. The Tennessee Department of Revenue issued Notice #23-08 to explain the changes. Some highlights include:

Wayfair Threshold Increase and Calculation Change

• Prior to the law change, taxpayers with a physical location in Tennessee and who generated gross sales of $10,000 or more in any Tennessee county must file a business tax return for the gross receipts received in counties where gross receipts were $10,000 or more.
• The law change increases the tax filing threshold from $10,000 to $100,000 and also applies to taxpayers without a physical presence in Tennessee. Furthermore, when taxpayers determine whether they have exceeded the $100,000 threshold, they must aggregate their gross receipts from each location.

Contractor “Deemed Location” Threshold Increase

• For Business Tax purposes, a deemed location is any county or city location(s) where the contractor is not domiciled or located but exceeds the threshold limit. The Act increased the threshold from $50,000 to $100,000. When the charges billed by the contractor exceed the threshold of work performed in a deemed location, the contractor will be required to file the business tax return.

Standard Business License and Minimal Activity License

• The Act increases the Standard Business License threshold and maintains the existing tax law surrounding the Minimal Activity License.
• Under the new law, businesses exceeding the new $100,000 threshold must obtain a standard business license. Businesses with a standard business license must file a business tax return with the department and remit tax accordingly.
• Businesses with annual gross receipts of more than $3,000 but less than $100,000 within a jurisdiction are required to obtain a minimal activity license from the local county and/or incorporated municipality but do not have to obtain a standard business license. Separate minimal activity licenses are required for each location within the jurisdiction.

Should you require any assistance and would like to consult how these changes impact your business, please reach out to Joseph Feehan at [email protected] or a Marcum State and Local Tax professional.