Tennessee Tax Changes - January 2025
Corporate Income Tax Ruling on Drop Shipments
- The Tennessee Department of Revenue has ruled that:
- Drop shipments are sourced to their ultimate destinations.
- Shipments sent to a third-party facility do not count as sales since the facility does not acquire title to the products.
- Sales are recorded only when goods are shipped to the ultimate customers.
- This ruling is documented in Tennessee Revenue Ruling No. 24-12, dated 12/19/2024.
Updates to Franchise and Excise Tax Manual
- The Department has updated the franchise and excise tax manual to include:
- New Schedule I for disregarded entities in taxpayer returns.
- Requirements for financial institutions and captive REITs filing Form FAE 174 to report combined group members.
- Clarifications regarding the termination of a CNW election upon acquisition by a non-affiliate.
- Confirmation on sourcing sales of tangible personal property through intermediaries (distributors or wholesalers).
- Adjustments to proration calculations for franchise tax when unitary group members enter or exit a financial institution unitary group during the tax year.
- These updates were published on 12/01/2024.
Sales Tax Rate Change
- The Tennessee Department of Revenue has announced changes to the sales tax rate in the City of Gallatin. (Details on the specific changes are not provided in the excerpt.)
Tennessee Corporate Income Tax—Tennessee rules that drop shipments are sourced to ultimate destinations.
The Tennessee Department of Revenue has issued a ruling that states that drop shipments must be sourced to where they were shipped. This was the case even though the products being drop shipped to the ultimate customers were first sent to a third-party facility where they were held prior to shipment to the ultimate customers. Since the third-party facility never obtained title or an interest in the products, the shipments to the third-party facility were not reported as sales. It was only when the goods were shipped to the customer of the purchasers that sales to the purchasers were recorded and those sales must be sourced to where the goods were shipped. (Tennessee Revenue Ruling No. 24-12, 12/19/2024.)
Tennessee Corporate Income Tax—Tennessee updates franchise and excise tax manual.
The Tennessee Department of Revenue has updated the franchise and excise tax manual: (1) with respect to new Schedule I (Disregarded Entities) which must be included when a disregarded entity is included as part of the taxpayer's return; (2) relating to new Schedule I which must be completed by financial institutions and captive REITS filing Form FAE 174 to report the combined group members included in the tax return (including disregarded entities); (3) clarifying that the acquisition of an existing affiliated group by a non-affiliate terminates the existing group's CNW election (unless the acquiring entity has its own CNW election in effect at the time of the acquisition); (4) to confirm the Department's position on sourcing sales of tangible personal property to intermediaries such as distributors or wholesalers; and (5) the franchise tax proration calculation when a unitary group member enters or exists a financial institution unitary group during the tax year. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Franchise and Excise Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)
Tennessee Franchise Tax—Tennessee rules that drop shipments are sourced to ultimate destinations.
The Tennessee Department of Revenue has issued a ruling that states that drop shipments must be sourced to where they were shipped. This was the case even though the products being drop shipped to the ultimate customers were first sent to a third-party facility where they were held prior to shipment to the ultimate customers. Since the third-party facility never obtained title or an interest in the products, the shipments to the third-party facility were not reported as sales. It was only when the goods were shipped to the customer of the purchasers that sales to the purchasers were recorded and those sales must be sourced to where the goods were shipped. (Tennessee Revenue Ruling No. 24-12, 12/19/2024.)
Tennessee Sales and Use Tax Rates—Tennessee announces City of Gallatin sales tax rate change.
The Tennessee Department of Revenue has advised sellers in the City of Gallatin that the sales tax rate will increase to 2.75% on March 1, 2025. The new rate will apply to all taxable sales of tangible personal property made on or after March 1, 2025. It also applies to the sale of taxable services for billing periods starting on or after March 1, 2025. Sellers located in the City of Gallatin must collect and remit tax at this new rate. The corresponding local consumer use tax in the City of Gallatin also increases to 2.75%. The local tax cap on sales of single articles of tangible property is $44. (Tennessee Important Notice No. 25-01, 01/01/2025.)
Tennessee Sales & Use Taxes—Tennessee makes additional revisions to SSUTA taxability matrix for tax administration practices.
The Tennessee Department of Revenue has made additional revisions to the SSUTA taxability matrix for tax administration practices that had an update date of December 30, 2024. The changes made deal with questions related to remote sellers. (Taxability Matrix, Tax Administration Practices, 01/07/2024.)
Tennessee Sales & Use Taxes—Tennessee announces City of Gallatin sales tax rate change.
The Tennessee Department of Revenue has advised sellers in the City of Gallatin that the sales tax rate will increase to 2.75% on March 1, 2025. The new rate will apply to all taxable sales of tangible personal property made on or after March 1, 2025. It also applies to the sale of taxable services for billing periods starting on or after March 1, 2025. Sellers located in the City of Gallatin must collect and remit tax at this new rate. The corresponding local consumer use tax in the City of Gallatin also increases to 2.75%. The local tax cap on sales of single articles of tangible property is $44. (Tennessee Important Notice No. 25-01, 01/01/2025.)
Tennessee Sales & Use Taxes—Tennessee updates sales and use tax manual.
The Tennessee Department of Revenue has modified its sales and use tax manual with the following updates: (1) charges by a taxidermist for taxidermy activity are exempt from the sales and use tax; (2) the term software used in the operation of a date center is inclusive and encompasses a number of business functions such as accounting, human resources and customer information; (3) sales tax should be charged to TennCare for covered products under the TennCare Diaper Benefit; and (4) sales of electricity at electric vehicle charging stations are subject to sales and use taxes. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Sales and Use Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)
Tennessee Corporate Income Tax—Tennessee rules that drop shipments are sourced to ultimate destinations.
The Tennessee Department of Revenue has issued a ruling that states that drop shipments must be sourced to where they were shipped. This was the case even though the products being drop shipped to the ultimate customers were first sent to a third-party facility where they were held prior to shipment to the ultimate customers. Since the third-party facility never obtained title or an interest in the products, the shipments to the third-party facility were not reported as sales. It was only when the goods were shipped to the customer of the purchasers that sales to the purchasers were recorded and those sales must be sourced to where the goods were shipped. (Tennessee Revenue Ruling No. 24-12, 12/19/2024.)
Tennessee Corporate Income Tax—Tennessee updates franchise and excise tax manual.
The Tennessee Department of Revenue has updated the franchise and excise tax manual: (1) with respect to new Schedule I (Disregarded Entities) which must be included when a disregarded entity is included as part of the taxpayer's return; (2) relating to new Schedule I which must be completed by financial institutions and captive REITS filing Form FAE 174 to report the combined group members included in the tax return (including disregarded entities); (3) clarifying that the acquisition of an existing affiliated group by a non-affiliate terminates the existing group's CNW election (unless the acquiring entity has its own CNW election in effect at the time of the acquisition); (4) to confirm the Department's position on sourcing sales of tangible personal property to intermediaries such as distributors or wholesalers; and (5) the franchise tax proration calculation when a unitary group member enters or exists a financial institution unitary group during the tax year. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Franchise and Excise Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)
Tennessee Franchise Tax—Tennessee rules that drop shipments are sourced to ultimate destinations.
The Tennessee Department of Revenue has issued a ruling that states that drop shipments must be sourced to where they were shipped. This was the case even though the products being drop shipped to the ultimate customers were first sent to a third-party facility where they were held prior to shipment to the ultimate customers. Since the third-party facility never obtained title or an interest in the products, the shipments to the third-party facility were not reported as sales. It was only when the goods were shipped to the customer of the purchasers that sales to the purchasers were recorded and those sales must be sourced to where the goods were shipped. (Tennessee Revenue Ruling No. 24-12, 12/19/2024.)
Tennessee Sales and Use Tax Rates—Tennessee announces City of Gallatin sales tax rate change.
The Tennessee Department of Revenue has advised sellers in the City of Gallatin that the sales tax rate will increase to 2.75% on March 1, 2025. The new rate will apply to all taxable sales of tangible personal property made on or after March 1, 2025. It also applies to the sale of taxable services for billing periods starting on or after March 1, 2025. Sellers located in the City of Gallatin must collect and remit tax at this new rate. The corresponding local consumer use tax in the City of Gallatin also increases to 2.75%. The local tax cap on sales of single articles of tangible property is $44. (Tennessee Important Notice No. 25-01, 01/01/2025.)
Tennessee Sales & Use Taxes—Tennessee makes additional revisions to SSUTA taxability matrix for tax administration practices.
The Tennessee Department of Revenue has made additional revisions to the SSUTA taxability matrix for tax administration practices that had an update date of December 30, 2024. The changes made deal with questions related to remote sellers. (Taxability Matrix, Tax Administration Practices, 01/07/2024.)
Tennessee Sales & Use Taxes—Tennessee announces City of Gallatin sales tax rate change.
The Tennessee Department of Revenue has advised sellers in the City of Gallatin that the sales tax rate will increase to 2.75% on March 1, 2025. The new rate will apply to all taxable sales of tangible personal property made on or after March 1, 2025. It also applies to the sale of taxable services for billing periods starting on or after March 1, 2025. Sellers located in the City of Gallatin must collect and remit tax at this new rate. The corresponding local consumer use tax in the City of Gallatin also increases to 2.75%. The local tax cap on sales of single articles of tangible property is $44. (Tennessee Important Notice No. 25-01, 01/01/2025.)
Tennessee Sales & Use Taxes—Tennessee updates sales and use tax manual.
The Tennessee Department of Revenue has modified its sales and use tax manual with the following updates: (1) charges by a taxidermist for taxidermy activity are exempt from the sales and use tax; (2) the term software used in the operation of a date center is inclusive and encompasses a number of business functions such as accounting, human resources and customer information; (3) sales tax should be charged to TennCare for covered products under the TennCare Diaper Benefit; and (4) sales of electricity at electric vehicle charging stations are subject to sales and use taxes. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Sales and Use Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)