Tennessee State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Tennessee, with full citations and the original source on every page.
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After a parent company absorbs its wholly owned, disregarded single-member LLC by merger, can it keep using the Tennessee franchise and excise tax credits the LLC earned?
Yes. The Department ruled that a corporate parent that earned Tennessee franchise and excise (F&E) tax credits — industrial-machinery, job, and 'super' job tax credits — through its wholly owned singl…
How does Tennessee's excise tax treat a company's federal Subpart F income from foreign subsidiaries — is it a dividend, and when can the company deduct it?
Two answers. (1) YES — for Tennessee excise tax, a company's 'Subpart F income' (the foreign-subsidiary earnings the federal tax code makes a U.S. parent report currently) is treated as a DIVIDEND, co…
If a public REIT owns Tennessee rental-property LLCs and limited partnerships through a partnership, and those entities are disregarded for federal tax, can they deduct from Tennessee excise tax the earnings the partnership distributes up to the REIT?
Yes. The single-owner LLCs and limited partnerships (the 'Taxpayers') qualify for Tennessee's excise-tax deduction under § 67-4-2006(a)(5)(A) for net earnings the partnership distributes — directly or…
A single-member LLC owned by a partnership has no Tennessee activity and just does securitization. Does it qualify for Tennessee's franchise and excise exemption for partnerships and trusts?
Yes — a disregarded SMLLC owned by a partnership is treated as a partnership for this exemption. Tennessee exempts certain asset-backed securitization entities from franchise & excise (F&E) tax if the…
A governmental pension trust that is exempt from federal income tax owns a single-member LLC that operates in Tennessee. Is that LLC disregarded for Tennessee franchise and excise tax, and is the exempt trust taxed on the LLC's earnings?
Yes, the LLC is disregarded — but the exempt owner can still owe tax on unrelated-business income. A governmental pension trust (exempt from federal income tax under I.R.C. § 501(a)) is the sole membe…
A Tennessee corporation will convert several subsidiaries that do business in Tennessee into single-member LLCs disregarded for federal income tax, effective December 31, 2016. How do those conversions affect its Tennessee franchise and excise tax returns and consolidated net-worth election?
It depends on the tax year. For the tax year ending December 31, 2016 (the reorganization is effective that day), the corporation and each converting entity are still SEPARATE entities, so they file S…
A company uses software in three ways — licensed from foreign affiliates and hosted abroad, subscribed from third-party vendors and hosted out of state, and bought and installed on its own servers in and out of Tennessee. Which of those charges are subject to Tennessee sales and use tax?
It depends on where the software lives and where it's used. (1) Affiliate-hosted software — licensed from foreign affiliates and bundled with hosting, support, and backup for one price — is taxable on…
An Irish private limited company that owns property in Tennessee will elect to be a disregarded entity for U.S. federal income tax. Will it still be a separate taxpayer for Tennessee franchise and excise tax, or can it be disregarded?
It will be a separate taxpayer — it cannot be disregarded for Tennessee franchise and excise (F&E) tax. Tennessee follows federal entity classification, but with one key exception: a federally disrega…
A tiered multinational group with corporations, LLCs, and disregarded single-member LLCs wants to compute its Tennessee franchise-tax net worth on a consolidated basis. Which entities are disregarded, who is in the affiliated group, and how are foreign holdings and disregarded SMLLCs treated in consolidated net worth?
Three answers. (1) The group's single-member LLCs that are disregarded for federal income tax and owned by a corporation (here, LLCs taxed as corporations) are ALSO disregarded for Tennessee franchise…
Can a REIT's federally disregarded subsidiary take the REIT dividends-paid deduction — or the public-REIT exclusion or exemption — when figuring its Tennessee excise tax?
No to both. This advisory ruling addresses subsidiaries of real estate investment trusts (REITs) that run sale-leaseback financing and own Tennessee real estate. Each is DISREGARDED for federal income…
If a chain of disregarded single-member LLCs is ultimately owned by a tax-exempt governmental pension plan, is the bottom-tier LLC subject to Tennessee franchise and excise tax?
It's a not-for-profit, generally exempt — but not completely. The Department ruled that an LLC at the bottom of a chain of single-member LLCs, all disregarded for federal income tax purposes up to a t…
If a company generates a Tennessee job tax credit through a disregarded single-member LLC and then sells that LLC, can the parent company still use the leftover credit carryforward on its own future tax returns?
Yes. The Department ruled that a corporation may continue using a Tennessee job tax credit carryforward on its own franchise and excise tax returns even after selling the single-member LLC whose busin…
Can a Tennessee series LLC with dozens of individual series file one combined franchise and excise tax return, or does every series have to file its own separate return?
No, a single combined return isn't allowed. Each individual series of the series LLC -- potentially up to thirty of them -- must file its OWN separate Tennessee franchise and excise tax return, and so…
If a corporate parent moves its Tennessee operating LLCs under an out-of-state business trust instead of holding them directly, do the LLCs and the trust stay disregarded for Tennessee franchise and excise tax purposes the way they are for federal income tax?
No. Tennessee only disregards a single-member LLC for franchise and excise tax purposes if its sole member is a corporation — a business trust doesn't count, so once the trust owns the LLCs, both the …
Can a parent company file one combined sales and use tax return covering both itself and its wholly-owned single-member LLC leasing subsidiary, instead of the subsidiary registering and filing separately?
Yes. Because Subsidiary is a disregarded single-member LLC, the Department will treat it as a division of Parent for sales and use tax purposes -- Parent may register and pay tax owed by Subsidiary on…
When a loss-making subsidiary merges into a newly formed, not-yet-capitalized single-member LLC owned by its sister corporation (as part of a corporate simplification), does the subsidiary's unused Tennessee net operating loss carry over to the LLC or become usable by the sister corporation going forward?
No on both counts. The disregarded SMLLC is treated as a division of its corporate owner, so the merger is really treated as the loss-making subsidiary merging directly into its actively-operating sis…
Does a subsidiary's Tennessee net operating loss carryforward survive when it either (1) converts under state law into a single-member LLC wholly owned by its corporate parent, or (2) merges out of existence into a newly formed LLC that later becomes a disregarded entity?
No, in both scenarios. Because the disregarded single-member LLC is treated as a mere division of its actively-operating corporate parent (which has its own income, assets, and net worth, not an empty…
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These are official tax letter rulings and advisory opinions issued by Tennessee's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.