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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For Tennessee franchise and excise tax, where does a manufacturer source drop-shipment sales — to the third-party merchant it bills, or to the end customer who receives the goods?
To the end user. The Department advised that an out-of-state manufacturer selling through third-party merchants sources its sales to where the end customer is located for Tennessee franchise and excis…
After a corporate 'F reorganization,' can the new successor company use the predecessor's Tennessee net operating losses and tax credits against its future franchise and excise tax?
Yes. The Department ruled that after an IRC § 368(a)(1)(F) 'F reorganization' — a mere change in a corporation's identity or form — the newly formed successor company may carry over and use the predec…
When a bank's subsidiary sells assets and is then moved from a first-tier to a second-tier position, are its sale transactions still included in the bank group's combined Tennessee franchise and excise return?
Yes — for the sales made while it was still in the group. The Department ruled that a bank-owned subsidiary's sale of two investments must be included in the bank group's combined Tennessee franchise …
When a manufacturer sells goods to wholesale distributors that later resell them to end customers, does it source those sales to the distributors or to the final buyers for the Tennessee franchise and excise tax receipts factor?
Source to the distributors. The Department ruled that an out-of-state manufacturer must source its sales to the location of the wholesale distributors it sells to — not to the location of the end cust…
Are limited partnerships and the captive REIT groups they own — whose only Tennessee tie is mortgage loans secured by Tennessee property — subject to Tennessee franchise and excise taxes?
No. The Department ruled that three limited partnerships and the captive REIT groups they own are not subject to Tennessee franchise and excise (F&E) taxes, because they are not 'doing business in Ten…
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…
Does a company have to add a short-term intercompany trade payable back into its net worth when figuring Tennessee franchise tax?
No. The Department ruled that a foreign company was not required to 'add back' a short-term intercompany trade payable — owed by its U.S. branch to an affiliate for inventory bought to fill U.S. custo…
Does a company whose revenue mostly comes from selling renewable-fuel credits (RINs and LCFS credits) still count as a manufacturer eligible for Tennessee's franchise and excise tax industrial-machinery credit?
Yes. The Department ruled that an LLC running a Tennessee industrial-gas plant qualifies for the franchise and excise (F&E) tax industrial-machinery credit on its equipment, even though most of its re…
Does federal ERISA law shield a Tennessee S corporation from franchise and excise tax just because the company is wholly owned by an employee stock ownership plan (ESOP)?
No. The Department ruled that ERISA — the federal law governing employee benefit plans — does not preempt Tennessee franchise and excise (F&E) tax on a Tennessee S corporation, even though the company…
When a partnership makes an IRC § 754 election and pushes the basis step-up down to a Tennessee LLC, does it raise the LLC's Tennessee franchise tax and its excise tax?
It splits by tax. The Department ruled that when a partnership makes an IRC § 754 election that steps up the new partners' basis in partnership property, and then 'pushes down' that step-up to a Tenne…
Do a homebuilder's capitalized 'soft costs' — labor, interest, permits, services — count in the Tennessee franchise tax minimum property measure, or just the land and materials?
Yes — the soft costs count. The Department ruled (in an advisory, non-binding revenue ruling) that a homebuilder's capitalized 'soft costs' — labor, interest, permits, architectural/engineering servic…
When a manufacturer's customers pick up custom goods at its Tennessee facility but register and use them elsewhere, are those sales sourced to Tennessee for franchise and excise apportionment?
By the purchaser's location — not where the goods are registered or merely picked up. The Department ruled (advisory, non-binding) that for Tennessee franchise and excise (F&E) apportionment, a manufa…
Does a foreign corporation that only stores inventory at a Tennessee toll manufacturer, and has no U.S. effectively connected income, owe Tennessee franchise tax?
No. The Department ruled (in an advisory, non-binding revenue ruling) that a foreign corporation — one treated as a corporation for federal tax purposes — that stores inventory at a Tennessee toll man…
If an out-of-state investment fund's only Tennessee connection is owning mortgages secured by Tennessee property, does it owe Tennessee franchise and excise tax?
No. The Department ruled that a non-U.S. limited partnership fund whose only connection to Tennessee is owning mortgages (some secured by Tennessee property, with some borrowers possibly in Tennessee)…
When Tennessee corporations merge, does the surviving company keep the net operating loss carryforwards of the companies that merged into it for franchise and excise tax?
Usually not — the survival exception is narrow. For Tennessee franchise and excise (F&E) tax, a net operating loss (NOL) carryforward can normally be used only by the taxpayer that generated it; in a …
Can an LLC that absorbs a corporation in a tax-free A reorganization, and elects to be taxed as a corporation federally, still qualify for Tennessee's obligated-member-entity exemption from franchise and excise tax — and does that exemption shield a later asset sale's gain from Tennessee excise tax?
Yes to the exemption question — merging a corporation into a member-managed LLC via a tax-free A reorganization, and the LLC's federal corporate tax election, don't disqualify it from Tennessee's obli…
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 …
When a corporate parent eliminates an affiliate through dissolution, merger into the parent, conversion to a single-member LLC, or an F reorganization, does the parent (or its financial institution unitary group) get to use that affiliate's unused Tennessee net operating loss carryforward?
No, generally. A parent corporation cannot use an eliminated affiliate's Tennessee NOL carryforward whether the affiliate dissolved, merged into the parent, converted to a single-member LLC, or underw…
Can Tennessee limited partnerships that received federal low-income housing credits in 1987-1989, before an extended low-income housing commitment was federally required, still claim Tennessee's affordable-housing franchise and excise tax exemption without one?
No. Tennessee's affordable-housing franchise and excise tax exemption requires an extended low-income housing commitment under IRC § 42(h)(6)(B) to be in effect, and lacking one — even because it wasn…
Does a corporate group that owns home-care-organization subsidiaries and is affiliated with one hospital qualify as a Tennessee 'hospital company' entitled to combined-return franchise and excise tax credits?
No. A corporate group whose subsidiaries are licensed only as home care organizations, and which is affiliated with just one hospital, does not qualify as a Tennessee 'hospital company' for franchise …
Can a restaurant company deduct, for Tennessee franchise and excise tax purposes, the royalty payments it makes to its own wholly-owned trademark-holding subsidiary?
Yes, the Taxpayer may deduct the royalty payments it makes to its affiliated trademark-holding subsidiary as ordinary business expenses, provided that all outstanding loans from the subsidiary to the …
Does a family-owned Tennessee LLC that licenses intellectual property, but also provides active services to its licensees, qualify for the franchise and excise tax exemption for family-owned entities earning passive investment income?
Not automatically. The Taxpayer is family-owned and can be a qualifying non-corporate entity, but it is exempt from Tennessee franchise and excise tax only if it demonstrates that at least 66.67% of i…
Does an out-of-state factoring subsidiary — with no Tennessee offices, employees, or property, but whose affiliated originators pursue collection actions on its behalf against Tennessee customers — have enough nexus to owe Tennessee franchise and excise tax, and if so, must it file a combined return with another affiliated financial institution?
Yes to both. Even with zero physical presence in Tennessee, the factoring company has substantial nexus because its affiliated originators pursue collection agencies, attorneys, and court judgments in…
Can a corporation deduct the royalty payments it makes to a related, commonly-owned intellectual-property-holding affiliate when computing its Tennessee excise tax net earnings, and what factors determine whether that structure is a legitimate business arrangement rather than a tax-avoidance sham?
Yes. Because the IP-holding affiliate has its own offices, employees, and independent operations outside Tennessee, holds legal title to the intangibles, sets royalty rates through independent transfe…
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…
When a buyer and seller jointly elect under IRC § 338(h)(10) to treat a stock purchase as a deemed asset sale, and that deemed sale generates a loss for the acquired corporation, does that loss properly show up in the corporation's Tennessee excise tax base, and can the corporation carry that loss forward to later years even though federal tax rules treat it as a legally distinct "new" corporation after the transaction?
Yes to both. The loss from the deemed asset sale properly flowed into the corporation's Tennessee taxable income because Tennessee doesn't require any adjustment to override the federal Section 338(h)…
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…
Does a Tennessee corporation that buys and collects its affiliate's accounts receivable from customers in other states have enough tax nexus in those other states — through in-person collection visits made by its affiliate's employees on its behalf — to apportion its Tennessee franchise and excise tax liability rather than paying on 100% of its net earnings?
Yes. Because the taxpayer directs its affiliate's employees to make face-to-face visits with out-of-state customers to resolve credit and collection issues — activities significantly associated with t…
When a corporation indirectly owns an interest in a Tennessee-nexus limited partnership through a chain of tiered limited partnerships, does its share of that partnership's income get taxed twice for Tennessee excise tax purposes — once at the partnership level and again when it flows up to the corporation?
No double taxation. Income that has already been subjected to Tennessee excise tax in the hands of a Tennessee-nexus lower-tier partnership must be subtracted from the parent corporation's federal tax…
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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.