Can a company that runs its operations through several affiliated partnerships, LLCs, and corporations at one location combine all of their employees to meet the 250-employee threshold for Tennessee's call-center telecommunications exemption?

Plain-English summary

Tennessee taxes telephone/telecommunication services, but it carves out an exemption for call centers: interstate and international telecom services sold to "a business for use in the operation of one (1) or more call centers" are exempt from sales tax (Tenn. Code Ann. § 67-6-356(a)). A "call center" is defined as a single location that uses telecom services for activities like customer service, soliciting sales, surveys, fundraising, or collecting receivables — and to qualify, it must have at least 250 employee jobs primarily engaged in those activities.

The taxpayer here ran several business lines out of one shared location, but each line was operated by a separate legal entity — a mix of partnerships, LLCs, and corporations, each separately registered for sales tax. No single entity had 250 call-center employees, but if you added all the affiliates' employees together, the location would clear the threshold. So the taxpayer asked whether all the affiliates' employees at the shared location could be treated as one business for the exemption.

The Department said no. Each affiliate is its own "person" and its own "business" under the statute, and they must be counted separately. The key definitions: a "business" is any activity engaged in for gain (§ 67-6-102(9)(A)), and a "person" includes partnerships and corporations or "any other group or combination acting as a unit" (§ 67-6-102(61)). Since the affiliates are different entity types, the only theory that could combine them is "group or combination acting as a unit" — but Tennessee respects corporate separateness. Tennessee courts treat separate legal entities separately for tax purposes, and there's a presumption against treating a subsidiary as a mere instrumentality absent "complete control." The Department also pointed to sister-state decisions (Arizona, Maine, Washington) refusing to treat companies linked only by arm's-length contracts as a single unit.

Because each entity stands alone and the largest still had fewer than 250 qualifying employees, none of them met the third requirement, so none qualified for the call-center exemption. A practical footnote: even though the group had a variance letting it file a combined franchise-and-excise return, that combination is for F&E only and does not make them one business for sales tax.

What this means for you

Multi-entity businesses eyeing the call-center exemption

The 250-employee call-center threshold is measured entity by entity, not by headcount at a shared building. If you run operations through separate partnerships, LLCs, or corporations, you can't pool their employees to reach 250 — each legal entity must independently qualify. If hitting the threshold matters, the question is how the workforce is legally employed, not just where people sit.

Groups that file combined for other taxes

Don't assume a combined-filing arrangement carries across tax types. This group had a variance to file a combined franchise-and-excise return, but the Department held that combination doesn't apply to sales tax — the entities remained separate for the § 67-6-356(a) exemption.

Accountants and tax professionals

The decision turns on the "person"/"business" definitions (§ 67-6-102(61), § 67-6-102(9)(A)) and Tennessee's strong presumption of corporate separateness (Broadmoor-Kingsport, Cook Export, Gordon v. Greenview Hosp.). The "group or combination acting as a unit" language is a catch-all for unincorporated organizations, not a tool to merge separate corporations when it suits them — a reading the Department supported with out-of-state authority (Home Depot v. Arizona, Linnehan Leasing, Nordstrom Credit). Note that exemptions are also subject to Tennessee's general rule of strict construction against the taxpayer (not the dispositive ground here, since the entity-counting issue resolved it).

Common questions

Q: What is Tennessee's call-center exemption?
A: Sales tax does not apply to interstate and international telecommunication services sold to a business for use in operating a "call center" — a single location with at least 250 employee jobs primarily engaged in activities like customer service, sales, surveys, fundraising, reservations/orders, or collecting receivables (Tenn. Code Ann. § 67-6-356(a)).

Q: Can affiliated companies combine employees to reach 250?
A: No. Each affiliated partnership, LLC, or corporation is a separate "person" and "business," so their employees are counted separately. Tennessee respects corporate separateness and won't treat arm's-length affiliates as one "group or combination acting as a unit."

Q: We file a combined franchise-and-excise return — doesn't that make us one business?
A: No. Combined F&E filing (here, under a variance) applies only to franchise and excise tax. The entities remain separate for sales-and-use-tax purposes, including this exemption.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts and can be revoked or modified. Confirm your own structure with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; Retailers' Sales Tax Act, §§ 67-6-101 to -907):

• § 67-6-356(a) (call-center exemption for interstate/international telecom services; "call center" = single location with ≥250 employee jobs primarily engaged in enumerated activities)
• § 67-6-205(c)(3) (furnishing telecommunication services is an enumerated taxable service)
• § 67-6-102(9)(A) (definition of "business"); § 67-6-102(61) (definition of "person," including "any other group or combination acting as a unit")

Cases cited by the ruling:

• Broadmoor-Kingsport Apartments, Inc. v. State, 686 S.W.2d 70 (Tenn. 1985); Cook Export Corp. v. King, 617 S.W.2d 879 (Tenn. 1981) (Tennessee treats separate legal entities separately for tax purposes)
• Gordon v. Greenview Hosp., Inc., 300 S.W.3d 635 (Tenn. 2009) (presumption of corporate separateness absent "complete control")
• Home Depot USA, Inc. v. Ariz. Dept. of Revenue, 287 P.3d 97 (Ariz. Ct. App. 2012); Linnehan Leasing v. State Tax Assessor, 2006 ME 33, 898 A.2d 408; Home Depot USA, Inc. v. State, Dept. of Revenue, 215 P.3d 222 (Wash. Ct. App. 2009); Nordstrom Credit, Inc. v. Dept. of Revenue, 845 P.2d 1331 (Wash. 1993) (sister-state authority: arm's-length affiliates are not a single "unit")

Subject

The application of the Tennessee sales and use tax exemption under Tenn. Code Ann. § 67-6-356 (2011) for telecommunications services used by call centers

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/13-04.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 13-04

Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and
circumstances presented, and is an interpretation of the law at a specific point in time. The
law may have changed since this ruling was issued, possibly rendering it obsolete. The
presentation of this ruling in a redacted form is provided solely for informational purposes,
and is not intended as a statement of Departmental policy. Taxpayers should consult with a
tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax exemption under TENN. CODE ANN. § 67-6356 (2011) for telecommunications services used by call centers.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS
[TAXPAYER] (the “Taxpayer”) [REDACTED], [IS] located at [STREET ADDRESS], [CITY],
Tennessee (hereinafter referred to as the “[PRIMARY LOCATION]”).
The Taxpayer has a number of business lines, including: [DESCRIPTIONS]. These business
lines are conducted through various partnerships, limited liability companies, and corporations.
Each business line is operated by a separate legal entity that employs the personnel required to

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conduct the line of business, and each entity is registered for sales and use tax purposes. The
primary base of operations is the [PRIMARY LOCATION], [REDACTED].
The Taxpayer and its affiliates employ approximately [NUMBER] employees located at the
[PRIMARY LOCATION] and approximately [NUMBER] in [OTHER LOCATION]. Certain
Taxpayer associates located at the [PRIMARY LOCATION] utilize telecommunication services
primarily in the activities of providing customer service, soliciting sales, and collecting accounts
receivable. Associates performing these services at the [PRIMARY LOCATION] are employed
by [NUMBER – MORE THAN ONE] different Taxpayer entities, including: [REDACTED].
[REDACTED].
RULING
Will the Taxpayer’s operations at the [PRIMARY LOCATION] be considered
one business, such that the employees of the Taxpayer and its various Taxpayer
affiliates will be treated as employees of a single business for purposes of the
Tennessee sales and use tax exemption under TENN. CODE ANN. § 67-6-356(a)
(2011)?
Ruling: No. The Taxpayer and each affiliated entity are treated as separate entities
for purposes of the exemption under TENN. CODE ANN. § 67-6-356(a) (2011). As
a result, the Taxpayer may not treat its employees and the employees of its
various affiliates as employees of a single business for purposes of the exemption.
ANALYSIS
Under the Retailers’ Sales Tax Act, 1 the retail sale in Tennessee of tangible personal property
and specifically enumerated services is subject to the sales and use tax, unless an exemption
applies. One of the services subject to the sales and use tax is the furnishing of intrastate,
interstate or international telecommunication services, pursuant to TENN. CODE ANN. § 67-6205(c)(3) (Supp. 2012).
TENN. CODE ANN. § 67-6-356(a) (2011), however, provides an exemption from the Tennessee
sales and use tax for “any sales of interstate telecommunication and international
telecommunication services to a business for use in the operation of one (1) or more call
centers.” 2 The term “call center” is defined as “a single location that utilizes telecommunication
services in one (1) or more of the following activities: customer services, soliciting sales,
reactivating dormant accounts, conducting surveys or research, fund raising, collection of
receivables, receiving reservations, receiving orders, or taking orders.” 3 To qualify for the

1

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. §§ 67-6-101 to -907 (2011 & Supp. 2012)).
2

(Emphasis added).

3

TENN. CODE ANN. § 67-6-356(a) (emphasis added).

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exemption, a call center must have at least 250 employee jobs engaged primarily in call center
activities. 4
Thus, in order to qualify for the TENN. CODE ANN. § 67-6-356(a) call center exemption, the
interstate and international telecommunications services must be sold: 1) to a business; 2) for use
at a single location; 3) which qualifies as a call center by having at least 250 employees engaging
in enumerated call center activities; and 4) the 250 employees are primarily engaged in such call
center activities.
BUSINESS
The Taxpayer and its affiliates are treated as separate businesses for purposes of the exemption
under TENN. CODE ANN. § 67-6-356(a).
TENN. CODE ANN. § 67-6-356(a) exempts telecommunication services sold to “a business for use
in the operation of one (1) or more call centers.” 5 “[U]nless the context otherwise requires,”
TENN. CODE ANN. § 67-6-102(9)(A) (Supp. 2012) defines a “business” as “any activity engaged
in by any person, or caused to be engaged in by such person, with the object of gain, benefit, or
advantage, either direct or indirect.” A “person” is defined in pertinent part as “any . . . copartnership, joint venture, association, corporation, . . . or other group or combination acting as a
unit, in the plural as well as the singular number.” 6
Thus, it is necessary to determine whether the Taxpayer and its affiliates constitute a single
business, or multiple separate businesses, for purposes of TENN. CODE ANN. § 67-6-356(a). But
before that issue can be resolved, it is necessary to decide if the Taxpayer and its affiliates may
properly be considered a “person” under TENN. CODE ANN. § 67-6-102(61).
The Taxpayer here operates through a number of related, yet different types of, business entities.
For example, the Taxpayer and its affiliates operate through various partnerships, limited liability
companies, and corporations. Due to the different types of business entities employed by the
Taxpayer and its affiliates, the only portion of the “person” definition potentially applicable to
the Taxpayer and its affiliates is if they are a “group or combination acting as a unit.” 7
Tennessee’s courts have not had occasion to expound the proper interpretation of this statutory
phrase, but some of Tennessee’s sister states have interpreted this phrase. 8 For example, a
4

Id.

5

(Emphasis added).

6

TENN. CODE ANN. § 67-6-102(61).

7

See id. The “group or combination acting as a unit” language has been a component of the definition of “person”
since the Retailer’s Sales Tax Act was first codified in 1947. See Retailers’ Sales Tax Act, ch. 3, § 2(a), 1947 Tenn.
Pub. Acts 22, 23.
8

A number of Tennessee’s sister states have similar definitions of “person.” Compare TENN. CODE ANN. § 67-6102(61), with ARIZ. REV. STAT. ANN. § 42-5001 (West, Westlaw through the Second Regular Session of the Fiftieth
Legislature) (“‘Person’ or ‘company’ includes an individual, firm, partnership, joint venture, association,
corporation, estate or trust, this state, any county, city, town, district, other than a school district, or other political
subdivision and any other group or combination acting as a unit, and the plural as well as the singular number.

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number of states have rejected claims that companies related solely by arm’s length contracts
establish a unit.9 The bases for these findings are the lack of existence of an agency relationship,
no singularity of purpose, and respect of the corporate form. 10 As the Supreme Judicial Court of
Maine has observed, “[t]he reference in the law to ‘other’ groups or combinations is a catch-all
phrase, applying to any other possible organizational entities that may be identified; it is not a
device to allow separate corporations to be treated as a single entity under the tax code when
such single entity treatment suits their purpose.” 11
Many of these same principles apply in Tennessee. For example, Tennessee’s courts regularly
treat separate legal entities separately for tax purposes. 12 In addition, there is a “presumption of
corporate separateness” for agency purposes, unless the parent corporation exerts “the kind of
‘complete control’ which renders the subsidiary nothing more than an instrumentality, agency,
conduit, or adjunct of the parent corporation.” 13
Despite sharing a common [PRIMARY LOCATION], the Taxpayer and its affiliates remain
separate legal entities. For example, [ENTITY NAME] operates in the corporate form, and is
specifically enumerated in the TENN. CODE ANN. § 67-6-102(61) definition of “person.”
[NUMBER] of the affiliates are limited partnerships, which would also be considered separate
persons due to the inclusion of “co-partnership” in the definition of person. 14 Since separate
entities are treated separately for tax purposes, each Taxpayer entity is properly considered

(Emphasis added)), and ME. REV. STAT. ANN. § 111(3) (West, Westlaw through the 2011 Second Regular Session
of the 125th Legislature) (“‘Person’ means an individual, firm, partnership, association, society, club, corporation,
financial institution, estate, trust, business trust, receiver, assignee or any other group or combination acting as a
unit, the State or Federal Government or any political subdivision or agency of either government. (Emphasis
added)).
9

See, e.g., Home Depot USA, Inc. v. Ariz. Dept. of Revenue, 287 P.3d 97, 103-04 (Ariz. Ct. App. 2012) (retailer and
financing companies not a unit); Linnehan Leasing v. State Tax Assessor, 2006 ME 33, ¶ 22, 898 A.2d 408, 414
(auto dealer and financing company not a unit); Home Depot USA, Inc. v. State, Dept. of Revenue, 215 P.3d 222,
230 (Wash. Ct. App. 2009) (retailer and financing companies not a unit).
10

See Home Depot USA, Inc. v. Ariz. Dept. of Revenue, 287 P.3d at 103; Nordstrom Credit, Inc. v. Dept. of Revenue,
845 P.2d 1331, 1335 (Wash. 1993) (en banc) (quoting Wash. Sav-Mor Oil Co. v. State Tax Comm’n, 364 P.2d 440
(Wash. 1961)) (“The corporation will be regarded as a legal entity, as a general rule, and the courts will ignore the
fiction of corporate entity only with caution, and when the circumstances justify it, and when it is used as a
subterfuge to defeat public convenience, justify wrong, or perpetrate a fraud.”).

11

Linnehan Leasing, 2006 ME 33, at ¶ 22, 898 A.2d at 414.

12

See, e.g., Broadmoor-Kingsport Apartments, Inc. v. State, 686 S.W.2d 70, 73 (Tenn. 1985) (“It would be
untenable to permit a party to take advantage of the corporate form to hold title to property and to conduct business
with respect to that property and then permit the party to disavow the corporate ownership when it becomes
disadvantageous [for franchise tax purposes].”); Cook Export Corp. v. King, 617 S.W.2d 879, 881 (Tenn. 1981)
(“[M]any subsidiary corporations do not have separate employees or payrolls, but this does not mean that they lack
corporate existence or do not do business within the meaning of the [Tennessee franchise and excise taxes].”).

13

Gordon v. Greenview Hosp., Inc., 300 S.W.3d 635, 653-54 (Tenn. 2009) (footnote omitted).

14

See TENN. CODE ANN. § 67-6-102(61).

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separate “persons,” and consequently, separate “businesses,” for purposes of the TENN. CODE
ANN. § 67-6-356(a) exemption. 15
250 EMPLOYEE REQUIREMENT
It is not necessary to discuss the second and fourth requirements discussed above because each
entity is treated as a separate business for purposes of the TENN. CODE ANN. § 67-6-356(a)
exemption, and each entity has less than 250 employees primarily engaged in call center
activities. The entity with the most employees engaged in call center activities still only has
[NUMBER – LESS THAN 250] employees. None of the Taxpayer’s entities therefore qualify
for the TENN. CODE ANN. § 67-6-356(a) call center telecommunications exemption from the
Tennessee sales tax because they all fail to meet the third requirement.

R. John Grubb II
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

January 30, 2013

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Although the Taxpayer has been granted a variance letter to file a combined Tennessee franchise and excise tax
return, that variance is only applicable for franchise and excise purposes. The Taxpayer and its affiliated entities
remain separate entities for sales tax purposes.

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