2003 Legislative Summaries

Administrative

Department of Revenue Sunset

Public Chapter 367 SB 1472 - HB 1489 amends Tenn. Code Ann. Title 4, Chapter 29 to extend the sunset date for the Department of Revenue to June 30, 2008.

Effective date: June 17, 2003.

Collection Services Procedures

Public Chapter 118 SB 1753 - HB 1808 amends Tenn. Code Ann. Section 67-1-1445 to expand the Commissioner of Revenue’s authority to contract with debt collection agencies or attorneys to collect unpaid taxes, penalties, interest, etc. Prior law extended this authority only to collection activities outside Tennessee. This act extends such authority to in-state collection activities as well.

The taxpayer would remain entitled to all administrative and judicial remedies provided by law.

Effective date: May 12, 2003.

Alcoholic Beverage Taxes

Sales and Consumption of Wine and Alcoholic Beverages

Public Chapter 132 SB 375 - HB 1555 amends Tenn. Code Ann. Section 57-4-102(24) to broaden the definition of a "premier type tourist resort" at which the sale and consumption of wine and alcoholic beverages is authorized. Under the act, a "premier type tourist resort" includes a commercially operated recreation facility located adjacent to a navigational river which, among other characteristics, contains a minimum of 200 slips for boats, is located upon or adjacent to a public park or preserve, which park is at least 100 acres in size, and is located in a county with a population of at least 380,000 according to the 2000 federal census or any subsequent census.

Effective date: May 19, 2003.

Public Chapter 309 SB 751 - HB 1179 amends Tenn. Code Ann. Section 57-4-102(7) to broaden the definition of a club at which the sale and consumption of wine and alcoholic beverages is authorized. Under the act, a club includes a for-profit recreational club located in Hamilton County which, among other characteristics, has at least 175 members paying annual dues and has a clubhouse with not less than 3,000 square feet. A club also includes a for-profit recreational club located in Sumner County which, among other characteristics, is adjacent to a residential development consisting of at least 100 residential units and where the club property and the residential development consists of at least 200 acres.

Effective date: June 11, 2003.

Public Chapter 314 SB 924 - HB 1825 amends Tenn. Code Ann. Section 57-4-102(21) to expand the definition of a museum at which the sale and consumption of wine and alcoholic beverages is authorized. Under the act, a museum includes a building or institution located in Shelby County that, among other characteristics, serves as a tribute to soul music and houses a music academy.

Effective date: June 11, 2003.

General Tax Bill

Affects: Business Tax, Franchise & Excise Tax, Petroleum Taxes, Professional Privilege Tax, Sales and Use Tax and Tobacco Taxes

Public Chapter 418 SB 1874 - HB 1991 addresses several taxes administered by the Department of Revenue:

1. It repeals the requirements in Tenn. Code Ann. Sections 67-4-1004 and 67-4-1005 that sales tax indirectly generated by the 2002 cigarette and tobacco tax increases be deposited only in the general fund.

Effective date: June 24, 2003.

2. It amends Tenn. Code Ann. Section 67-4-709 to make it clear that the 2002 business tax increase applies to transactions occurring on or after September 1, 2002.

Effective date: June 24, 2003.

3. It amends Tenn. Code Ann. Section 4-18-103 to make it clear that the False Claims Act does not apply to taxes administered by the Department of Revenue.

Effective date: June 24, 2003.

4. It amends Tenn. Code Ann. Section 67-3-1501 to change the renewal period on licenses for governmental agencies to purchase petroleum products tax exempt from three years to four years.

Effective date: June 24, 2003.

5. It amends the Tenn. Code Ann. Title 67, Chapter 6, to provide a credit from sales and use tax for the amount of sales and use tax due on tobacco buydown payments included in the sales price of tobacco sold at retail.

Effective date: June 24, 2003 but applies to all taxes assessed on or after January 1, 2002.

6. It amends Tenn. Code Ann. Sections 67-4-1708 to repeal the professional privilege tax exemption for state and federal employees, making the tax payable on June 30, 2003 and on June 1 in subsequent years. It also amends Tenn. Code Ann. Section 67-4-1709 to provide that any employer, including any governmental entity, can choose to remit the professional privilege tax on behalf of its employees who are subject to the tax.

Effective date: June 24, 2003.

7. It amends Tenn. Code Ann. Section 67-1-1438 to provide that no claim or cause of action to challenge a tax assessment or seek a refund shall arise based on the Department's procedures for signing or recording the liability of a taxpayer in the office of the Department.

Effective date: June 24, 2003 and applies to all currently pending or future lawsuits except for those currently pending suits in which a challenge to the assessment based on the Department's recording procedures was specifically alleged in either the plaintiff's complaint, interrogatories, requests for production of documents, or requests for admissions prior to May 1, 2003.

8. For excise tax purposes, the act amends Tenn. Code Ann. Section 67-4-2004 to expand the definition of "doing business as a financial institution" to include the holding of participation loans in which more than one lender is a creditor to a common borrower. It also expands the definition of "financial institution" to include an investment entity that is indirectly more than 50 percent owned by a holding company or a regulated financial corporation, or any other person that is carrying on the business of a financial institution. However, the definition of "financial institution" continues to exclude insurance companies.

Effective date: June 24, 2003 and applies to the period beginning January 1, 2003.

Hall Income Tax

Military Filing Extension

Public Chapter 87 SB 1175 - HB 1248 amends Tenn. Code Ann. Sections 67-2-112(b) and 67-4-1703 to provide a filing extension for armed forces personnel stationed outside the United States during Operation Enduring Freedom or other hostilities who are liable for Hall income tax or professional privilege tax. The extended filing deadline is 90 days following the end of the hostilities or 90 days after they are transferred from the combat zone, whichever comes first. No penalty or interest will accrue during the extension period for timely filed returns.

(This act also applies to property taxes, which are not administered by the Department of Revenue.)

Effective date: May 5, 2003.

Budget Provisions Affecting the Department of Revenue

Public Chapter 355 SB 1991 - HB 2073 makes numerous provisions relative to the state budget. Many of these provisions do not impact tax law or the Department of Revenue, and they are not mentioned here.

For most state shared taxes, this act reduces by nine percent the amount of previously distributed to counties and municipalities and directs that amount to the state general fund. For the Hall income tax, the act reduces by one-third the amount distributed to counties and cities.

For excise tax purposes, the act amends Tenn. Code Ann. Section 67-4-2004 to expand the definition of "doing business as a financial institution" to include the holding of participation loans in which more than one lender is a creditor to a common borrower. It also expands the definition of "financial institution" to include an investment entity that is indirectly more than 50 percent owned by a holding company or a regulated financial corporation, or any other person that is carrying on the business of a financial institution. However, the definition of "financial institution" continues to exclude insurance companies.

It amends Tenn. Code Ann. Sections 67-4-1708 to repeal the professional privilege tax exemption for state and federal employees, making the tax payable on June 30, 2003 and on June 1 in subsequent years. It also amends Tenn. Code Ann. Section 67-4-1709 to provide that any employer, including any governmental entity, can choose to remit the professional privilege tax on behalf of its employees who are subject to the tax.

Effective date: For reduction of state-shared taxes, including income tax, August 1, 2003. For excise tax amendments, June 24, 2003, and applies to the period beginning January 1, 2003. (See Ch. 418). For professional privilege tax amendments, June 24, 2003.

Franchise and Excise Tax

Quarterly Estimated Payments

Public Chapter 164 SB 1746 - HB 1802 amends Tenn. Code Ann. Section 67-4-2015(b) to provide that quarterly estimated payments for franchise, excise tax purposes must equal at least 25 percent of the combined franchise and excise tax liability for the preceding tax year or 25 percent of the combined franchise and excise tax liability for the current year, whichever is less.

Effective date: May 19, 2003.

Jobs Tax Credit and Industrial Machinery Credit

Public Chapter 202 SB 1595 - HB 1361 amends Tenn. Code Ann. Section 67-4-2109 and 67-4-2009 such that the job tax credit and the industrial machinery excise tax credit can be computed by a general partnership that establishes a call center in Tennessee placed in service on or after June 30, 2003 and that would otherwise qualify for the credits; provided however that the job tax credit will first apply in the tax year in which the business increases net full-time employment by 400 or more jobs. A partner in such general partnership that is subject to Tennessee franchise and excise tax and directly holds a first tier ownership interest in such partnership may then take a percentage of such credits equal to its percentage interest in the partnership. The credits passed to the partner shall be subject to all applicable provisions and limitations otherwise provided in Tenn. Code Ann. Sections 67-4-2109 and 67-4-2009.

Effective date: May 29, 2003 and applies to a qualifying partner's tax years ending on or after June 30, 2003.

Budget Provisions Affecting the Department of Revenue

Public Chapter 355 SB 1991 - HB 2073 makes numerous provisions relative to the state budget. Many of these provisions do not impact tax law or the Department of Revenue, and they are not mentioned here.

For most state shared taxes, this act reduces by nine percent the amount of previously distributed to counties and municipalities and directs that amount to the state general fund. For the Hall income tax, the act reduces by one-third the amount distributed to counties and cities.

For excise tax purposes, the act amends Tenn. Code Ann. Section 67-4-2004 to expand the definition of "doing business as a financial institution" to include the holding of participation loans in which more than one lender is a creditor to a common borrower. It also expands the definition of "financial institution" to include an investment entity that is indirectly more than 50 percent owned by a holding company or a regulated financial corporation, or any other person that is carrying on the business of a financial institution. However, the definition of "financial institution" continues to exclude insurance companies.

It amends Tenn. Code Ann. Sections 67-4-1708 to repeal the professional privilege tax exemption for state and federal employees, making the tax payable on June 30, 2003 and on June 1 in subsequent years. It also amends Tenn. Code Ann. Section 67-4-1709 to provide that any employer, including any governmental entity, can choose to remit the professional privilege tax on behalf of its employees who are subject to the tax.

Effective date: For reduction of state-shared taxes, including income tax, August 1, 2003. For excise tax amendments, June 24, 2003, and applies to the period beginning January 1, 2003. (See Ch. 418). For professional privilege tax amendments, June 24, 2003.

Gross Receipts Tax

Vending Machines

Public Chapter 358 SB 38 - HB 662 permits operators of vending machines vending merchandise for 25 cents or less, and operated for the benefit of a charitable non-profit organization, an option to pay, in lieu of sales tax, a gross receipts tax at the rate of 1 ½ percent. It requires permanent registration of each taxpayer and each machine, for which the Department may charge $1 per machine plus $2 for each taxpayer. It defines "vending machine" for purpose of the act to mean a machine built so that only a fixed, predetermined price can be charged for the item dispensed by the machine and the machine cannot return or make change.

Effective date: July 1, 2003.

Professional Privilege Tax

Budget Provisions Affecting the Department of Revenue

Public Chapter 355 SB 1991 - HB 2073 makes numerous provisions relative to the state budget. Many of these provisions do not impact tax law or the Department of Revenue, and they are not mentioned here.

For most state shared taxes, this act reduces by nine percent the amount of previously distributed to counties and municipalities and directs that amount to the state general fund. For the Hall income tax, the act reduces by one-third the amount distributed to counties and cities.

For excise tax purposes, the act amends Tenn. Code Ann. Section 67-4-2004 to expand the definition of "doing business as a financial institution" to include the holding of participation loans in which more than one lender is a creditor to a common borrower. It also expands the definition of "financial institution" to include an investment entity that is indirectly more than 50 percent owned by a holding company or a regulated financial corporation, or any other person that is carrying on the business of a financial institution. However, the definition of "financial institution" continues to exclude insurance companies.

It amends Tenn. Code Ann. Sections 67-4-1708 to repeal the professional privilege tax exemption for state and federal employees, making the tax payable on June 30, 2003 and on June 1 in subsequent years. It also amends Tenn. Code Ann. Section 67-4-1709 to provide that any employer, including any governmental entity, can choose to remit the professional privilege tax on behalf of its employees who are subject to the tax.

Effective date: For reduction of state-shared taxes, including income tax, August 1, 2003. For excise tax amendments, June 24, 2003, and applies to the period beginning January 1, 2003. (See Ch. 418). For professional privilege tax amendments, June 24, 2003.

Municipal and County Governments and Employees

Public Chapter 138 SB 1787 - HB 1721 amends Tenn. Code Ann. Section 67-4-1709 to provide that any municipal or county government can pay the professional privilege tax on behalf of its employees who are subject to the tax. This public chapter should be read in conjunction with public chapters 355 and 418, which provide that any employer, including any governmental entity, can pay the tax on behalf of its employees.

Effective date: May 19, 2003.

Military Filing Extension

Public Chapter 87 SB 1175 - HB 1248 amends Tenn. Code Ann. Sections 67-2-112(b) and 67-4-1703 to provide a filing extension for armed forces personnel stationed outside the United States during Operation Enduring Freedom or other hostilities who are liable for Hall income tax or professional privilege tax. The extended filing deadline is 90 days following the end of the hostilities or 90 days after they are transferred from the combat zone, whichever comes first. No penalty or interest will accrue during the extension period for timely filed returns.

(This act also applies to property taxes, which are not administered by the Department of Revenue.)

Real Estate Transfer Tax

Historic Theater Renovation

Public Chapter 386 SB 1577 - HB 1229 amends Tenn. Code Ann. Section 67-4-409(j) to provide that proceeds from the real estate transfer tax that are deposited in the state lands acquisition fund may be used for the redevelopment, renovation, and restoration of historic theaters owned by a governmental entity or a not-for-profit corporation or its controlled affiliate and listed on the National Register of Historic Places.

Effective date: June 23, 2003.

Sales and Use Tax

Energy Resource Recovery Facilities

Public Chapter 9 SB 541 - HB 887 defines, for sales and use tax purposes, "energy resource recovery facility" as a facility that produces energy in the form of steam or chilled water from controlled burning of any combustible materials, where such energy is to be used to heat or cool five or more separate buildings.

Effective date: April 2, 2003.

Expansion of Special Sales and Use Tax Allocation for Sports Authorities

Public Chapter 176 SB 940 - HB 1305 expands the special sales and use tax allocation for sports authorities to apply where a new stadium is constructed by a local government for an existing minor league baseball franchise, Class AA or higher. It limits the special allocation of local sales and use tax to tax collected in excess of that collected in the year preceding the new stadium occupancy.

Effective date: May 22, 2003.

Sales and Use Tax- Electronic Filing

Public Chapter 241 SB 1931 - HB 2003 amends Tenn. Code Ann. Section 67-6-504 to provide that any taxpayer who is required to remit sales and use tax in immediately available funds (generally by electronic funds transfer) must also file its sales and use tax returns electronically.

Effective date: June 2, 2003, but applies only to tax periods beginning on or after January 1, 2004.

Expansion of Sales and Use Tax Credit for Qualified Headquarters Facilities

Public Chapter 284 SB 284 - HB 1959 extends the sales and use tax credit for qualified headquarters facilities. It reorganizes the statute and provides definitions of terms specific to the headquarters credit. In addition, it enacts an alternative to the $50,000,000 investment requirement, allowing the credit in cases of an investment of $20,000,000 and creation of 200 new full-time jobs paying at least twice the average wage in the county or metropolitan statistical area.

Effective date: June 4, 2003, and applies to applications and plans filed on or after January 1, 2003. Expires December 31, 2006.

Streamlined Sales and Use Tax Agreement

Public Chapter 357 SB 899 - HB 832 makes numerous changes to the Retailers' Sales and Use Tax Act in order to conform Tennessee's laws to the Streamlined Sales and Use Tax Agreement. A section-by-section summary of the act can be found here.

Federal Income Tax Deduction

Senate Joint Resolution 184 encourages Congress to enact legislation that would permit a federal income tax deduction for state and local sales tax paid by residents of states without a general Hall income tax.

Signed by the Governor April 2, 2003.

Tobacco Taxes

Tobacco Manufacturers and Tobacco Products

Public Chapter 294 SB 1806 - HB 1772 amends Tenn. Code Ann. Title 67, Chapter 4, by adding new statutory provisions relative to certain tobacco products.

Significant provisions of the act include the following:

1. Each tobacco product manufacturer (as defined in the statute) who produces cigarettes sold in Tennessee, whether directly or indirectly, must file a certification with the Commissioner of Revenue containing various information relative to its cigarette business, including certain information about its cigarette brand families.

2. The Commissioner of Revenue shall develop and make available for public inspection a directory listing all tobacco product manufacturers that have provided current and accurate certifications conforming to the requirements of the statute and all brand families that are listed in such certifications.

3. The act makes it unlawful for any person (a) to affix a tobacco tax stamp to a package or other container of cigarettes from a tobacco product manufacturer or brand family not included in the directory; or (b) to sell, offer, or possess for sale, in Tennessee, or import for personal consumption in Tennessee, cigarettes of a tobacco product manufacturer or brand family not included in the directory.

4. The act contains various provisions in which a non-participating manufacturer, in order to have its brand families included or retained in the directory, is required to appoint and continually engage an agent for service of process on whom all process, and any action or proceeding against it arising out of the enforcement of the act and Tenn. Code Ann. Section 47-31-101 et seq., may be served.

5. Licensed agents (i.e., persons authorized to affix tobacco tax stamps to cigarettes or persons required to pay the tobacco tax) must submit information to the Commissioner of Revenue as the Commissioner may require to facilitate compliance with the act.

6. The act makes it a Class B misdemeanor for a person to (a) sell or distribute cigarettes that the person knows or should know are intended for distribution or sale in Tennessee in violation of the act, or (b) acquire, hold, own, possess, transport, import, or cause to be imported cigarettes, that the person knows or should know are intended for distribution or sale in Tennessee in violation of the act.

7. The Commissioner of Revenue is authorized to revoke or suspend the license of a licensed agent who violates certain provisions of the act and may seize, as contraband, cigarettes that have been sold, offered for sale or possessed for sale in Tennessee or have been imported for personal consumption in Tennessee in violation of the act.

8. The Attorney General, on behalf of the Commissioner, may seek an injunction to restrain a violation of certain provisions of the act by a licensed agent and to compel the licensed agent to comply with the act.

9. The act affords licensed agents and tobacco products manufacturers certain rights with respect to the revocation or suspension of tobacco licenses, the seizure of contraband cigarettes, and the Commissioner's election to exclude or remove a brand family or tobacco products manufacturer from the directory.

Effective date: June 6, 2003.