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The Business Tax Act makes it a taxable privilege to make sales or engage in any vocation listed in Tenn. Code Ann. Sections 67-4-708(1) - (4). Any county or incorporated municipality in Tennessee may levy the privilege tax on those listed activities that take place within its geographical boundaries. Engaging in any business, business activity, vocation, or occupation described under the Business Tax Act is declared to be a privilege for state purposes and taxable by the state alone.
Prior to engaging in business, every person taxable under the Business Tax Act must register with the county clerk, in the case of taxes owed to the county, and/or with the city tax collector, in the case of taxes owed to a municipality. Taxpayers must contact the respective county or city official for registration information and forms as required by that jurisdiction.
Businesses, vocations, and occupations that are taxable shall be classified according to the dominant business activity (the item comprising the largest proportion of gross sales of the business). For more information on these classifications, click here.
In Tennessee, the responsibility for sales tax rests solely on the dealer that provides the taxable transaction or service. The statute provides that the dealer may pass the tax on to the customer but failure to do so does not relieve the dealer of his responsibility for timely tax payment to the state.
Sales tax registration applies to any person or company who manufactures, distributes or retails tangible personal property within the state. Sales tax registration also applies to persons who rent or lease tangible personal property. Some examples are grocery stores, mail-order companies and retail computer stores including those that sell software.
The tax is due to be paid on the return for the period in which the taxable event occurs even if the tax is not collected from the customer during that time. For example, a charge sale is made during June, the tax must be paid by the dealer on the June return even though the customer may not pay the account until July.
When the sales tax is not paid to the supplier by a user and consumer of tangible personal property, the user will become personally liable for the tax. This occurs generally when a Tennessee consumer purchases articles from an out-of-state dealer not registered for Tennessee tax. It also arises when a dealer extracts inventory items purchased on a resale certificate for his business or personal use. Use tax is equivalent to the sales tax on both the state and local level. Use tax is due even when a citizen or non-registered entity imports taxable tangible personal property into Tennessee for use.
Tennessee is aggressively involved in an audit-sharing program with several other states. When an auditor in the other state finds that a Tennessee consumer has purchased something without paying tax to the out-of-state supplier, the auditor will provide the name and address of the business or citizen to the Tennessee Department of Revenue and the use tax will be assessed. Penalty and interest will be assessed when applicable. This is a program that will probably grow substantially in the future.
Local dealers in a county or city which has adopted the local option tax, making sales of tangible personal property for use and consumption and delivering possession anywhere within the state of Tennessee, are liable for the local sales tax. Vendors located outside the state shipping tangible personal property to a consumer in a local option county on and after the effective date of a local option tax are liable for the collection of any local use tax due on a sale to a consumer in a local option county or city. Local sales and use tax rates vary throughout Tennessee from 1% to 2.75%. However, if an out-of-state dealer has no physical location in Tennessee, he may collect a combined tax rate of 9.25% (7% state rate plus 2.25% local rate). The commissioner of Revenue will collect the local option tax for all counties or cities imposing the tax concurrently with the administration and collection of the state sales and use tax. The return form used in reporting state and use tax is to be used in reporting and paying the local sales tax. Generally no special registration is needed to collect, report and pay the local tax.
All dealers engaged in the business of selling tangible personal property and taxable services, businesses using tangible personal property upon which the appropriate sales or use tax has not been paid, are required to submit an "Application for Sales and Use Tax Certificate of Registration" and obtain a "certificate of registration" from the department. After a proper application has been submitted for a Certificate of Registration, an account is established by the Department for the individual or other legal entity for the address indicated on the application. Monthly, quarterly or annual sales and use tax returns will then be sent to the registered dealer for reporting and paying any tax due to the department.
Also, after a dealer in Tennessee is properly registered with the Department of Revenue for sales tax purposes, he may execute a "Certificate of Resale," for tangible personal property which he will resell and furnish it to his supplier in lieu of the sales and use tax due thereon.
For taxpayers who must register for taxes, a new registration form has been designed. It is a single form that will allow the taxpayer to register for the various required taxes at one time. After use of this application, if needed, the form will be revised to make it even more efficient. This generic form should make it easier to register a new business for required permits, licenses, certificates, etc., for doing business in Tennessee.