SB7037 by *McNally. (*HB7020 by *Westmoreland.)
Taxes - Closes loopholes for franchise and excise tax. - Amends TCA Titles 4; 5; 6; 7; 8; 9; 10; 11; 12; 13; 16; 29; 39; 40; 50; 54; 55; 56; 57; 60; 65; 67; 68; 69; and 70.
Fiscal Summary for SB7037 / *HB7020
Increase State Revenues - $450,000,000
Increase State Expenditures - Dept. of Revenue:
Exceeds $3,000,000 Recurring
Exceeds $2,000,000 One-Time
Bill Summary for SB7037 / *HB7020
This bill would impose the excise and franchise taxes on limited liability partnerships, limited liability corporations, sole proprietorships, partnerships, and any other organization or entity engaged in a for-profit business in Tennessee. The commissioner of revenue would be authorized to collect excise and franchise taxes from any business organized for profit regardless of its method of organization, unless such entity has a not-for-profit exemption under the Internal Revenue Code or has a specific exemption under Tennessee law.
This bill would redefine "business earnings" under the excise tax laws to provide that the corporate owner of a pass-through entity that participates in the management or control of the pass-through entity, directly or indirectly, by virtue of an affiliated corporation, would be deemed to be engaged in the pass-through entity unitary business activity. If a tiered pass-through entity were involved, the ultimate owner of the tiered pass-through entity would be deemed to be the owner of the pass-through entity engaged in business in Tennessee.
Under present law, an entity is not considered to be "doing business in Tennessee" solely because of one of the following activities:
(1) Ownership of a limited partnership interest, when the limited partner's only business activity in Tennessee is the holding of the limited partnership interest, and the limited partner cannot exercise any power, management or control over the partnership, except those outlined in the Revised Uniform Limited Partnership Act; or
(2) Ownership of a membership interest in a board-managed limited liability company located or doing business in Tennessee.
This bill would do away with those two exemptions and qualify those activities as doing business in Tennessee.
This bill would also add a new provision to present law in which excise tax is imposed. The new provision to be added by this bill provides that a corporate owner of a pass-through entity, that either participates in the management or control of the pass-through entity directly or indirectly by virtue of an affiliated corporation or officers, employees, or directors of the corporate owner or affiliated corporation, would be deemed to own its percentage interest of the assets owned or leased by the pass-through entity. If tiered pass-through entities are involved, the ultimate owners would be deemed to be the owner of the pass-through entity engaged in business in Tennessee.
Also under this bill, if affiliated corporations participate in the management or control of the pass-through entity, the pass-through entity unitary business income would be reported on a combined return by all of the affiliated corporations that are owners of such pass-through entity. The return would reflect the affiliated corporations' combined percentage interest of the operations of the pass-through entity unless the commissioner consents to an election by each of the affiliated corporations to the filing of separate returns in Tennessee reflecting such corporation's percentage interest of the pass-through entity unitary business income.
Also under this bill, if affiliated corporations participate in the management or control of the pass-through entity, each of the affiliated corporations that are owners of such pass-through entity must file combined returns and pay tax on the combined percentage interest of the ownership interest, surplus and undivided profits of the pass-through entity unless the commissioner consents to an election by each of the affiliated corporations to the filing of separate returns in Tennessee, reflecting each of the affiliated corporation's percentage interest in the ownership interest, surplus and undivided profits.
This bill defines "pass-through entity" as a partnership, limited liability company, limited liability partnership and any other unincorporated association on which the owner includes the income, gain and loss of the entity in the owner's federal tax computations.