At least that is how Bob Dylan said it. There is a small chance he was talking about life and society, as opposed to the way Tennessee handles a few particular tax issues, but let’s stretch it a bit. In June, the Tennessee General Assembly passed the 2009 Technical Corrections Bill. Here is a link to the bill or a summary from the legislature. It has several significant changes to TN law that will affect a large number of businesses. No longer will businesses be able to fly under the radar and dodge the state tax man.   

 

The first major change has to do with business licenses and collection of tax. In the past, it has been the duty of local counties and cities to collect tax and issue licenses for businesses operating in each municipality and then remit a portion of that tax to the state. The state feels that this is an area where a lot of business may slip through the cracks and not file business license returns. In an effort to increase compliance, this new bill assigns collection of business tax to the state of Tennessee. Since they already have a database through franchise and excise filings as well as sales tax filings, they will be better able to determine who is liable for filing the returns and who has been skirting the law. If you have a business and have not been filing for business licenses annually, we suggest that you do so immediately to avoid being delinquent with the state. The state is set to start monitoring categories 1 and 5 effective July 1, 2009.

 

Another interesting change found in the Technical Corrections Bill relates to the reporting of subcontractor information by general contractors on the business license tax form. In the past, contractors have been allowed to deduct from gross income the amounts paid to subcontractors. The state will still allow the deduction, but has beefed up the reporting requirements. Now, in order to deduct amounts paid to subcontractors, the subcontractor must be licensed with the state board of contractors or have a current business license. This rule will apply to all contracts signed after September 1, 2009.

 

The final major change that will affect a number of people is the change to the franchise and excise tax exemption for family owned non-corporate entities (FONCE). The corrections bill changed present law which had included simply “rents” in passive income that qualified for the exemption. The new language reads “rents from residential and farm property” which would seem to eliminate entities that engage in commercial renting from the exemption. It furthermore clarifies that “residential property” includes property with 4 or less units, meaning no large apartment complexes. However, the DOR has informally said that instead of applying the 4 unit rule, it may look to how a property is zoned for property tax purposes to determine the manner of the income. This is effective for all rent received or accrued after July 1, 2009. A couple of other important notes, the FONCE exemption application must be filed every year and the DOR could impose a penalty of up to $1,000 for filing the application late. There are ways to plan for the exemption, but counsel should most likely be obtained by qualified attorneys and/or CPAs. 


UPDATED:  Here is a link from the TN DOR about business tax filing. Also, the fall issue of Revenue Review is now available which includes an oveview of all the 2009 legislative chages to DOR statutes.