Apportionment of Net Worth

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    1. Except as otherwise provided in this part, for tax years beginning prior to July 1, 2016, the net worth of a taxpayer doing business both in and outside this state shall be apportioned to this state by multiplying such values by a fraction, the numerator of which shall be the property factor plus the payroll factor plus twice the receipts factor, and the denominator of the fraction shall be four (4).
    2. Except as otherwise provided in this part, for tax years beginning on or after July 1, 2016, the net worth of a taxpayer doing business both in and outside this state shall be apportioned to this state by multiplying such values by a fraction, the numerator of which shall be the property factor plus the payroll factor plus three (3) times the receipts factor, and the denominator of the fraction shall be five (5).
    1. The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property, excluding exempt inventory as defined in § 67-4-2108(a)(6), owned or rented and used in this state during the tax period, and the denominator of which is the average value of all the taxpayer's real and tangible personal property, excluding exempt inventory, owned or rented and used during the tax period.
      1. For a taxpayer electing to compute its net worth on a consolidated basis, and for a member of a captive REIT affiliated group, the property factor is a fraction computed as follows:
        1. The numerator of which is the average value of the taxpayer's real and tangible personal property, excluding exempt inventory as defined in § 67-4-2108(a)(6)(B), owned or rented and used in this state during the tax period; and
        2. The denominator of which is the average value of the group's real and tangible personal property, excluding exempt inventory, owned or rented and used during the tax period.
      2. Exempt inventory shall be determined on a per member basis. Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight (8) times the net annual rental rate. The property factor shall be determined based on a pro forma consolidated balance sheet prepared in accordance with generally accepted accounting principles wherein transactions and holdings between members of the group and holdings in non-domestic persons have been eliminated.
    2. If a member of an affiliated group apportions its income in accordance with § 67-4-2013(a), then for purposes of computing its net worth on a consolidated basis, the member shall compute the numerator of its property factor as follows:
      1. The numerator shall include the average value of the taxpayer's real and tangible personal property, excluding exempt inventory as defined in § 67-4-2108(a)(6)(B), owned or rented and used in this state during the tax period;
      2. In determining the average value of mobile property to be included in the numerator, the value of such property shall be multiplied by a fraction the numerator of which is the total in-state miles of similarly classified mobile property and the denominator of which is the total everywhere miles of similarly classified mobile property; and
      3. For purpose of computing the fraction in subdivision (b)(3)(B), in-state miles and everywhere miles shall be calculated in accordance with the appropriate provisions of § 67-4-2013(a). For purposes of determining whether mobile property is similarly classified, the classification groupings enumerated in § 67-4-2013(a)(1)-(7) shall be used.
    3. For purposes of this section, “property” includes a taxpayer's ownership share of the real or tangible property owned or rented by any general partnership, or entity treated as a general partnership for federal income tax purposes, in which such taxpayer has an ownership interest. A return being filed by a limited liability company that has a general partnership as its single member shall include in its property factor only the real and tangible property owned or used by the limited liability company. “Property” also includes a taxpayer's ownership share of the real or tangible property owned or rented by any limited partnership, subchapter S corporation, limited liability company or other entity treated as a partnership for federal income tax purposes, in which the taxpayer has an ownership interest, directly or indirectly through one (1) or more such entities, and that is not doing business in Tennessee and, therefore, is not subject to Tennessee franchise tax. The cost value or rental value of such property shall be determined from the books and records of the entity in which the taxpayer has an interest and such property shall be valued in accordance with subsection (c).
    1. Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight (8) times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer, less any annual rental rate received by the taxpayer from sub-rentals. A lessee's payments to a lessor, or on such lessor's behalf, as a part of rent, or in lieu of rent, shall be included as rent in the property factor of the apportionment formula provided by this section. Except with respect to tangible personal property, for purposes of this subsection (c), payments, such as interest, taxes, insurance, repairs or other items, shall be treated as rent paid by the lessee, if they would have been paid by the lessor if the lease contract or other agreement had not specifically provided that they be paid by the lessee.
    2. For purposes of this section, the value of owned or leased mobile or movable property located both in and outside Tennessee during a tax period shall be determined on the basis of the total percentage of time such property is in the state during the tax period; provided, that the value of an automobile or truck assigned to a traveling employee shall be considered in Tennessee, if the employee's compensation is assigned to Tennessee for purposes of the taxpayer's apportionment formula payroll factor, or if such vehicle is licensed in Tennessee.
  1. The average value of property shall be determined by averaging the values at the beginning and end of the tax period, but the commissioner may require the averaging of monthly values during the tax period, if reasonably required to reflect properly the average value of the taxpayer's property.
    1. The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period.
      1. For a taxpayer electing to compute its net worth on a consolidated basis, and for a member of a captive REIT affiliated group, the payroll factor is a fraction computed as follows:
        1. The numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation; and
        2. The denominator of which is the total compensation of the group paid everywhere during the tax period.
      2. The payroll factor shall be determined at the close of business on the last day of the tax year as shown by a pro forma consolidated income statement prepared in accordance with generally accepted accounting principles wherein transactions and holdings between members of the group and holdings in non-domestic persons have been eliminated.
    2. If a member of an affiliated group apportions its income in accordance with § 67-4-2013(a), then for purposes of computing its net worth on a consolidated basis, the member shall compute the numerator of its payroll factor as follows:
      1. The numerator shall include the total amount paid in this state during the tax period by the taxpayer for compensation;
      2. In determining the portion of compensation to be included in the numerator for personnel performing interstate services, the total compensation for such personnel shall be multiplied by a fraction the numerator of which is the total in-state miles traveled by personnel operating similarly classified mobile property and the denominator of which is the total everywhere miles traveled by personnel operating similarly classified mobile property; and
      3. For purposes of computing the fraction in subdivision (e)(3)(B), in-state miles and everywhere miles shall be calculated in accordance with the appropriate provisions of § 67-4-2013(a). For purposes of determining whether mobile property is similarly classified, the classification groupings enumerated in § 67-4-2013(a)(1)-(7) shall be used.
    3. For purposes of this part, “compensation” has the same meaning as set forth in the Excise Tax Law of 1999, compiled in part 20 of this chapter.
    4. For purposes of this section, “compensation” includes a taxpayer's ownership share of the compensation of any general partnership, or entity treated as a general partnership for federal income tax purposes, in which such taxpayer has an ownership interest. A return being filed by a limited liability company that has a general partnership as its single member shall include in its payroll factor only the compensation attributed to the limited liability company. “Compensation” also includes a taxpayer's ownership share of the real or tangible property owned or rented by any limited partnership, subchapter S corporation, limited liability company or other entity treated as a partnership for federal income tax purposes, in which the taxpayer has an ownership interest, directly or indirectly through one (1) or more such entities, and that is not doing business in Tennessee and thus is not subject to Tennessee franchise tax.
  2. Compensation is paid in this state, if:
    1. The individual's service is performed entirely in the state;
    2. The individual's service is performed both in and outside the state, but the service performed outside the state is incidental to the individual's service in the state; or
    3. Some of the service is performed in the state; and:
      1. The base of operations, or, if there is no base of operations, the place from which the service is directed or controlled is in the state; or
      2. The base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this state.
    1. The receipts factor is a fraction, the numerator of which is the total receipts of the taxpayer in this state during the tax period, and the denominator of which is the total receipts of the taxpayer everywhere during the tax period.
    2. For a taxpayer electing to compute its net worth on a consolidated basis, and for a member of a captive REIT affiliated group, the receipts factor is a fraction, the numerator of which is the taxpayer's total receipts in this state during the tax period, and the denominator of which is the group's total receipts during the tax period. The receipts factor shall be determined for the group at the close of business on the last day of the tax year as shown by a pro forma consolidated income statement prepared in accordance with generally accepted accounting principles wherein transactions and holdings between members of the group and holdings in non-domestic persons have been eliminated.
    3. If a member of an affiliated group apportions its income in accordance with § 67-4-2013(a), then for purposes of computing its net worth on a consolidated basis, the member shall compute the numerator of the receipts factor in accordance with the appropriate provisions of § 67-4-2013(a).
    4. For purposes of this section, “gross receipts” includes a taxpayer's ownership share of the gross receipts of any general partnership or entity treated as a general partnership for federal income tax purposes in which such taxpayer has an ownership interest. A return being filed by a limited liability company that has a general partnership as its single member shall include in its receipts factor only the gross receipts attributed to the limited liability company. “Gross receipts” also includes a taxpayer's ownership share of gross receipts of any limited partnership, subchapter S corporation, limited liability company, or other entity treated as a partnership for federal income tax purposes, in which the taxpayer has an ownership interest, directly or indirectly, through one (1) or more such entities, and that is not doing business in Tennessee and thus is not subject to Tennessee franchise tax.
  3. Receipts from sales of tangible personal property are in this state, if the:
    1. Property is delivered or shipped to a purchaser, other than the United States government, in this state regardless of the F.O.B. point or other conditions of the sale; or
    2. Property is shipped from an office, store, warehouse, factory or other place of storage in this state and the purchaser is the United States government.
    1. Sales, other than sales of tangible personal property, are in this state if the taxpayer's market for the sales is in this state. The taxpayer's market for a sale is in this state:
      1. In the case of sale, rental, lease, or license of real property, if and to the extent the property is located in this state;
      2. In the case of rental, lease, or license of tangible personal property, if and to the extent the property is located in this state;
      3. In the case of sale of a service, if and to the extent the service is delivered to a location in this state; and
      4. In the case of intangible property:
        1. That is rented, leased, or licensed, if and to the extent the intangible property is used in this state; provided, that intangible property utilized in marketing a good or service to a consumer is considered used in this state if that good or service is purchased by a consumer who is in this state; and
        2. That is sold, if and to the extent the property is used in this state; provided, that:
          1. A contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area is considered used in this state if the geographic area includes all or part of this state;
          2. Receipts from intangible property sales that are contingent on the productivity, use, or disposition of the intangible property shall be treated as receipts from the rental, lease, or licensing of such intangible property under subdivision (i)(1)(D)(i); and
          3. All other receipts from a sale of intangible property shall be excluded from the numerator and denominator of the receipts factor.
    2. If the state or states of assignment under subdivision (i)(1) cannot be determined, the state or states of assignment shall be reasonably approximated.
    3. If the state of assignment cannot be determined under subdivision (i)(1) or reasonably approximated under subdivision (i)(2), such sale shall be excluded from the numerator and denominator of the sales factor.
    4. If the application of this subsection (i) to a tax year results in a lower apportionment factor than under the application of the apportionment method in this subsection (i) as it was in effect prior to January 1, 2016, then a taxpayer may annually elect to apply the apportionment method in this subsection (i) as in effect prior to January 1, 2016; provided, however, the election must result in a higher apportionment factor for the tax year, and the taxpayer must have net earnings, rather than a net loss, for that tax year as computed under § 67-4-2006.
    1. For any qualified member of a qualified group, total receipts in this state shall equal the receipts from all sales of tangible personal property that are in this state as determined under subsection (h), plus the arithmetical average of the receipts from all sales other than sales of tangible personal property that are in this state as determined under each of the following alternative methods:
      1. All sales that are in this state as determined under subsection (i); and
      2. All sales, other than sales of tangible personal property, where the earnings-producing activity is performed:
        1. In this state; or
        2. Both in and outside this state and a greater proportion of the earnings-producing activity is performed in this state than in any other state, based on costs of performance.
    2. For purposes of this subsection (j), the following definitions shall apply:
      1. “Qualified expenditures” means expenditures incurred in transactions with persons who are not members of the qualified group for the following:
        1. Purchasing tangible personal property placed in service in this state by a member of the qualified group; and
        2. Payroll for employees employed by a member of the qualified group at a facility in this state;
      2. “Qualified group” means an affiliated group that meets both of the following criteria:
        1. One or more members of the group is a qualified member; and
        2. The members of the group, during the tax period, either:
      3. “Qualified member” means a person that is principally engaged in the sale of “telecommunications service,” “mobile telecommunications service,” “Internet access service,” “video programming service,” “direct-to-home satellite television programming service,” or a combination of such services, as each such term is used or defined in chapter 6 of this title.
    3. The method provided by this subsection (j) for determining the total receipts in this state of a qualified member shall be the only method for determining such receipts under this part.
  4. Notwithstanding any provision of this section to the contrary, any gain on the sale of an asset that is designated as goodwill and is required to be included as Class VII assets pursuant to the reporting requirements of 26 U.S.C. §§ 338(b)(5) and 1060, and associated regulations, shall be excluded from both the numerator and the denominator of the apportionment formula receipts factor.
    1. A taxpayer whose principal business in Tennessee is manufacturing may elect to apportion net worth to this state by multiplying such values by a fraction, the numerator of which is the total receipts of the taxpayer in Tennessee during the taxable year and the denominator of which is the total receipts of the taxpayer from any location within or outside of the state during the taxable year.
    2. For purposes of this subsection (l ), a taxpayer's principal business in Tennessee is manufacturing if more than fifty percent (50%) of the revenue derived from its activities in this state, excluding passive income, is from fabricating or processing tangible personal property for resale and consumption off the premises. For purposes of this subsection (l ), “passive income” means dividend income, interest income, income derived from the sale of securities, and income derived from the licensing or sale of patents, trademarks, tradenames, copyrights, know-how, or other intellectual property.
    3. To elect the method of apportionment provided in this subsection (l ), the taxpayer shall notify the department of the election, in writing, on its return for the taxable year to which the election applies.
    4. Once a taxpayer elects the method of apportionment provided in this subsection (l ), such election shall remain in effect for a minimum of five (5) tax years and thereafter until revoked. The taxpayer may revoke the election after the minimum period by notifying the department of the revocation, in writing, on its return for the first taxable year to which the revocation applies. A taxpayer that revokes the election shall not be permitted to newly elect the method of apportionment provided in this subsection (l ) for a period of five (5) tax years, beginning with the tax year in which the taxpayer revoked the previous election.
    5. Notwithstanding any other provision of law, prior to July 1, 2033, or any earlier date on which no bonds issued pursuant to title 9, chapter 9, and outstanding as of July 1, 2013, shall remain outstanding, this subsection (l ) shall become operative only for such fiscal years as to which the state funding board shall have certified as provided by § 9-9-104(b).
    1. Notwithstanding any other provision of this part, a financial asset management company may elect to apportion net worth by multiplying such net worth by a fraction, the numerator of which is the total receipts of the taxpayer in Tennessee during the taxable year as determined under this section and the denominator of which is the total receipts of the taxpayer everywhere during the taxable year.
    2. For the purposes of this subsection (m):
        1. “Financial asset management company” means an entity that is a limited partnership, or is treated as a partnership for federal tax purposes, that is engaged in the business of providing financial asset management services, and either:
          1. Incur, in the aggregate, qualified expenditures in an amount greater than one hundred fifty million dollars ($150,000,000); or
          2. Make sales that are subject to the tax imposed by chapter 6 of this title in excess of one hundred fifty million dollars ($150,000,000);
          3. Has a class of equity securities registered under Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 78l(g)) and, as a result, is subject to the public company reporting requirements contained in Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m); or
          4. Is owned by a publicly traded partnership that owns at least twenty five percent (25%) of the entity and such ownership interest constitutes more than fifty percent (50%) of the total assets of the publicly traded partnership; and
        2. “Financial asset management company” does not include any type of real estate investment trust as defined in § 67-4-2004;
      1. “Financial asset management services” means the following services when performed with respect to financial investments: managing portfolio assets of others on a fee or commission basis; rendering investment advice, including investment research and analysis; making determinations as to when sales and purchases of investments are to be made; and selling or purchasing of investments;
      2. “Financial investments” means, without limitation, investments in stocks, stock options, bonds, and alternative asset classes (including, but not limited to, real estate, commodities, and other debt obligations); and
      3. “Publicly traded partnership” means an entity that is a limited partnership, or is treated as a partnership for federal tax purposes, that files with the securities and exchange commission and whose shares are regularly traded on a securities exchange that is either registered as a national securities exchange with the securities exchange commission under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. § 78f), or is a national securities exchange of a foreign country and regulated in a substantially similar manner by a foreign financial regulatory authority.
    3. To elect the method of apportionment provided in this subsection (m), the taxpayer shall notify the department of the election, in writing, on its return for the taxable year to which the election applies.
    4. Once a taxpayer elects the method of apportionment provided in this subsection (m), such election shall remain in effect for a minimum of five (5) tax years and thereafter until revoked. The taxpayer may revoke the election after the minimum period by notifying the department of the revocation, in writing, on its return for the first taxable year to which the revocation applies. A taxpayer that revokes the election shall not be permitted to newly elect the method of apportionment provided in this subsection (m) for a period of five (5) tax years, beginning with the tax year in which the taxpayer revoked the previous election.


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