TSCPA’s State Tax Committee met with representatives from the Tennessee Department of Revenue and the Tennessee Department of Labor & Workforce Development at the State Tax Liaison meeting on June 6. The State Tax Committee meets semi-annually with officials to stay up to date on tax trends and regulatory changes, as well as discuss issues impacting Tennessee CPAs.
Legislative Update
After Commissioner David Gerregano opened the meeting, Chief of Staff Courtney Swim gave an update on legislation. There were several sales tax updates that became effective in May. The first was Public Chapter 886, which redefines a “qualified data center” in relation to sales tax exemption. The second sales tax update covered was Public Chapter 920, which extends the deadline by which a distressed county must apply for the commercial development district designation to Dec. 31, 2030. Public Chapter 941 was the next sales tax update discussed. This authorizes a municipality with a local option sales tax rate higher than the county rate to reduce or eliminate its local option rate on food and food ingredients by local ordinance. Next, Swim covered Public Chapter 979. This update authorizes natural disaster sales tax refunds to individuals in Morgan County whose primary residence was damaged or destroyed in the April 2024 tornadoes.
The final sales tax update reviewed was Public Chapter 1006. This clarifies the costs that are ineligible for reimbursement in Border Region Retail Tourism and the Regional Retail Tourism Development Districts. It also requires districts that have incurred costs in excess of $3 million to have a CPA certify the costs before submitting them for reimbursement. The department is working to clarify what “certify” means.
Regarding streamlined sales and use tax sourcing provisions, the Tennessee Works Tax Act adopted a majority of these, which are effective July 1, 2024. The Act adopts destination sourcing for interstate sales of services performed on tangible personal property and computer software, sales of leased property where the primary property location moves out of Tennessee during the lease period, and sales of direct mail distributed to recipients outside Tennessee. It eliminates exemptions for sales of magazines and books into Tennessee by mail or common carrier when the seller has limited activities in the state and sales by a person solely engaged in cooperative direct mail advertising distributed in Tennessee.
Other legislative items discussed were Public Chapter 672, Public Chapter 859, Public Chapter 971, Public Chapter 1013 and Public Chapter 1069.
Franchise Tax Property Measure (Schedule G) Refunds
The next topic covered was Public Chapter 950, which eliminates the property measure from the franchise tax calculation for tax years ending on or after Jan. 1, 2024, and authorizes the department to issue franchise tax refunds for a certain period of time.
Please refer to the article “Tennessee Property Measure (Schedule G) Refund Claims” on page 5, which provides details on the change to the franchise tax calculation and the process for taxpayers to amend returns and file a refund claim.
The Department of Revenue highly encourages the use of TNTAP for the filing of the amended returns and submission of the refund claim. The returns should be amended in order from the oldest period to most current. Practitioners are also advised not to wait until right before the Nov. 30 deadline to submit the amendment and refund, because it is a two-step process that requires the amended return to process overnight before the refund claim can be submitted. Practitioners must plan accordingly to ensure the entire process is completed by Nov. 30.
Director Greer Allison provided a demonstration of the franchise tax amendment and claim request process. The following links provide instructions and support:
- Refund Instructions: https://bit.ly/ftrefundinstructions
- May 7, 2024, Webinar Slides: https://bit.ly/may7taxwebinar
- FAQs: https://bit.ly/2024ftfaqs
- Schedule G Form: https://bit.ly/schedulegform
Taxpayers are urged to check the address for accuracy prior to starting the franchise tax refund process. The department is going to clarify what to do if a taxpayer begins the process and realizes the incorrect address is on file.
TNTAP Update
There have been several changes made to TNTAP recently for the franchise tax refund process. Additionally, updates to the Messages and Letters pages have been made to only show items from the past year. Also, taxpayers now have the ability to request access to multiple tax accounts at once.
Audit Division Update
The Audit Division presented the next update. Regarding auditing franchise tax Schedule G refunds, the division’s initial focus has been on collaborating with TR3 in testing, identifying opportunities to improve workflow, flagging early issues for FAQs and system solutions, and ensuring consistency in auditor approach and understanding. Issues they are seeing on amended returns so far involve ineligible taxpayers filing returns, taxpayers filing for ineligible periods of time, not zeroing out all of Schedule G, and removing property from Schedule N in error.
Trends they are seeing for Schedule G refund requests requiring manual review are regarding ceased accounts, delinquent franchise and excise tax returns, other pending adjustments to returns, and prior and pending audits. If there are open audits, taxpayers can still proceed with the process.
Taxpayer Services Update
Next, Assistant Commissioner John Duncan presented an update on the Taxpayer Services Division. The volume of calls and tickets is increasing by approximately 1,000 per year, and they are seeing a lot of new business activity.
Regarding the business tax, if taxpayers have not filed because they do not owe, they should be sure to call the department to change their account to a minimal activity license. These taxpayers should go to their city/county clerk for licensure.
Legal Office Update
General Counsel Lauren Fields was next to provide an update from the Legal Office. Since the last liaison meeting, the department issued Rulings 23-09, 23-10, 24-01 and 24-02. There are currently approximately 23 rulings pending. Of the pending rulings, 12 were requested in 2024. There are approximately 70 cases currently open in various stages. Of the pending cases, approximately 65% are related to sales and use tax. Fields also reviewed the court decisions Stargate Auto Sales v. Gerregano, Cherokee Fiber v. Gerregano and Leah Gilliam v. Gerregano.
Department of Labor
The Department of Labor presented the final update on the launch of its new tax system. The current implementation date is May 26, 2025. The department is eager to continue working with TSCPA’s State Tax Committee as the system is further developed and tested.
The next State Tax Liaison meeting will be held in the fall of 2024.
This article was originally published in the July/August 2024 Tennessee CPA Journal.
