The Tennessee Works Tax Act significantly alters the business tax filing requirements for small businesses in Tennessee. Key points from this notice that small business owners should be aware of include:

1. Increased Filing Threshold: The Act increases the business tax filing threshold from $10,000 to $100,000 in gross receipts for both state and local business taxes​​​​. This change means that businesses with annual gross receipts less than $100,000 are no longer required to file an annual business tax return.
2. Local Business License Requirement: Despite the increased threshold for filing business tax, many businesses with more than $3,000 in gross receipts will still need to obtain a Minimal Activity License in each county or city where they have a business location.
3. Impact on Tennessee Businesses: Approximately 140,000 Tennessee businesses are expected to benefit from this change, as they will no longer be required to file business tax under the new threshold​​.

This legislative change, effective for tax years ending on or after December 31, 2023, represents a significant shift in the taxation landscape for small businesses in Tennessee, potentially reducing the administrative burden and tax liability for many small businesses in the state.

Clients or Businesses with questions are welcome to contact us at (615) 267-0125 if they have any questions regarding the law change and how it may apply to them. You can also review Tennessee Revenue Notice 23-08 for additional information.

Under the new law, dealers must meet several criteria to qualify for the expanded credit. First and foremost, the dealer must principally sell used automobiles, meaning at least 50% of its sales come from the sale of used vehicles. Additionally, the dealer must collect a down payment averaging no more than 5% of the automobile’s sales price. The down payment requirement is designed to ensure that the vehicle is at a price point where there is an actual need for financing.

Another requirement is that the dealer must assign 100% of its security instruments, or its loans, to an affiliated finance company that is physically located at the same headquarters location in Tennessee. This requirement is intended to make sure that dealers are not manipulating loopholes in the law and eventually gaining an unfair advantage.

The dealer must also advance the sales tax amount from its own funds on each purchase, meaning that there is no waiting around for government processes to fill in and pay the required amount. The affiliated finance company must have the right to repossess or enforce any lien against an automobile it financed – a key factor in the security of transactions.

Lastly, the dealer must reimburse the finance company for the sales tax the finance company is unable to collect from the purchaser. This is done to ensure that the finance company and the State of Tennessee are paid, no matter what.

References Tenn. Code Ann. §§ 67-6-507, 48-103-102, Pub. Ch. 467 (2023)

CONTENT DISCLAIMER: The information provided here is believed to be up-to-date as of the date of publication, ensuring that you receive the most recent and accurate details. It’s important to note that changes may occur due to new statutes, regulations, or court decisions, reflecting the dynamic nature of the subject matter. However, we aim to provide a comprehensive overview with this notice.

We understand that unexpected events and situations may arise, which may not have been foreseen in this notice. In such cases, we encourage you to reach out to the department or consult with your trusted tax professional for further guidance. They will be well-equipped to assist you and ensure you have the most relevant and tailored advice for your specific circumstances. Thank you for choosing Frazier.

The rates will be shooting up to 12.25% as the prevailing interest rate charged to Tennessee tax payers who either owe past due balances to the State or who fail to make estimated quarterly payments as required. Tennessee charges an additional 1% for Tennessee taxpayers who pay past-due taxes through an installment agreement. The total interest rate for installment payment agreements will increase to 13.25%

“The state has raised rates to keep pace with the raise the Prime Interest Rate,” said Nashville-based tax attorney Charles Frazier. “The Prime Rate is directly attached to the FED Funds rate and the discount rate which is established by the Federal Reserve.”

The raise of these interest rates will have an impact on Tennessee taxpayers who owe balances to the state. “While the rise of interest rates are not surprising, many of taxpayers who owe balances are generally struggling small businesses,” said CPA Rick Miller. “It is important that all businesses have a plan for paying all of their State tax balances on time to avoid these rising rates.”

Miller also pointed out that these expenses are generally not deductible to taxpayers. “Punitive interest and penalties on past due or unpaid tax balances are generally not deductible,” said Miller. “It may be better to borrow these funds from a bank or other capital source then to borrow from the State.”

The previous prevailing interest rate of 8% for tax balances and 11% for installment payment agreements will expire on June 30.

Charles R Frazier, JD, LLM, MTax is a Nashville-area tax and estate planning attorney who assists clients with tax issues and tax planning services. He has represented hundreds of taxpayers before the IRS and state department of revenue. More information can be found online at frazier.law.

Rick Miller, CPA MBA is a Nashville-area Certified Public Accountant who prepares Tennessee and federal tax returns for business owners and individuals.

###