Tennessee Tax Issue of the Year and Year in Review

The Tennessee state and local tax year would not be complete without the obligatory year-end summary, which reflects on the Tennessee tax developments from the past year and unveils the “Tennessee Tax Issue of the Year.”

This year there were numerous Tennessee tax issues that were in the spotlight, including:

1. The Multistate Tax Commission’s successful effort to participate as co-counsel (pro hac vice) in a Tennessee tax dispute involving Pfizer;
2. Scholastic Book Club’s valiant fight to defeat a nexus claim asserted by Tennessee (including a petition for certiorari to the United States Supreme Court);
3. Three trial court decisions involving the interpretation of Tennessee’s tax on “telecommunications services;”
4. A Tennessee letter ruling that broadly interpreted the scope of the digital download tax to include online services that allow users to access information which only nominally include “digital books”;
5. Legislation that passed, repealing the Tennessee gift tax and adopting a phase-out of the Tennessee inheritance tax; and
6. Online travel companies prevailing in federal court on the application of local Tennessee hotel occupancy taxes to online travel companies.

So many Tennessee tax issues to choose from, but there can only be one “Tennessee Tax Issue of the Year.” So move over LeBron James(Sports Illustrated’s 2012 Sportsman of the Year) and President Obama (Time magazine’s 2012 Person of the Year), the Tennessee Tax Issue of the Year is …

The state’s passage of legislation that will require companies to file an application with the Tennessee Commissioner of Revenue to seek pre-approval to deduct intangible expenses paid to affiliates.

This approach, as detailed in linked materials, was an unprecedented effort by Tennessee to address perceived abuses by companies with affiliates that manage intangibles. So congratulations to the Tennessee Department of Revenue and its Intangible Expense Deduction Legislation for being the “Tennessee Tax Issue of the Year.”

The following is a list of Tennessee tax articles that the attorneys of Bradley Arant Boult Cummings published in 2012.

• Company Challenging Tennessee DOR's Expanded Nexus Interpretation, State Tax Today, 12/18/2012
• Tennessee Court Orders Trial to Consider Phone Company's Refund Claim, State Tax Today, 11/14/2012
• Tennessee Revenue Ruling Misinterprets Taxation of Online Information Services, State Tax Today, 10/25/2012
• Tennessee Changes Position on Disregarded SMLLCs, State & Local Tax Alert: Tennessee Edition, 8/6/2012
• Tennessee Court Holds that Wide Area Network Service Is a Taxable Telecommunications Service, State & Local Tax Alert: Tennessee Edition, 8/6/2012
• Tennessee Court Says Wide Area Network Services Are Subject to Sales Tax, State Tax Today, 7/25/2012
• Scholastic Files Petition for Certiorari in Connecticut Nexus Case, State Tax Today, 6/29/2012
• Tennessee Takes Unprecedented Approach in Attacking Affiliated Intangible Holding Companies, State & Local Tax Alert: Tennessee Edition, 5/17/2012 (republished in Journal of Multistate Taxation and Inentives, Vol. 22, No. 4, July 2012)
• Tennessee Property Tax Update, State and Local Tax Alert - Tennessee Edition, 4/23/2012
• Aircraft Transactions Continue to Receive Heightened Scrutiny from State Tax Authorities, Journal of State Taxation, 4/1/2012
• Scholastic Asks for Tennessee Supreme Court Review of Nexus Case, State Tax Today, 3/30/2012
• Intangible Expenses, Amazon & Solar Highlight Bills in Tennessee Legislature, State and Local Tax Alert - Tennessee Edition, 3/29/2012
• Tennessee Lawmakers Considering Inheritance Tax Phaseout, State Tax Today, 3/23/2012
• Tennessee Court Disallows Credit to S Corporation Shareholders for Tax Paid to South Carolina, Business Entities, 3/1/2012
• Tennessee Personal Property Tax Schedules Due in March Recent Decision Holds that “Acquisition Cost” Does Not Include Intangible Costs, State and Local Tax Alert - Tennessee Edition, 2/15/2012
• Tennessee Court of Appeals Holds That Scholastic Book Clubs Has Nexus in Tennessee, State and Local Tax Alert - Tennessee Edition, 2/6/2012
• Shop Talk: Court Finds Individual Not Entitled to Tennessee Resident Credit for Tax Paid to South Carolina, Journal of Multistate Taxation and Incentives, 2/2012
• Tennessee: State Issues Significant Guidance on the Tax Treatment of Series LLCs, Journal of Multistate Taxation and Incentives, 2/2012
• Tennessee Governor Bill Haslam Calls for Preapproval of Deductions for Intangible Expenses, State and Local Tax Alert: Tennessee, 1/12/2012 (published in State Tax Today, 1/1/2012)

Next year should present a similar list of worthy candidates with several cost-of-performance cases that will likely be decided, potential fights brewing in the state legislature over the property tax treatment of solar property, the scope of Tennessee’s locally-imposed business tax, and appeals involving the sales tax and business tax treatment of Internet access.

Happy New Year from the State And Local Tax Team at Bradley Arant Boult Cummings!