Rules & Regulations of the State of Tennessee
Title 1320 - Revenue
Subtitle 1320-06 - Franchise and Excise Tax Division
Chapter 1320-06-01 - Franchise and Excise Tax Rules and Regulations
Section 1320-06-01-.32 - SALES FACTOR
Universal Citation: TN Comp Rules and Regs 1320-06-01-.32
Current through September 24, 2024
(1) In General.
(a) T.C.A. § 67-4-2004 defines the term
"sales" to mean all gross receipts of the taxpayer not allocated under §
67-4-2011. Thus, for the purposes of the sales factor of the apportionment
formula, the term "sales" means all gross receipts derived by the taxpayer from
transactions and activity producing business earnings. The following are rules
for determining "sales" in various situations:
1. In the case of a taxpayer engaged in
manufacturing and selling or purchasing and reselling goods or products,
"sales" includes all gross receipts from the sales of such goods or products
(or other property of a kind which would properly be included in the inventory
of the taxpayer if on hand at the close of the tax period) held by the taxpayer
primarily for sale to customers. Gross receipts for this purpose means gross
sales, less returns and allowances, and includes all interest income, service
charges, carrying charges, or time-price differential charges incidental to
such sales. Federal and state excise taxes (including sales taxes) shall be
included as part of such receipts if such taxes are passed on to the buyer or
included as part of the selling price of the product.
2. In the case of cost plus fixed fee
contracts, such as the operation of a government-owned plant for a fee, "sales"
include the entire reimbursed cost, plus the fee.
3. In the case of a taxpayer engaged in
providing services, such as the operation of an advertising agency, or the
performance of equipment service contract, research and development contracts,
"sales" includes the gross receipts from the performance of such services
including fees, commissions, and similar items.
4. In the case of a taxpayer engaged in
renting real or tangible property, "sales" includes the gross receipts from the
rental, lease, or licensing the use of the property.
5. In the case of a taxpayer engaged in the
sale, assignment, or licensing of intangible personal property such as patents
and copyrights, "sales" includes the gross receipts therefrom.
6. If a taxpayer derives receipts from the
sale of equipment used in its business, such receipts constitute "sales." For
example, a truck express company owns a fleet of trucks and sells its trucks
under a regular replacement program. The gross receipts from the sales of the
trucks are included in the sales factor.
(b) In some cases certain gross receipts
should be disregarded in determining the sales factor in order that the
apportionment formula will operate fairly to apportion to this state the
business earnings of the taxpayer's trade or business. For example, where
substantial amounts of gross receipts arise from the sale of fixed assets used
in the trade or business, such as the sale of a factory or plant, gross
receipts will be excluded from the sales factor. In order to give proper
recognition to the apportionment of business earnings (loss) in such instances,
the net gain arising from the transaction or activity will be included in the
sales factor.
(2) Zero Denominator. In the use of any apportionment formula, where the denominator of a factor is zero, such factor must be eliminated entirely and the average then computed from the remaining factor or factors.
Authority: T.C.A. §§ 67-1-102(a), 67-1-102, 67-4-804, 67-4-810, 67-4-2004, and 67-4-2011.
Disclaimer: These regulations may not be the most recent version. Tennessee may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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