Tax News

CCH (cch.taxgroup.com) reports:

Tennessee Governor Phil Bredesen has signed S.B. 2223, enacting various excise and franchise tax amendments, including provisions that expand a number of credits. The legislation also contains sales and use tax provisions, which are reported in a separate story. (TAXDAY, 2007/07/06, S. 26)
Industrial machinery credit:
Additional tiers are added to expand the industrial machinery credit. Previously, the credit amount was 1% of the purchase price of qualifying machinery. Under the new tiers, the following credit amounts are allowed: 10% for a capital investment exceeding $1 billion; 7% for a capital investment exceeding $500 million; 5% for a capital investment exceeding $250 million; and 3% for a capital investment exceeding $100 million. Credits under the new tiers are generally subject to the existing industrial machinery credit provisions, except that a taxpayer qualifying under the new provisions is entitled to the credit for certain items (i.e., computers, computer networks, computer software, computer systems, and any peripheral devices, including hardware, such as printers, plotters, external disc drives, modems, and telephone units) regardless of whether any of the requirements for the jobs credit are met.
Headquarters relocation expenses credit:
Additional tiers are added to expand the credit for headquarters facility relocation expenses. Previously, the credit was available only to taxpayers qualifying for the jobs tax credit in connection with a required capital investment exceeding $1 billion, and the credit amount could not exceed $50,000 multiplied by the number of relocated positions. Under the new tiers, the following maximum credit amounts are also available, based on the creation of full-time jobs that pay at least 150% of the Tennessee average occupational wage:
-- 100 --249 jobs, $10,000 per relocated position;
-- 250 --499 jobs, $20,000 per relocated position;
-- 500 --749 jobs, $30,000 per relocated position; and
-- 750 or more jobs, $40,000 per relocated position.
Rural Opportunity Fund credit: For financial institutions, a new credit is allowed, equal to 10% of contributions to the Tennessee Rural Opportunity Fund.
Jobs credit: An expanded jobs credit is provided for qualifying businesses located in certain economically distressed counties. Specifically, an additional credit is allowed on an annual basis for a period of three years if the business is located in a tier two economically distressed county, or five years if the business is located in a tier three economically distressed county. The additional annual credit equals $4,500 for each net new full-time employee job.
Under another amendment, if a business enterprise involves a required capital investment of $10 million and the creation of at least 100 net new full-time employee jobs (as defined for purposes of the sales and use tax qualified headquarters facility credit) paying at least 150% of the Tennessee average occupational wage, then the credit allowed is $5,000 for each such job created. An additional $5,000 credit is also allowed on an annual basis for a period of three years, beginning with the first tax year after the investment and job threshold criteria are met.
Refund for qualified production companies:
The legislation amends the provision previously allowing a 15% refund of certain qualified expenses related to the production of a movie in Tennessee. Under the amendment, the refund is also available with respect to the production of an episodic television program in Tennessee. In addition, the provision now specifies that qualified expenses must be incurred prior to July 1, 2012.
Apportionment for barges: The law governing special apportionment for common carriers is amended to include provisions for barges, applicable to tax years ending on or after July 1, 2007. Under the new provisions, the ratio for barges is obtained by taking the arithmetical average of the following two ratios: (A) revenue from the transportation of cargo loaded in Tennessee, as compared with entire revenue from the transportation of cargo loaded in and outside the state; and ( the ratio of total miles operated in Tennessee to total miles operated in and outside the state. "Miles operated in Tennessee" means 50% of miles operated on the Mississippi River adjacent to the Tennessee shoreline, plus all miles operated on inland waterways within Tennessee.
S corporations: Excise tax modifications are enacted for S corporations for any gain or loss that is attributable to an IRC §338(h)(10) election and that is not included in net earnings or losses. The modifications apply to transactions occurring on or after October 1, 2007.
Basis adjustment: With respect to sales of property having a higher basis for Tennessee excise tax purposes than for federal income tax purposes, the provision allowing a subtraction for part of the gain or loss is amended to specify that no adjustment may be taken as a result of the taxpayer not having been subject to the excise tax during any portion of the period during which the taxpayer took depreciation expense on the property for federal income tax purposes.
Joint and several liability for unitary businesses: For financial institutions required to file combined returns, although the law generally provides that each member subject to tax in Tennessee is jointly and severally liable for the tax imposed with regard to the unitary business, an exception is now available for certain limited liability companies, limited liability partnerships, and limited partnerships. For the exception from joint and several liability to apply, one of the following requirements must be met: (A) the member has pledged substantially all of its assets as security for third-party borrowings or securitized indebtedness acquired by third parties, and it was formed and operated for the primary purpose of acquiring notes, accounts receivable, installment sale contracts, or similar evidences of indebtedness from its owners; or ( substantially all of the member's assets consist of assets described in (A), above, or cash and cash equivalents, third-party debt securities, or equity interests in entities satisfying the requirements of (A).
Diversified investing funds: The exemption for diversified investing funds is expanded to include business trusts that otherwise meet the requirements for the exemption. Previously, the exemption applied only to limited liability companies, limited liability partnerships, and limited partnerships.
Subscribers to CCH Tax Research NetWork can view the amendments constituting the bill as enacted.
S.B. 2223, Laws 2007, effective June 28, 2007, or as noted.