Tennessee Business Tax
Tax Tax Tax. Ever feel like every day there is some different tax to pay? We’ve talked about Sales Tax a lot on the blog and we have discussed income tax and business tax. We’re going to take a little more time to focus on business tax here as there is often confusion on what it is and how it differs from income tax.
Business tax, sales tax, and income tax are three separate parts of your business. Business tax is levied by the state and is based on gross sales of your company. You pay the business tax to the state. The same goes for income tax to the IRS, but your get many deductions and credits on income taxes. Sale tax is a percentage of the purchase price of an item that the business owner collects from the buyer and remits to the state.
Business Tax Classifications
In Tennessee, there are five different classifications for business taxes, referring to different industries. For example, food and drink vendors alongside businesses engaged in construction, farming and gasoline fit into category 1. The tax rate for each classification depends on whether you are a retail or wholesale merchant.
The first thing for you to do is check your business classification. You might already know this from when you filed for a business license with the State.
But you’ll need to collate this with the information required for your county too, as in Tennessee, we file two tax returns. One of these is for the city, with the second for the specific county you are located in.
Business Tax Rates
Now that you know the classification of your business, you’ll need to find out the tax rate for that classification. For example, in the first classification, this could be as much as 1/10th of all sales revenue to certain retailers, and less to wholesalers.
There is a minimum tax rate of $22 after applying all deductions and credits in the state of Tennessee.
You’ll need to calculate your business tax rates by working out where your products and services were sold, and who to. Compare the ratio of retailers to wholesalers, as this will be reflected in your tax return. Fortunately, the filing system Tennessee uses does these calculations (but don’t forget to double check them!).
Substantial Business Nexus
What happens if you’re an out-of-state merchant who sells to those located in Tennessee? You’ll need to check if your business has a substantial nexus. This could be:
A physical presence (such as offices or corporate locations)
Employees living within the state
Businesses earning more than $50,000 within a 12-month period from Tennessee customers
In the case that you’re an out-of-state business but you have a substantial nexus in Tennessee, you’ll be subject to the same tax conditions and file with the Tennessee Dept of Revenue.
How to Pay
You’ll have to file your tax return with the Tennessee Department of Revenue. As you’ll be filing electronically, you need to create a Tennessee Taxpayer Access Point (TNTAP) account.
Here are the details:
You’ll need a 415 or 416 form (as applicable to your business)
You will need all Tennessee gross receipts from the calendar year
Filing for an Extension
As we all know, this year has thrown a curve ball for most businesses. It may have changed the structure of your business, forced you to sell online or tweaked the typical way you operate. Of course, this could have a knock-on effect on your taxes which might be harder to calculate and file.
The Tennessee Department of Revenue takes this into account and will grant a 30-day extension for good cause.
The penalty of failure to file is 5% of the unpaid tax per month, up to a maximum of 25%.
Fingers crossed you’re on the road to filing your tax return or have requested an extension before the deadline. But do you need a little extra help? Simple! Book a consultation with me to discuss your financial situation!