Under Tenn. Code Ann. §§ 67-4-2010 and 67-4-2110, a taxpayer is entitled to apportionment for franchise and excise tax purposes if the taxpayer has taxable business activities both inside and outside the state of Tennessee. A taxpayer is considered taxable in another state if it is conducting business activities in that state and such activities would constitute doing business in Tennessee and subject the taxpayer to franchise and excise tax in Tennessee if such activities were performed in Tennessee.
Here, Popularcategories.com (Popular Categories) was incorporated in the state of Florida. Popular Categories then joined with another company to form Popular Enterprises, LLC. In 2008, the Tennessee Department of Revenue determined that the proceeds from the sale of Popular Enterprises, LLC that were payable to Popular Categories were subject to Tennessee franchise and excise tax, and that Popular Categories was not entitled to apportionment because it was not doing business outside of the state of Tennessee.
The legal question at issue was whether Popular Categories had a substantial nexus with some other state such that it would be at risk of taxation in that other state’s jurisdiction
The Court of Appeals held that Popular Categories’ legal domicile in Florida afforded it a substantial nexus to Florida such that Popular Categories would be subject to Florida’s taxing jurisdiction, notwithstanding the fact that Florida did not tax Popular Categories on the proceeds at issue. Therefore, Popular Categories had the right to apportion its net worth and net earnings for purposes of the Tennessee franchise and excise taxes.
Popularcategories.com Inc. v. Gerregano, No. M2017-01382-COA-R3-CV (Tenn. Ct. App. Dec. 20, 2018)
Muse, Andrea, Tennessee Court: Out-of-State Incorporation Enough to Apportion, Tax Notes, Dec. 26, 2018.