Legislative Update
by John F. Murrah & Les Wilkinson

The 2008 Technical Corrections Act of the Tennessee General Assembly, Public Chapter 1106, includes the following:

* Sales of Specified Digital Products: Imposes sales and use tax upon the retail sale, lease, licensing or use of specified digital products by Tennessee consumers. Specific items included, but not limited to: electronically transferred motion pictures, musical videos, news & entertainment programs, live events, music, audio books and ringtones. Effective January 1, 2009.

* FONCE Exemption: Requires every family-owned non-corporate entity (“FONCE”) to periodically file forms with the Commissioner of Revenue reporting information to be determined by the Commissioner - Effective June 5, 2008.

* Lease and Repair of Computer Software: Declares that it is the intent of the legislature to subject leases of computer software to sales & use tax. The installation and repair of computer software is also subjected to tax. Effective June 5, 2008.

* Franchise & Excise Tax: Imposes the excise tax on sales of assets occurring up to one year after a taxable entity is liquidated into a non-taxable entity to match the clawback rule for asset distributions. Effective July 1, 2008.

* Diversified Investing Fund Exemption: Clarifies that investment funds controlled by related persons may no longer qualify for the Diversified Investing Fund Exemption from the Franchise & Excise Tax. Effective January 1, 2009.

The following provisions, while included in preliminary drafts of the Technical Corrections Act, were not included in the final legislation: (1) removal of the class A/B distinction for purposes of the Tennessee gift tax; (2) elimination of the requirement that an entity actually receive some passive income in order to qualify for the FONCE exemption from Tennessee franchise & excise tax; (3) for purposes of the FONCE exemption, treatment of any trust (not just testamentary trusts) as a “member of the family” if the trust beneficiaries would qualify as such “members of the family”; and (4) a proposal to exclude commercial rents from the definition of passive investment income for purposes of the FONCE exemption.

The Tennessee Department of Revenue’s web site contains a list of brief summaries of all 2008 tax-related legislative changes, which may be found here.

A complete copy of any particular public chapter may be accessed at the Secretary of State’s web site.

IRS Area Counsel Roundtable

by Leslie Shields

The Tax Section of the Tennessee Bar Association will host an informal roundtable discussion with IRS Area Counsel on:

Thursday, November 6, 2008
10:00 a.m. - 1:00 p.m. CST
at
The Tennessee Bar Center
2nd Floor, Nippert Hall
221 Fourth Avenue North
Nashville, TN

The office of Area Counsel handles tax cases for the government primarily in Tennessee, Arkansas and Florida. Attorney Nancy Hale, Managing Counsel for this Area, Criminal Tax Attorney Howard P. Levine, LMSB Attorney Ben McClendon and others from the IRS will be present from the government to answer questions.

This is a wonderful opportunity to meet with IRS attorneys in a small setting, have your questions answered and listen to the current hot topics regarding federal tax practice in Tennessee. The Tax Section is compiling a list of questions and concerns to send to Area Counsel for their review prior to the meeting. If you have a question or concern that you would like IRS Area Counsel to address, please send it to Leslie Shields or 865-546-2400 no later than Monday, November 3.

Lunch will be purchased for Section members who respond that they will attend. If a Section member wishes to bring a guest, lunch for that guest may be purchased for $10. Please respond to Sarah Hayman no later than Monday, November 3 via email or 800-899-6993.