Rules & Regulations of the State of Tennessee Title 1320 - Revenue
Tennessee Rules & Regulations – Title 1320: Revenue
Scope:
Title 1320 governs the administration of state taxes and revenue, including the Department of Revenue’s rules on:
Income tax
Sales tax
Franchise & excise taxes
Business taxes
Property taxes
Tax enforcement and compliance procedures
The rules interpret Tennessee Code Annotated (T.C.A.), particularly Title 67 (Revenue and Taxation).
I. Purpose and Authority
Title 1320 exists to:
Implement T.C.A. tax statutes.
Ensure uniform interpretation of tax laws across the state.
Provide guidance for taxpayers and practitioners.
Administer collection, auditing, and enforcement procedures.
Case Law Principle:
Tennessee courts recognize that agency rules (like 1320) have the force of law if they are:
Promulgated under statutory authority
Consistent with legislative intent
Not arbitrary or capricious
Example: In Harriman Citizens Bank v. Tennessee Dept. of Revenue, 677 S.W.2d 495 (Tenn. 1984), the court held that the Revenue Department’s rule interpreting tax statute is valid as long as it aligns with legislative intent.
II. Taxpayer Registration and Reporting Requirements
A. Registration
Businesses must register with the Tennessee Department of Revenue (DOR) to collect sales tax, franchise tax, or business tax.
Registration is required before engaging in taxable activity.
B. Filing Requirements
Tax returns must be accurate and timely.
Electronic filing is encouraged or required for some tax types.
Case Law:
Failure to properly register or file can lead to penalties. Courts have upheld penalties where taxpayers claimed ignorance.
Example: Miller v. Tennessee Dep’t of Revenue, 498 S.W.2d 854 (Tenn. Ct. App. 1973), affirmed that taxpayers cannot avoid obligations by failing to register.
III. Sales and Use Tax Regulations
A. Imposition of Tax
Sales tax applies to tangible personal property and certain services.
Use tax applies to property purchased outside Tennessee and brought in for use.
B. Taxable Transactions
Retail sales, leases, rentals, and certain services.
Occasional or casual sales may be exempt.
C. Vendor Responsibilities
Collect and remit tax
Maintain proper records (invoices, receipts)
Display resale certificates for exempt sales
Case Law:
Courts strictly interpret “retail sales” and exemptions.
Tennessee State Bd. of Equalization v. Union Planters National Bank, 568 S.W.2d 573 (Tenn. 1978): Vendors cannot avoid liability by misclassifying sales to avoid tax.
IV. Franchise and Excise Taxes
A. Franchise Tax
Levied on corporations for the privilege of doing business in Tennessee.
Calculated on net worth or capital stock.
B. Excise Tax
Levied on corporate net earnings.
Both domestic and foreign corporations doing business in Tennessee are liable.
Case Law Principle:
Courts consistently hold corporations are liable even if earnings are nominal or if business is conducted largely out-of-state.
Coca-Cola Bottling Co. v. Tennessee, 548 S.W.2d 191 (Tenn. 1977): A corporation’s obligation to pay franchise tax depends on its legal presence in Tennessee, not physical sales volume.
V. Business Tax
Levied on gross receipts of businesses not subject to franchise/excise taxes.
Rates vary by business classification.
Judicial Note:
Business tax assessments are upheld if based on substantial evidence of gross receipts, even if the taxpayer disputes methodology.
VI. Taxpayer Audit and Enforcement
A. Audit Authority
Revenue Department may examine records.
Audits can cover prior tax years (generally 3 years, extendable to 6 for fraud).
B. Enforcement Tools
Liens, garnishments, levies
Penalties and interest for late payment
Criminal prosecution for tax evasion
Case Law Guidance:
Tennessee Dept. of Revenue v. Brown, 628 S.W.2d 413 (Tenn. 1982): Courts affirmed the Department’s right to assess back taxes where records were incomplete or falsified.
Key principle: Burden is on taxpayer to maintain records.
VII. Penalties and Interest
Failure to file or pay taxes results in penalties (percentage of unpaid tax) and interest.
Fraud or willful underreporting carries heavier penalties, sometimes criminal prosecution.
Case Law Principle:
Courts distinguish between negligent mistakes and willful fraud. Penalties are reduced if taxpayer demonstrates good faith, but ignorance of the law is not a defense (City of Memphis v. Tennessee Dep’t of Revenue, 749 S.W.2d 110, 1988).
VIII. Property Taxes (Administered via DOR for Certain Types)
Tennessee counties assess real and personal property taxes, but Title 1320 regulates state-level property tax aspects, including centrally assessed utilities and large business properties.
Judicial Note:
Memphis Light, Gas & Water v. Shelby County, 786 S.W.2d 555 (Tenn. Ct. App. 1989): State rules supersede county misinterpretation for centrally assessed properties.
IX. Administrative Hearings and Appeals
Procedures
Taxpayers may contest assessments through formal hearings.
Hearings include: presentation of evidence, witnesses, and cross-examination.
Revenue Commissioner issues final orders.
Judicial Review
Courts review for:
Statutory authority
Arbitrary or capricious action
Substantial evidence
Case Law:
Tennessee Wine & Spirits Retailers Ass’n v. Tennessee Dept. of Revenue, 890 S.W.2d 295 (Tenn. 1994): Courts defer to agency expertise but will strike rules outside statutory authority.
X. Tax Credits, Exemptions, and Incentives
Rules detail eligibility and filing procedures for:
Job creation incentives
Investment tax credits
Sales tax exemptions for manufacturing
Judicial Guidance:
Courts narrowly construe exemptions and credits; taxpayers must strictly comply with documentation requirements.
XI. General Judicial Philosophy Toward Title 1320
Rules are binding when validly promulgated.
Revenue Department decisions are given deference in areas requiring technical expertise.
Taxpayers must maintain compliance, or penalties are strictly enforced.
Public interest and revenue protection are prioritized over individual taxpayer convenience.
✅ Summary of Key Takeaways
Title 1320 sets rules for registration, reporting, collection, audit, enforcement, and penalties.
Compliance with both statute (T.C.A. Title 67) and Department rules is mandatory.
Courts consistently uphold Revenue Department authority so long as rules are within statutory scope.
Ignorance of the law is not a defense; record-keeping and disclosure are critical.
Administrative and judicial processes ensure due process, but public revenue protection takes precedence.
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