Bass, Berry & Sims attorney Steve Jasper discussed a recent Tennessee Department of Revenue (DOR) ruling requiring a taxpayer to include the step-up basis resulting from a Section 754 election when calculating the Tennessee franchise tax but not allowing the step up for purposes of the state excise tax. The ruling applies to a taxpayer that is a single member limited liability company wholly owned by a multimember LLC.
As Steve discussed, the taxes have two different methods for determining the tax base, with generally accepted accounting principles being the starting point for the franchise tax and federal income being the starting point for the excise tax, and the Department ruling being bad for the taxpayer on both taxes.
The full article, “Tennessee DOR Rules on Franchise Tax Effect of Basis Adjustment,” was published by State Tax Notes on July 16 and is available online (subscription required).