Tuesday, January 12, 2010

An Apparent Tax on Musicians and Producers in Tennessee

I learned this week that two adages are true.

First: You are never too old to learn something new.

Second: Everything you know is wrong.

Case in point: I had a client call and ask me whether, as a musician and producer, he was required to have a business tax license and pay business taxes in Tennessee. I confidently told him “no.” I had researched this very point some time ago and had never heard anything to the contrary. He persisted in saying that his accountant told him I was wrong, so after reviewing the statute (which neither mentions nor exempts musicians), I asked a music business accountant. She confirmed that musicians and producers are, in fact, subject to the Tennessee business tax.

Here is what the statute states:

The Business Tax Act makes it a taxable privilege to make sales or engage in any vocation listed in Tenn. Code Ann. Sections 67-4-708(1)-(4). Any county or incorporated municipality in Tennessee may levy the privilege tax on those listed activities that take place within its geographical boundaries. (Tenn. Code Ann. Section 67-4-704).

Engaging in any business, business activity, vocation, or occupation described under this act is declared to be a privilege for state purposes and taxable by the state alone. (Tenn. Code Ann. Section 67-4-705).

The tax imposed under the Business Tax Act may be collected in addition to any other applicable privilege taxes established by law. The tax will be in lieu of any or all ad valorem taxes on the inventories of merchandise held for sale or exchange by persons taxable under this law. (Tenn. Code Ann. Section 67-4-701).


Prior to engaging in business, every person taxable under the Business Tax Act, except for those taxable under Tenn. Code Ann. Section 67-4-705, must register with the county clerk, in the case of taxes owed to the county, and/or with the city tax collector, in the case of taxes owed to a municipality. Taxpayers must contact the respective county or city official for registration information and forms. (Tenn. Code Ann. Section 67-4-706).

The fee for registration is $15 and must be paid at the time the application is submitted. Upon presentation of the application and payment of the $15 fee, the registering official will issue the taxpayer a license.

Annually thereafter, upon notification from the Department of Revenue that the taxpayer has filed the required business tax return and remitted the amount of tax due, the licensing entity will renew the taxpayer’s business license for another year. There is no additional fee for annual business license renewal.

The taxpayer must exhibit the license in the taxpayer’s place of business.

“Business” as defined by
Tenn. Code Ann. Section 67-4-702(a)(2):

“Business” includes any activity engaged in by any person with the object of gain, benefit, or advantage, either directly or indirectly. “Business” does not include occasional and isolated sales or transactions by a person who is not routinely engaged in business.

There are all types of businesses included and excluded (attorneys, for example, are excluded), but curiously, musicians and producers are not mentioned. Presumably they are meant to be covered under the catch-all category of “each person making sales of services or engaging in the business of furnishing or rendering services…” It just seems strange to me that in a state with such an important music industry, that such an activity is not mentioned at all.

The bottom line is that this is a tax that I was not fully aware of, and I would urge you to check with your accountant or tax professional to determine if your particular business requires a license and is subject to this tax.


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Trip Aldredge said...