As referenced in the Department's Notice, a firearm safety device is defined as: (i) a device that, when installed on a firearm, is designed to prevent the firearm from being operated without first deactivating the device, or (ii) a device to be equipped or installed on a firearm that is designed to prevent the operation of a firearm by anyone who does not have the authorized access to the firearm. A firearm safe is defined as a locking container or other enclosure, including glass-faced containers, equipped with a padlock, key lock, combination lock, or other locking device, and intended for the secure storage of one or more firearms. In conjunction with this new law, the Tennessee Department of Revenue (Department) issued Notice #23-16 in late August 2023, which addresses the definition of "firearm safe" and "firearm safety device" for purposes of this exemption. Sales/Use Tax Exemption for Firearm Safes: During an Extraordinary Session of the Tennessee Legislature that convened and adjourned during August 2023, one of the few bills passed by the Legislature and signed by Governor Lee was Senate Bill 7085, now 2023 Public Chapter (Extraordinary Session) 0001, which creates a permanent sales and use tax exemption for "firearm safes" and "firearm safety devices," effective November 1, 2023. In response to the question in this Ruling as to whether the outcome would be any different if the Taxpayer does not elect to be treated as a corporation and remains as a disregarded entity for federal income tax purposes, the Department stated that the Taxpayer would be disregarded for sales and use tax purposes and would be treated as a division of the Parent, and thus the eligibility for those exemptions may fluctuate depending upon the facts pertinent to the Parent. Based on the facts set in this Ruling request, the Department then determined that the Taxpayer would qualify for the sales and use tax exemption for industrial machinery and reduced rates for water and energy fuel and additionally qualifies as a manufacturer for business tax purposes and thus qualifies for the exemption from such tax. In response to the requested rulings, the Department concluded that since the Taxpayer will elect on IRS Form 8832 to be treated as an association taxable as a corporation, then the Taxpayer will be treated as a separate entity for state and local tax purposes. Additionally, the Taxpayer will elect to be treated as a corporation for federal income tax purposes. Further, the Parent will transfer all machinery, equipment, and personnel specifically involved in such fabrication work to the Taxpayer and the Taxpayer will be located in a physically separate fabrication facility from that of the Parent. The Parent proposed to expand its operations by establishing a new legal entity, a single member limited liability company (Taxpayer), to be owned by the Parent that will only fabricate goods for resale and use off the Taxpayer's premises. The Parent is in the business of selling fabricated goods to contractors, consumers, and users as well as installing goods for others. Under the facts in this Ruling, the Parent corporation operates a fabrication plant and provides design services, project management, and detailing services. Industrial Machinery/Manufacturing Exemption Available to Single Member LLC: The Tennessee Department of Revenue (Department) has recently posted Letter Ruling #23-08 (Ruling) addressing the question of whether a wholly-owned single member limited liability company qualifies for the sales and use tax industrial machinery exemption and the business tax exemption for manufacturers if the owner (Parent) of that limited liability company is a corporation but such limited liability company elects to be treated as a corporation for federal income tax purposes. Select Developments will identify one or more recent state and local tax developments from Tennessee. To assist you with staying current on a periodic basis, Baker Donelson's S.A.L.T. Where multiple jurisdictions are involved, staying current with state and local tax developments can be overwhelming for any taxpayer. S.A.L.T developments in any one jurisdiction can be frequent and sometimes confusing. State and local taxes impact almost every taxpayer.
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