On May 8, 2019, Tennessee Governor Bill Lee signed into law Senate Bill 558 (SB 558), which provides deductions for IRC Section 965(a) amounts related to the "transition tax" and IRC Section 951A amounts related to global intangible low-taxed income (GILTI) and creates related addbacks for associated federal income tax deductions to the Tennessee tax base.

Tennessee treatment of IRC Section 965

For the 2017 tax year, the Tennessee Department of Revenue (TN DOR) issued guidance under TN DOR Notice #18-05, indicating all IRC Section 965 amounts should be excluded from the Tennessee excise tax base. For tax years beginning on or after January 1, 2018, effective immediately, the amendments made by SB 558 provides a deduction for amounts included in federal taxable income under IRC Section 965(a) to the extent such amounts would otherwise be included in the Tennessee excise tax base. SB 558 also requires an addback to the excise tax base of 5% of the gross IRC Section 965(a) amount, before the IRC Section 965(c) deduction.

Tennessee treatment of GILTI

SB 558 provides a deduction for amounts included in federal taxable income under IRC Section 951A to the extent such amounts would otherwise be included in the Tennessee excise tax base. In addition, SB 558 requires an addback to the excise tax base of 5% of the gross IRC Section 951A amount, before the IRC Section 250 deduction. Both the deduction and addback are effective for tax years beginning on or after January 1, 2018.

Both deductions authorized by SB 558 will be codified at Tenn. Code Ann. Sec. 67-4-2006(b)(2) and both addbacks will be codified at Tenn. Code Ann. Sec. 67-4-2006(b)(1).

Implications

SB 558 excludes from the Tennessee excise tax base all GILTI and transition tax amounts, but for 5% of the federal taxable income recognized under IRC Secs. 951A and 965(a), for tax years beginning on or after January 1, 2018. In effect, this means Tennessee provides a 95% deduction for such federal gross income inclusions. SB 558 does not address the Tennessee apportionment implications of the 5% inclusion in Tennessee net earnings.

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