Tennesee Litigation: Is the transfer of a houseboat to a living trust subject to Tennessee sales tax?

There is lawsuit pending in Davidson County Chancery Court in which an individual transferred a houseboat to a living trust, and the Department of Revenue is attempting to tax the transaction under Tennessee's sales tax. Randall Crotts Living Trust v. Trost, Civil No. 10-2004-I. While possession of the houseboat was transferred to the living trust, the mortgage holder refused to allow a transfer of title to the living trust.

This case highlights two important principles in Tennessee sales and use tax law – (1) the occasional sale exemption and (2) what constitutes a sale under Tennessee’s sales tax law.

  

In Tennessee, the occasional and isolated sale exemption, while generally exempting non-dealer transactions, does not apply to transactions involving motor vehicles, boats, and aircraft. Thus, in this case, the Department contends that the transfer to the living trust is not exempt. The taxpayer really doesn’t challenge this point in its complaint.

The Taxpayer challenges the Department’s assertion that the transfer to the living trust is a sale, focusing on the mortgage holder’s refusal to allow the transfer, but the Taxpayer also concedes in the complaint that the living trust has possession of the houseboat. In Tennessee, transfer of title or possession is considered a sale, so the Department may have the better position on this issue.

As a final contention, the Taxpayer also argues that there is no consideration on which a tax can be assessed. It is unclear from the complaint whether any cash was exchanged from the living trust to the trust settler, but that may be a basis on which the taxpayer could prevail. Stay tuned as this case continues to work its way through the Tennessee court system.

A copy of the case can be viewed here:

http://www.babc.com/files/upload/randall_crotts_living_trust.pdf

Twitter: @TNTAXLawyer

Is Tennessee "In the Movies?" - Denial of Film Production Credit Results in Lawsuit

Tennessee is not one of the states that has been agressive in enacting transferrable film credits, but Tennessee did pass a film credit several years ago when the Miley Cyrus/Hannah Montana Movie was being produced that allows for a credit against Tennessee franchise and excise tax. Well ... that credit has now become the subject of a lawsuit in Davidson County Chancery Court involving the production of the movie "Losers Take All" (Losers pictured here). 

The credit applies to production companies that incur "qualified production expenses." The taxpayer, Spies Production, had previously produced a movie, "Nothing But the Truth," and qualified for the credit. The Complaint goes into great detail about the interaction between Spies and the Department of Revenue, but despite the close collaboration, the credit for the second film was denied. It is unclear from the complaint why the credit was denied, but it will be interesting to see how this case is resolved as it will likely include equitable reliance theories in addition to the taxpayer's claim that it simply qualifies for the credit.

The Complaint can be found by clicking here. http://bit.ly/GNsbcn