Sales Factor – Qualified Member Of A Qualified Group

(1) In General. T.C.A. § 67-4-2012(j) states that for any qualified member of a qualified group, the numerator of the sales factor equals the receipts from all sales of tangible personal property attributed to Tennessee under the sourcing rules for tangible personal property plus the arithmetical average of receipts from all sales other than sales of tangible personal property that are in Tennessee as determined under (1) market-based sourcing, and (2) where the earnings producing activity is performed (a) in this state or (b) both in and outside of Tennessee and a greater proportion of the earnings-producing activity is performed in Tennessee than any other state, based on cost of performance. (2) Earnings Producing Activity; Defined. The term “earnings producing activity” applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profit. Such activity does not include transactions and activities performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor. Accordingly, the earnings producing activity includes but is not limited to the following: (a) The rendering of personal services by employees or the utilization of tangible and intangible property by the taxpayer in performing a service. (b) The sale, rental, leasing, or licensing or other use of real property. (c) The rental, leasing, licensing or other use of tangible personal property. (d) The sale, licensing or other use of intangible personal property. The mere holding of intangible personal property is not, of itself, an earnings producing activity. (3) Costs of Performance; Defined. The term “costs of performance” means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.