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Hi, Ive recently set up a company in Tennessee which will

Customer Question
Hi, I've recently set up a...
Hi,

I've recently set up a company in Tennessee which will be used to purchase private redisential properties in Memphis and let them out to private individuals/families.

What taxes and other registrations to I need to register/apply for with the state.
Submitted: 6 years ago.Category: Tax
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9/2/2011
Tax Professional: Jax Tax, Tax Attorney replied 6 years ago
Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1,408
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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Jax Tax : Property tax is a given. Regardless of your resident state, you will be taxed on this income in TN so if after expenses and depreciation, there will be a profit both state and federal estimated tax payments should be made. There is not much more to it tax wise.
Jax Tax : Federal EIN for filing. Irs.gov. What is the business structure? LLC corporation?
Customer:

It's a C Corporation. I have the EIN. But what about the TN Sales & Use tax or Franchise & Excise Tax

Jax Tax : You need to make a 2553 sub s election with the IRS now.
Customer:

why

Jax Tax : There is sales and use tax on personal property not real residential. The 2553 sub s will stop income from being tax at the corporate and individual level passing it to the individual only for tax purposes.
Customer:

Sorry I should have given more detail. I'm from the UK. The C Corp will be owned by a UK Holding Co so I don't really want the income taxed at the individual level as the corporate level is lower.

Customer:

Is it only the Franchise & Excise Tax that will be applicable then?

Jax Tax : There is no franchise or excise tax on residential property. There will still be state corporate and federal tax even if owned by a UK company. Additionally the dividends to the UK company will be subject to 30% back up withholding federally and the UK corporation will have to file a US return. So, there are three returns. Federal and state for the rental corporation then federal for the UK company as it relates to US based dividends. The UK under treaty will give credit.to the UK company for any tax on dividends.
Customer:

The UK/US double tax treaty appears to reduce the dividend withholding rate to zero if:


- the UK Co (being the beneficial holder of the dividend) holds more than 80% of the voting power of the US Corp for 12 months prior to the dividend being declared,


and


- is owned by 7 or fewer "equivalent beneficiaries"...........I assume UK resident individual who owns 100% of the share capital of the UK Co would meet the definition


- less than 50% of the gross income of the US Corp is distributed to persons who are not equivalent beneficiaries................which obviously doesn't apply since if the UK Co is 100% owned by an equivalent beneficiary


and


satisfies the other conditions of the dividends article (10) which all seem to consider permanent establishments. So if the UK Co is simply a holding company then those points become irrelevant.

Customer:

Is my understanding correct on this

Jax Tax : The treaty is hard to read for sure. The tax withholding can be reduced to 15% by providing the US company with form w8ben. There will be tax on the dividends in the US.
Customer:

I'm still not clear why the clauses from the treaty I've described above wouldn't exempt the dividends from witholding tax. Do you have any more information on this.

Jax Tax : If the dividend is from a US based source it is subject.to US tax. It is a basic concept of US taxation that appears in all US treaties. They use language that.is darn near impossible to read and understand. Your just.going to have to trust me on the interpretation.
Jax Tax : Regardless of whether it is taxed or not, a return does have to be filed. The withholding is not a final tax. If a refund is due, it will be refunded.
Customer:

thanks

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