Area Development Tennessee Resource Page
Basic Business Taxes
Tennessee levies an excise tax of 6.5 percent on net earnings of companies, foreign or domestic, from business conducted in the state or on a state apportionment of total earnings of multistate corporations. All taxes, except federal income tax and state excise taxes, are deductible in determining excise tax base. In allocating the income of a multistate corporation, the state uses a three-factor formula, comparing the sales, payroll, and property in the state to the overall corporation. The state double weights the sales factor.
An industrial machinery credit equal to 1 percent of the purchase price of material handling and racking systems purchased by a warehouse or distribution facility that has made a $10 million capital investment and filed a business plan and application. The taxpayer must invest in a building/equipment over a period not exceeding three years.
Manufacturers are allowed an industrial machinery credit of 1 percent of the purchase price of qualified industrial machinery. The credit cannot exceed 50 percent of the total franchise and excise tax liability. Unused portions can be carried forward for up to 15 years.
Sales and use taxes:
A 7 percent state sales tax plus a 1–2.75 percent local sales tax are levied on the sale price of each item or article of tangible personal property and some specific services sold at retail. A use tax of the same rate is levied on the cost price of each article used, consumed, or stored for use in the state, upon which the sales tax is not imposed. Qualified manufacturing equipment is tax exempt. Energy fuels and water used by manufacturers are taxed at 1.5 percent. If comes in direct contact and is separately metered may be tax exempt.
There is no sales tax on the purchase of qualified materials-handling equipment and racking systems associated with the required capital investment ($10 million+) by a distribution or warehouse facility.
There is a credit for state sales and use taxes paid on building materials, machinery, and equipment for new or expanded corporate headquarters meeting the requirements of $50 million capital investment or $20 million with 200 employees with salaries of 200 percent of MSA.
Property tax:
The state levies no property tax. Counties and cities levy property tax on real and personal property. Tax rates of industrial and commercial real property vary with locality. Property is assessed by county assessors.
There is a sales and use tax exemption for pollution-control equipment used by a qualified manufacturer or processor.
Industrial fuels and raw materials:
Component parts, containers and packaging materials, and repair parts used in manufacturing are not subject to sales and use taxation. Water and energy fuel used in the manufacturing process that come into direct contact with the product and are separately metered are completely exempt.
Franchise tax:
The franchise tax is based on the taxpayer's net worth, or the book value of all real and tangible property owned or used in Tennessee, whichever is greater. The franchise tax rate is $0.25 per $100 with a minimum tax of $100. The franchise tax applies to corporations, foreign or domestic, limited liability companies, and limited partnerships doing business in Tennessee.
Jobs tax credit:
Public Chapter 602 modifies the job tax credit by establishing a credit for a qualified business enterprise that involves a required capital investment of $10 million and the creation of at least 100 net new full-time headquarters staff employee jobs that pay at least 150 percent of Tennessee's average occupational wage. The credit allowed is $5,000 for each net new full-time headquarters staff employee job created during the investment period. An additional credit is allowed on an annual basis for a period of three years, beginning with the first tax year after the investment and job threshold criteria are met. The additional credit equals $5,000 for each job created during the investment period, provided that the jobs remain filled by employees, at wages equal to or greater than 150 percent of Tennessee's average occupational wage for the month of January of the year in which the credit is being taken. This annual credit may be used to offset up to 100 percent of the taxpayer's franchise and excise tax liability for that year, but any unused annual credit will not be carried forward beyond the year in which the credit originated.
Job tax credit and tiers of economically distressed counties:
Public Chapter 602 modifies the job tax credit by providing that the Department of Economic and Community Development shall designate each county determined to be economically distressed as a tier one, tier two, or tier three economically distressed county. Such designation shall be based on unemployment, per capita income and poverty levels. A list of counties designated by tiers will be published annually. A qualified business enterprise located in a tier one, two, or three economically distressed county will receive a $4,500 credit for each net new full-time employee job. A qualified business enterprise located in a tier two county will receive an additional annual credit of $4,500 for each net new full-time employee job, and the annual credit shall be allowed for a period of three years, beginning with the first tax year after the initial job tax credit is created. A qualified business enterprise located in a tier three county will receive an additional annual credit of $4,500 for each net new full-time employee job, and the annual credit shall be allowed for a period of five years, beginning with the first tax year after the initial job tax credit is created. The annual credit may be used to offset up to 100 percent of the franchise and excise tax liability, but it may not be carried forward beyond the year in which the credit originated.
Industrial machinery credit:
Public Chapter 602 revises Tennessee's economic development tax incentives by providing tiers of industrial machinery credit based on the level of Tennessee investment. The act establishes tiered criteria and benefits for the credit. If the taxpayer makes a required capital investment in excess of one billion during the investment period, the credit allowed equals 10 percent of the purchase price of industrial machinery located in Tennessee and purchased in the process of making the required capital investment. If the taxpayer makes a required capital investment in excess of $500 million during the investment period, the credit allowed equals 7 percent. If the taxpayer makes a required capital investment in excess of $250 million during the investment period, the credit allowed equals 5 percent. If the taxpayer makes a capital investment in excess of $100 million during the investment period, the credit allowed equals 3 percent. The investment period during which the required capital investment must be made cannot exceed three years from the filing of the business plan related to the required capital investment. The three-year period for making the required capital investment may be extended by the commissioner of economic and community development for a reasonable period, not to exceed two years, for good cause shown.
Business inventory:
Finished goods inventory in excess $30 million may be excluded from the franchise tax base when held by manufacturers or warehouses and distribution facilities.
Goods in transit:
Interstate and foreign sales are exempt from sales and use taxation. Railroad rolling stock and barges and vessels used in interstate commerce or outside the state are also exempt.
Personal property passing through the state or stored or repackaged while passing through the state is exempt from property taxation.
Tennessee State Contact:Department of Economic and Community Development
Business Development Division
William Snodgrass/TN Tower, 11th Fl.
312 Eighth Avenue North
Nashville, TN 37243-0405
(615) 741-1888
