Taxes & Incentives
In addition to lower transportation costs because of our central location, the overall cost of doing business in Tennessee ranks very favorably nationwide. Companies will find a competitive, pro-business environment here that has been thoughtfully structured to benefit both the company and the people who live here. Leaders in government, the utilities, and the economic development community have also put together an attractive package of state, local and utility incentives to help new or expanding companies enjoy a low-cost start up. Information on our costs and benefits is provided below:
- Corporate Excise Tax
- Franchise Tax
- Personal Income Tax
- Property Tax
- Sales and Use Tax
- Unemployment Compensation Tax
- Other Tax Credits
- Industrial Infrastructure Program
- Industrial Training
- Local Incentives
- TVA Enhanced Growth Credit Program
- TVA Variable Pricing Interruptible Power (VPI)
Corporate Excise Tax
Tax Rate: 6.5% of a company's Tennessee based net income.
Corporations are eligible to receive excise tax credits equal to 1% of the following:
- The purchase, installation and/or repair of qualified industrial machinery.
- The purchase of qualified equipment associated with the required $500,000 capital investment by a distribution or warehouse facility.
- The purchase of computers, computer networks, software, computer systems, telephone systems and any peripheral devices purchased to reach the "required capital investment" to qualify for the jobs tax credit.
- Net operating loss may carry forward 15 years.
- All capital losses may be claimed the year incurred.
Franchise Tax
Tax Rate: $0.25 per $100 of a company's Tennessee based net worth.
Corporations are eligible to receive franchise tax credits equal to the following:
Tax credit of $2,000 (or $3,000 in special enhancement counties) per new full-time employee:
- In businesses that meet requirements of a minimum 25 new full-time jobs and additional capital investment of $500,000 and offer a minimal health care plan.
- For new jobs in the future resulting in a net increase in jobs.
No franchise tax on:
- Finished goods inventory in excess of $30 million for fiscal year beginning on July 15, 1998.
- Property under construction, not being utilized by the business.
- Pollution control equipment.
Property rented from an industrial development board may be capitalized on the business books.
For companies that increase Tennessee investment while also doing business in other states, Tennessee offers double, weighted sales apportionment formula for franchise and excise taxes. (This means that property, payroll and sales are all taxed, but they are taxed in fourths, not thirds. Property and payroll have one fourth each and sales has two fourths.)
The jobs tax credit can be applied to both the franchise and excise tax. The percentage of franchise and excise tax liability offset allowed ranges from 33 1/3 percent to 100 percent for total employment in Tennessee, ranging from less than 1,000 to 5,000 or more.
Personal Income Tax
- No tax on personal earned income in Tennessee
- A 6% tax is levied on dividends and bond interest received by individuals or other entities, including partnerships and trusts.
The first $1,250 on an individual return and $2,500 on a joint return are exempt from dividend and interest tax. Corporations are eligible to receive personal income tax credits.
Property Tax
Local levy only - varies by jurisdiction
There is no property tax in Tennessee on:
- Goods-in-process
- Finished goods inventories in hands of manufacturers
- Inventories of merchandise for sale
- Goods-in-transit (free port)
- Pollution control equipment required for compliance with federal, state or local environmental protection laws
- Attractive depreciation schedules
Sales and Use Tax
7%, local levies vary from 0 - 2.75%
Applies to any person or company who manufactures, distributes or sells tangible personal property within the state of Tennessee.
The seller is responsible for this tax.
Every person or company engaged in consumer sales, are required to register with the Department of Revenue which provides the periodic sales tax return forms.
There is no sales tax in Tennessee on:
- Purchases, installation and repairs of qualified industrial machinery.
- Purchases of material handling and racking equipment associated with the required capital investment of $10 million by a distribution or warehouse facility.
- Raw materials for processing.
- Pollution control equipment of manufacturers.
- Reduced sales tax for manufacturers' use of energy fuel and water. Rates are: 1 percent for water sold to or used by manufacturers; and 1.5 percent for energy fuels sold to or used by manufacturers.
- Tax-exempt if used directly in the manufacturing process and separately metered.
- Any materials that become a component part of the finished product.
- Containers, labels and packaging materials if they are sold with or accompany the product at no additional charge.
Reduced sales tax rates for manufacturer's use of energy fuel and water.
Credit of 5.5% for sales and use taxes paid on building materials, machinery and equipment used in new or expanded regional, national or international headquarters. Requires capital investment of $50 million.
Unemployment Compensation Tax
2.7% for most new employers to Tennessee (exceptions are mining 10%, construction 7%, manufacturing 6.5%)
Collected by both the federal and state governments, Tennessee's portion is a credit against part of the federal taxes owed.
Unemployment Compensation Tax is paid by employers only and cannot be deducted from employee's wages.
The first $7,000 in wages paid to each employee is subject to this tax.
Taxable wages include: tips, meals, lodging and other payments in kind. Non-taxable wages include: payments made by employer for insurance, retirement, or annuities.
Other Tax Credits
The Day Care Incentive
- Credit against franchise and excise taxes for businesses that establish a day care center for employee's children.
Industrial Infrastructure Program
Funds are allocated by the Legislature to be used by local governments for infrastructure improvements where there is a commitment by certain private sector businesses to locate / expand in the state and to create or retain jobs. Communities can use these funds to help a new Tennessee company offset some of its startup costs.
The seller is responsible for this tax.
Activities funded under the program will be limited to:
- Water Systems
- Wastewater Systems
- Transportation Systems
- Site improvements
Eligible businesses that may be assisted with the funds are limited to:
- Manufacturing, and other types of economic activities that export more than half of their product or services outside of Tennessee.
- Businesses where more than half of their product or services enters into the production of exported products.
- Uses that primarily result in import substitution or the replacement of imported products or services with those produced in Tennessee.
- Other types of economic activities may be supported by these funds if it is determined by the Commissioner of ECD to have a beneficial impact on the economy of Tennessee.
The maximum total TIIP/ITS grant for any project in any community is $750,000. This means that the combination of training, site preparation, and all infrastructures together cannot exceed this amount.
Industrial Training Program (ITS)
The Tennessee Department of Economic & Community Development's Industrial Training Service (ITS) offers a wide variety of workforce training, development and support services to both new and established companies throughout the state.
Activities funded under the program will be limited to:
Services available through ITS include but are not limited to:
Recruitment and screening services
- Pre-employment training
- Job specific training in the classroom
- On-the-Job Training (OJT)
- System Support
- Development and Coordination
Local Incentives
Incentives can be available in certain local jurisdictions - they may include payments in lieu of taxes, site preparation, reduced rents, reduced price on property, and tax exempt bonds.
TVA Enhanced Growth Credit Program
The Enhanced Growth Credit Program can play a vital role in the planning of new and expanding businesses, particularly for those operations in which electric power is a major component in the cost of the final product.
A business qualifies if it belongs to one of the following SIC codes or meets the All Electric criteria and meets minimum kilowatt demand requirements.
SIC codes
- Mining: 10 - 14
- Manufacturing: 20 - 39
- Bulk transportation: 40, 42, 44, and 45
All Electric
- All Electric HVAC system, and
- At least 50% of the interior floor space heated or cooled by the HVAC, and
- At least 50% of the electric load is for interior lighting, cooking, and the HVAC system
Minimum added load requirements
- SIC qualifiers 100 kW
- All electric qualifiers 250 kW
Customers may choose one of the following options for receiving credits:
Eight-year declining option
- The monthly credit for the first 12-consecutive-month period will be $6 per kW. The credit is reduced by $0.75 per 12-month period for seven additional years and then ends. The 8-year period begins with the first month in which the customer meets the minimum added load requirements. Thereafter, the credit is applied any month in which power usage reaches the minimum added kW requirements.
Four-year flat option
- To The monthly credit for a four-year period, beginning with the date the first credit is received, is equal to $6 per kW. The credit is applied in any month in which power usage reaches the minimum added kW requirements.
Distributors may choose to offer only one or both of the above credit options.
TVA Variable Pricing Interruptible Power (VPI)
VPI offers several competitively priced power options to SIC-qualified customers with loads of at least 5 megawatts.
VPI prices are generally low because they follow TVA's hourly power supply cost of producing electricity and because VPI has an interruptible feature. If TVA does not have enough power available or cannot purchase enough power to meet the region's expected needs, VPI sales are interrupted.
VPI offers two separate programs for customers: Zero Market Days VPI is a program for customers that cannot easily reduce load during peak periods when prices are high. Market Days VPI is a program in which market prices for electricity replace cost-based pricing during certain on 12 days of the year. Customers that can dramatically reduce load during market pricing periods have an opportunity for significant overall cost savings.
VPI is priced at TVA's hourly power supply cost of serving the top 1,000 MW plus a markup, except during market pricing periods under Market Days VPI. The amount of markup varies with the type of VPI the customer selects. TVA costs can change each hour of the day, and industrial customers can make hourly decisions about how much VPI they want to by at the available price.
The options differ by price and the way that power interruptions are handled:
- VPI A may be interrupted upon five minutes' notice. A customer can contract for no more than 50 percent of total power requirements under VPI A.
- VPI B may be interrupted on five minutes' notice. A customer can contract for 100 percent of their power requirements as VPI B.
- VPI C is also available for up to 100 percent of a customer's power requirements but is interrupted on 60 minutes' notice.
- In addition to the markups for each VPI option, there is a 5.3 percent charge for payments in lieu of taxes.
| VPI A | VPI B | VPI C | |
| Zero Market Days VPI | |||
| Amount of Notice | 5 minutes | 5 minutes | 60 minutes |
| Amount of Total Power | 50% | 100% | 100% |
| Amount of Markup* | |||
| Summer Months | 30%+4 mills/kWh | 40%+4 mills/kWh | 50%+4 mills/kWh |
| Winter Months | 20%+4 mills/kWh | 31%+4 mills/kWh | 42%+4 mills/kWh |
| Shoulder Months | 20%+4 mills/kWh | 31%+4 mills/kWh | 42%+4 mills/kWh |
| Market Days VPI | |||
| Amount of Notice | 5 minutes | 5 minutes | 60 minutes |
| Amount of Total Power | 50% | 100% | 100% |
| Amount of Markup* | |||
| Summer Months | 10%+3 mills/kWh | 20%+3 mills/kWh | 30%+3 mills/kWh |
| Winter Months | 5%+2 mills/kWh | 15%+2 mills/kWh | 25%+2 mills/kWh |
| Shoulder Months | 5%+1.5 mills/kWh | 15%+1.5 mills/kWh | 25%+1.5 mills/kWh |
* In addition to the markups, all options include the following: additional 5.3 percent charge for payment in lieu of taxes, a $1.21 kW charge, and a $1,075 per month communication access/administrative charge.
