CORPORATE EXCISE TAX
The Tax – Excise taxes are privilege taxes imposed on each corporation, limited partnership, limited liability company and business trust chartered/organized in Tennessee or doing business in this state.
Tax Rate – Excise tax: 6.5%
Tax Incentives and Exemptions – Receive excise tax credit equal to 1% of:
- 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.
Jobs Tax Credit – A job tax credit of $2,000 for each net new full-time employee job will be allowed against a franchise tax liability for any year provided that:
- the job is newly created and did not exist for at least 90 days prior to being filled by the taxpayer and was filled during the tax year and in existence at the end of the tax year.
- the taxpayer has met the required capital investment.
- the credit will first be available in the tax year in which the qualified business enterprise
increases net new full-time employment by 25 or more jobs and in those subsequent
tax years in which further net job increases occur above the level of employment
established when the credit was last taken.
Application of franchise and excise credits beginning with fiscal years on or after July 1, 1999, are as follows:
|% of Franchise/Excise Liability Offset Allowed||Tax Total Full Time Company Employment in Tennessee at Fiscal Year End|
|33 1/3%||Less than 1,000|
|50%||1,000 or more but less than 3,000|
|75%||3,000 or more but less than 5,000|
|100%||5,000 or more|
The Tax – Franchise taxes are privilege taxes imposed on each corporation, limited partnership, limited liability company and business trust chartered/organized in Tennessee or doing business in this state.
Tax Rate – Franchise tax: .25% of the greater of net worth or real and tangible property in Tennessee. The minimum tax is $100.
Tax Incentives and Exemptions
No franchise tax on:
- finished goods inventory over $30 million.
- property under construction, not being utilized by the company.
- pollution control equipment.
Property rented from an industrial development board may be capitalized on the corporate books.
See Excise Tax for information on the Jobs Tax Credit.
SALES AND USE TAX
The Tax – 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 is required to register with the Department of Revenue which then provides the periodic sales tax return forms.
Tax Rate – State sales tax: 7%, Local option sales tax: 1% – 2.75%
Tax Incentives and Exemptions
No sales tax 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
- raw materials for processing.
- pollution control equipment of manufacturers.
- reduced sales tax for manufacturers’ use of energy fuel and water. 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.
-Refund taxes paid on goods and services by motion picture production companies
filming or producing in Tennessee. Requires expenditures of $500,000.
The property tax is levied on real and personal property by county and municipal governments. All owners of property are liable for property taxes. Tennessee does not impose a state property tax.
Counties and cities levy property taxes on real and personal property. While statutory
assessment ratios remain constant, tax rates and appraisal levels may vary widely. Assessment ratios are as follows:
Industrial and Commercial Real Property – 40%
Industrial and Commercial Tangible Personal Property – 30%
Residential and Farm Real Property – 25%
Property tax exemptions include:
- Finished goods inventories in hand of manufacturers
- Inventories of merchandise for sale
- Pollution control equipment required for compliance with federal, state or local
environmental protection laws.
The probable local property tax burden can only be determined by consultation with city and county tax officials. County property taxes are due on the first Monday in October and may be paid without penalty through the end of February.
INITIAL CORPORATE ORGANIZATION FEE
The fees for business organization and qualification (domestic) or certificate of authority (foreign) in the State of Tennessee are as follows:
Domestic For-Profit or Non-Profit Corporation: $100.00
Domestic Limited Partnership: $100.00
Domestic Limited Liability Company: $50.00 per member*
Foreign For-Profit or Non-Profit Corporation: $600.00
Foreign Limited Partnership: $600.00
Foreign Limited Liability Company: $50.00 per member*
Domestic and Foreign Limited Liability Partnership: $50.00 per member**
*$50 per member on the date of filing, with a minimum fee of $300 and a maximum of $3,000.
**$50 per member on the date of filing, with a minimum fee of $250 and a maximum of $2,500.
Corporations (for-profit and non-profit), LLCs and LLPs are required to file an annual report with the Tennessee Secretary of State. The annual report fee for corporations is $20. The fee for LLCs and LLPs is $50 per member with a minimum fee of $300 and a maximum fee of $3,000.
UTILITY GROSS RECEIPTS TAX
The utility gross receipts tax of 3% is based on intrastate gross receipts. Gross receipts taxes are paid by utilities; gas, water, electric power and light companies; and sewage companies. Tennessee offers the following incentives and exemptions:
- Manufacturers and distributors of manufactured or natural gas are taxed at a rate of 1.5%.
- Utilities operated by the United States, cities, or political subdivisions of the state are exempt from the gross receipts tax.
LOCAL BUSINESS TAX
The business tax is administered by the state Department of Revenue but collected and
imposed by local governments. The owners or operators of all for-profit businesses, except manufacturers subject to personal property taxation and professionals, must pay the local business tax for each place of business located in either the county or the city which imposes the business tax.
Businesses are classified into four groups in which the rate imposed upon the gross sales varies from 3/40 of 1% to 1/40 of 1%. Due dates vary by classification of taxpayers. The tax is levied as a substitute for a property tax on inventories. Businesses exempted include: manufacturers, employees of businesses, certain blind persons, disabled veterans, and the services of certain professionals.
MOTOR VEHICLE REGISTRATION
Motor vehicles in Tennessee are taxed at the following rates:
Passenger Cars – $24.00
Motorcycles (Private) – $17.00
Three-Wheel Commercial – $26.25
Wheel Tax – $15
Trucks (Private, Farm Use, and Logging) – weight classes $41.55 – $546.45
(Public & Private Carriers) – weight classes $54.75 – $1,371.25
House Trailers – weight and length classes $21.75 – $33.75
Passenger Carrying Vehicles – $54.75
PERSONAL INCOME TAX
Tennessee does not tax earned income. A 6% tax is levied on dividends and bond interest received by individuals or other entities, including partnerships and trust. All persons or entities domiciled in Tennessee or residing in the state more than six months in a particular tax year must pay the tax if taxable dividends or interest are received. The first $1,250 on an individual return and $2,500 on a joint return are exempt from the tax.
UNEMPLOYMENT COMPENSATION TAXES
Unemployment compensation taxes are collected by both the federal and state governments, with Tennessee’s portion of the tax serving as a credit against a portion of the federal taxes owed. The tax is paid solely by employers and cannot be deducted from an employee’s wages.
The first $7,000 in wages paid to each employee are subject to the unemployment compensation tax. Taxable wages include tips, meals, lodging, and other payments in kind. Payments made by the employer for insurance, retirement, or annuities are not considered wages.
The rates for employers vary. For most new employers to Tennessee, the state tax rate is 2.7%. After an employer has been liable for three full calendar years, the employer is evaluated and a tax rate based on that evaluation, called an experience rating, is assigned. The experience rating considers each employer’s history of taxes paid and employees laid off. the minimum rate is 0% with a maximum rate of 10%.
Unemployment compensation taxes are paid on a calendar year basis regardless of the employer’s fiscal year. New employers must file an initial report to determine their taxpaying status and to receive their Tennessee account number. Thereafter, a wage report and contribution report must be filed quarterly.
As of January 1, 1997, all employers, or agents, who report wages on two hundred fifty or more employees must do so on magnetic media (tape or diskette). The agency also has initiated electronic reporting and payment of taxes which satisfies this requirement.