Excise Tax

Tennessee levies this tax on:

• Net earnings of corporations  foreign or domestic) doing business in state, OR
• Tennessee's position of total earnings of Interstate Corporation.

Tax Rate-Corporate excise tax: 6%

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 capital investment of $500,000 by a distribution or warehouse facility.
• total tax credit for one year cannot exceed 50% of the company's tax liability.
• Companies can carry over excess credit for 15 years.Net operative loss may carry forward 15 years.
• All capital losses may be claimed the year they are incurred.
• All taxes are deductible in determining the state excise tax base.
• Insurance companies may deduct gross premium taxes from the sum of franchise and excise taxes.

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Franchise Tax

The Tax

• Franchise tax is based on issued and outstanding stock, surplus and undivided profits apportioned to Tennessee at the end of the company's fiscal year.
• Franchise tax applies to foreign and domestic corporations doing business in Tennessee, including business trusts and regulated investment companies.

Tax Rate

• Franchise Tax: $0.25 per $100 with a minimum tax of $10.
• Base tax cannot be less than the book value of the property owned and used in Tennessee.
• The value of rented property is determined by multiplying: - Net annual rental x 8 = real property, x 3 = machinery and equipment, x 2 = for office furniture and equipment, and x 1 = for delivery or mobile equipment.

Tax Incentives and Exemptions

• Tax credit of $2,000 ($3,000 in economically distressed counties) per new full- time employee:for businesses that create 25 new full-time jobs and make an additional capital investment of $500,000 and for new jobs in the future resulting in a net increase in jobs.
• Insurance companies may deduct gross premium taxes for the sum of franchise and excise taxes.

No franchise tax on:

• finished goods inventory in excess of $30 million for fiscal years beginning on or after July 15, 1998.
• property under construction, not being utilized by the corporation.
• property built in Tennessee that complies with air, water and hazardous waste pollution regulations.
• property rented from an industrial development board may be capitalized on the corporate books.
• application of franchise and excise credits, beginning with fiscal years on or after July l, 1999 are as follows:
• % of Franchise & Excise Tax Total Full Time Company Liability Off Set Allowed Employment in TN 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
• Credits created before the 1999 revision are used under the old method.

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Sales & 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

• Industrial machinery and equipment are exempt.
• Repairs to industrial machinery are exempt.
• Raw materials for processing are exempt.
• Air and water pollution equipment for manufacturers are exempt.
• Other air and water pollution equipment may be eligible for a sales tax credit.
• The sales tax rates for manufacturers' use of energy fuel and water are reduced. Both are taxed at 1.5%.
• Equipment associated with the required capital investment by a distribution or warehouse facility is exempt. To qualify, the taxpayer must invest in building and equipment in excess of $10 million over a period of three (3) years or less.
• A credit for state sales and use taxes over 0.5% paid on building materials, machinery payment for new or expanded international, national, or regional corporate headquarters making $50 million investment in Tennessee.

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General Property Tax

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. The tax rates per $100 of assessed value are from $0.10 to $5.35 for cities and $1.25 to $4.92 for counties. Assessment ratios are as follows:

• Industrial and Commercial Real Property 40%
• Industrial and Commercial Tangible Personal Property 30%
• Residential and Farm Real Property 25%

The State of Tennessee assesses property of public utilities (including railroads, transportation, communication companies and gas companies) and the amounts of such assessments applicable to each county and city are furnished to local governments. The assessment ratios vary from 30% and 55% for personal property and 40% and 55% for real property. The Comptroller of the Treasury, Office of State Assessed Property, is responsible for this function beginning with tax year 1996.

Property tax exemptions include:

• Goods-in-process
• Finished goods inventories
• Goods-in -transit (Freeport)

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 $50.00
• Domestic Limited Liability Company $50.00 per member*
• Foreign For-Profit or Non-Profit Corporation $600.00
• Foreign Limited Partnership $300.00
• 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) and limited liability companies are required to file an annual report with the Tennessee Secretary of State. The annual report fee for corporations is $20. The fee for limited liability companies is $50 per member with a minimum fee of $300 and a maximum fee of $3,000.

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Utility Gross 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.
• Credit is allowed for corporate franchise and excise taxes paid. Water and electric companies may deduct $5,000 annually from gross receipts.

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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 1/60 of 1 % to 1/8 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.

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Motor Vehicle Tax

Motor vehicles in Tennessee are taxed at the following rates.

• Passenger Cars $24.00
• Motorcycles: Private $17.00

• Private, Farm use, and Logging weight classes $38.25 - $497.25
• Private Carriers weight classes $44.25 - $1,371.25
• Public Carriers weight classes $44.25 - $1,371.25

• $20.75 - $52.75

• $39.00 (3 - 5 seats)
• $45.00 (6 - 7 seats)

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Personal Income Tax

The Tax

• Tennessee does not tax income from salaries and wages.
• A tax is levied on dividends and bond interest received by individuals or other entities, including partnerships and trusts.

• Personal Income: None
• Hall Tax: 6% of interest and dividends. All persons living in or companies doing business in Tennessee for more than six (6) months must pay this tax.

• For dividend and interest tax, the first $1,250 on an individual return and $2,500 on a joint return are exempt.

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Unemployment Tax

The Tax

• Collected by both the federal and state governments, Tennessee's portion is a credit against part of the federal taxes owed.
• Tax is paid by employers only. 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.

• State tax rate: 2.7% for most new employers to Tennessee.
• After three (3) full calendar years, the employer is evaluated and a tax rate is assigned.
• Employer's history of taxes and employees laid off determines the tax.
• Minimum rate: 0%; Maximum rate: 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 receive their Tennessee account number.
• Wage reports and contribution reports must be filed quarterly.
• All employers reporting wages on 250 or more employees must provide information via magnetic media (tape or diskette).

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