Tennessee Incentives and Workforce Development Guide

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For a list of Tennessee economic development agencies that can help with the site selection process, visit our Online Site Seekers’ Guide.

 

FINANCING & GRANTS

Economic Development Fund: The new FastTrack Economic Development Fund expands Tennessee’s current FastTrack infrastructure and job training program by providing additional grant support for companies expanding or locating in Tennessee with reimbursable grants made to local industrial development boards. The fund aids companies in a variety of ways, including relocation expenses, temporary office space, capital improvements, retrofitting and other expenditures not previously covered by the current FastTrack infrastructure or job training grants. Legislation stipulates that the FastTrack Economic Development Fund will only be used in exceptional cases where the impact of the company on a given community is significant.

Infrastructure Financing: Through the Fast Track Infrastructure Development Program (FIDP), grant funds are allocated to assist local governments in providing public infrastructure to support new or expanding industry. The following types of public activities are eligible: water systems, wastewater systems, fiber delivery projects, transportation projects, site improvement, or other specific public infrastructure improvements required to support economic growth. Grants are typically limited up to a maximum of $750,000 with amounts determined for individual projects. The Commissioner of Economic and Community Development and the State Funding Board is required to review and approve grant requests exceeding $750,000.

New Job Training Assistance: The FastTrack Job Training Assistance Program (FJTAP) provides training assistance as a grant incentive to attract new investment and to encourage existing business and industry to make additional investments and create new full-time jobs in Tennessee. The training assistance is customized to each company’s individual training needs. Levels of training assistance are determined by the amount of the company’s investment, number of new jobs, location, and the skills and knowledge that must be possessed by the prospective or full-time employees. A customized training plan can be developed in direct coordination with company personnel. The training is post-employment.

Job-based training reimbursement offers assistance to new hires through payroll submissions from the company in designated time periods, based on the size of the assistance needed. Historically, manufacturing, warehousing/distribution, and service-related industries including back office, financial and telecommunications can be assisted.

 

TAX INCENTIVES

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.

Corporate Income or Excise Tax: Tennessee levies an excise tax of 6.5% on net federal earnings of companies from business conducted in the state or an apportionment of federal net earnings.

Apportionment – In allocating the net worth or 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 sales factor is double weighted. The state of Tennessee does not have a throwback provision.

Franchise Tax: The franchise tax is a privilege tax 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 25 cents 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.

Goods In Transit: Interstate and foreign sales are exempt from sales and use taxation. Railroad rolling stock and barges 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.

Industrial Machinery Credit: Tennessee offers an industrial machinery credit of 1% of the cost of qualified industrial machinery purchased or leased during the tax year and located in Tennessee. The credit offsets 50% of franchise and excise to and any unused credit may be carried forward for up to 15 years. Industrial machinery includes computer equipment and software, including peripheral devices such as printers, external drives, modems, and telephone units purchased in making the required capital investment for the job tax credit. To qualify for an industrial machinery credit on the purchase price of material handling and racking systems purchased by a qualified warehouse or distribution facility, the taxpayers must make a capital investment of $10 million in a period not to exceed three years. A business plan and application must be filed with the Department of Revenue and approved before taking the credit. The Industrial Machinery Credit is available whether the company is creating jobs or not.

Job Tax Credit: A qualified business enterprise that makes a capital investment of $500,000 and hires 25 net new-full time employees in an investment period not to exceed 36 months qualifies for a job tax credit as follows:

  • $4,500 per net new full-time job in a Tier 1, Tier 2, and Tier 3 Economically Distressed County. Tier 2 and Tier 3 economically distressed counties are entitled to additional enhanced incentives as detailed below.

The percentage of liability offset is 50%. Any unused Job Tax Credit may be carried forward up to 15 years. A business plan must be filed on or before the last day of the fiscal year in which the investment is made and must describe the investment made, the number of jobs the investment will create, and the expected dates the jobs will be filled.

    • Enhanced Job Tax Credit in Tier 2 and Tier 3 Economically Distressed Counties: This credit was created to promote new industry locations and expansions in the more rural areas of the state. Businesses must create at least 25 net new full-time jobs within a 36 month period and invest at least $500,000 in a qualified business enterprise. The tiers are based on each Tennessee counties’ per capita income, unemployment and poverty level. Annual analysis is performed to determine each Tennessee county’s tiered status. Projects that locate in a Tier 2 or Tier 3 county will be eligible for this additional credit.
      • $4,500 per net new full-time job applied to offset both Franchise and Excise Tax
      • Tier 2 counties – credit is taken for each year for three years after the investment period.
      • Tier 3 counties – credit is taken each year for five years after the investment period.
      • Enhanced Job Tax Credit can offset up to 100% of the total Franchise and Excise tax liability each year for the three- or five-year period but it does not have a carry forward provision.
      • Credit is in addition to the regular Job Tax Credit.

Qualified Headquarters: There is a credit of 6.5% state sales tax paid on building materials, machinery and equipment for new or expanded qualified headquarters meeting the requirements of $10 million (land and inventory not included) with 100 net new full-time headquarter employees each paying 150% of the state’s average occupational wage.

Qualified Manufacturers: Qualified manufacturing equipment is tax exempt. Energy fuels and water used by manufacturers are taxed at 1.5%. There is no sales tax on the purchase of qualified material handling equipment and racking systems associated with the minimum capital investment ($10 million, land and inventory not included within three years) by a distribution or warehouse facility. Component parts, containers and packaging materials and repair parts for qualified industrial machinery used in the manufacturing process are not subject to sales and use taxation.

Pollution-Control Equipment: There is a sales and use tax for pollution-control equipment used by a qualified manufacturer or processor.

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.

Sales and Use Taxes: A 7% state sales tax plus a 1.5-2.75% 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.

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