Taxes

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• Local Tax Rates

  Type of Tax	Percent
  Sales and Use	1.5% - 2.75%
  General Property             City             County	$0.1030 -$1.40 per $100 of assessed value $2.0208 -$3.5600 for each
  Personal Income	None
  Local Business Tax	Ranges from 1/10 of 1% to 3/80 of 1% gross receipts
  Initial Corporate Organization Fee	None
  Excise	None
  Franchise	None
  Unemployment Insurance	None
  Utility Gross Receipts	None

  Source: 2010 Tennessee Department of Revenue, 2009 Tennessee Comptroller of the Treasury

• Property Tax

  Property tax rates in the Nashville Economic Market are competitive and straightforward. Special features include:

  • No property tax on goods-in-process
  • No property tax on finished goods inventories in hands of manufacturers
  • No property tax on inventories of merchandise for sale
  • No property tax on goods-in-transit (freeport)
  • No property tax on pollution control equipment required for compliance with federal, state or local environmental protection laws
  • Attractive depreciation schedules

  Source: Tennessee Department of Revenue

• Corporate Income or Excise Tax

  Tennessee levies an excise tax of 6.5 percent on net earnings of corporations, foreign and domestic, arising from business done within the state, or on state apportionment of total earnings of interstate corporations. All taxes are deductible in determining the state excise tax base except the Tennessee excise tax and income taxes paid to the federal government or foreign governments.

  Special features of the excise tax include:

  • Receive Excise tax credit equal to 1 percent of:
    • The purchase, installation and/or repair of qualified industrial machinery.
    • The purchase of telephone equipment and telephone units, computers, software and any peripheral devices purchased to reach the required capital investment to qualify for the Jobs Tax Credit.
    • Warehouse and distribution, which qualifies under the sales and use tax law, can apply for the 1 percent excise tax credit.
    • Total tax credit for one year cannot exceed 50 percent of the company's tax liability. Companies can carry over excess credit for 15 years.
  • Net operating losses 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.

  For more information, please contact the Tennessee Department of Revenue, Taxpayer Services Division, at 615-253-0600 or visit www.tennessee.gov/revenue.

• Business or Gross Receipts Tax

  Local governments in Tennessee levy a tax on gross receipts of specified types of businesses including retailers, wholesalers, persons performing services and contractors. The tax is levied as a substitute for a property tax on inventories. All businesses must register with the local county court clerk within 15 days of beginning business in Tennessee to pay the filing fee ($15) or business license tax. At this time the clerk will assign the business a classification and gross receipts tax rate. Thereafter, the business pays the annual filing fee with the annual payment of the gross receipts tax. The tax rate varies from 3/8 to 1/40 of 1 percent of gross receipts with manufacturers and certain professionals exempt from taxation. The minimum tax burden is the $22 annual license fee and recording fee.

  Special features of the tax include:

  • Finance charges segregated in billing are excluded from tax
  • Consumer tax (such as sales tax) is exempt from the tax

  
  

  Deductions from the tax include:

  • Local, state and federal excise taxes paid
  • Contractors' payments to subcontractors
  • Sales made or services performed in interstate commerce
  • Cash discounts, trade-ins, refunded deposits, returned merchandise

• Sales and Use Tax

  The sales tax applies to any person or company that manufactures, distributes or retails tangible personal property within the state. Many services are also taxable. Specific areas include:

  • Creation of custom computer software for business
  • Leases or rentals of tangible personal property unless the owner provides a crew to operate the leased item
  • Fabrication of items for consumers who furnish raw materials
  • Mail-order sales
  • Self-produced property (raw materials) severed, manufactured or compounded from the earth

  The basis used to determine the tax rate is the price of the tangible property sold at retail. Any business liable for collection and payment of the sales and use tax is required to register with the Tennessee Department of Revenue. For more registration information, call 800-342-1003.

  The sales and use tax rate throughout the Nashville Economic Market is a total of 9.25 percent (7 percent state plus 2.25 percent local option). No sales tax is paid on the following:

  • Purchases, installations and repairs of qualified industrial machinery
  • Raw materials for processing
  • Air and water pollution equipment for manufacturers (other air and water pollution equipment may be eligible for a sales tax credit)
  • Any materials that become a component part of the finished product
  • Purchases of material handling and racking equipment by a distribution or warehouse facility (to qualify, the taxpayer must invest in building and equipment in excess of $10 million over a period of three years or less)
  • Many 501(c) organizations

  Additional Sales Tax Benefits:

  • Reduced sales tax rate (1.5 percent) for manufacturers' use of energy fuel and water (tax-exempt if used directly in the manufacturing)
  • Refund on taxes paid on goods and services by motion picture production companies filming or producing in Tennessee (requires expenditures of $500,000)

  
  

  Sales Tax Items with Discounted Rates for Manufacturers

  Type of Tax	State	Local	Total
  Energy/Fuel	1.50%	0%	1.50%
  Water	1.00%	.50%	1.50%

  
  For more information, please contact the Tennessee Department of Revenue, Taxpayer Services Division, at 615-253-0600 or visit www.tennessee.gov/revenue.

• Franchise Tax

  The Tennessee franchise tax is an asset-based tax applied to foreign and domestic corporations doing business in the state (including business trusts, regulated investment companies, limited liability companies and limited partnerships).

  Exempt organizations include nonprofit, welfare and "industrial development" corporations, building and loan associations, production credit associations, credit unions and investment companies.

  The tax basis is outstanding stock, surplus and undivided profits, apportioned to the state at the close of the last fiscal year.

  In the state of Tennessee, the franchise tax is computed in one of two ways, whichever results in a higher tax:

  1. The equity method, which includes the taxpayer's net worth (total assets minus total liabilities).

  2. The book value method, which includes the book value of all real and tangible property owned or used in Tennessee.

  The basis cannot be less than the book value of property owned, plus the value of property rented, which is determined by multiplying net annual rental by eight for real property, by three for machinery and equipment, by two for office furniture and equipment and by one for delivery and mobile equipment.

  The tax rate is 25 cents per $100 of the basis. The due date is the 15th day of the fourth month following the close of the corporation's fiscal year. Franchise and excise taxes are computed together, reported on the same form and paid at the same time.

  Special features of the franchise tax include:

  • Property erected in Tennessee by the corporation in compliance with air, water or hazardous waste pollution regulations is exempt from the franchise tax.
  • A jobs tax credit was enacted that credits $4,500 for each new full-time job created during a fiscal year. Additional details are listed in the "Incentives" section.
  • Purchases of industrial machinery allow corporations a 1 percent credit against the tax.
  • A 1994 incentive allows up to $25,000 in credit against the tax for development of child care facilities for employees of a business.
  • The sales factor is double-weighted for the excise apportionment formula (property, payroll and sales).
  • 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 company books)

  For more information, please contact the Tennessee Department of Revenue, Taxpayer Services Division, at 615-253-0600 or visit www.tennessee.gov/revenue.

• Property Transfer Tax or Inheritance Tax

  A transfer of real property in Tennessee typically incurs a tax of 37 cents per $100 of value. The value is measured by the price paid in the transaction or the fair market value, whichever is greater.

  A lower tax rate of 11.5 cents per $100 of value, with the first $2,000 exempt, applies to mortgages, deeds of trust and selected other transactions. Leases, many types of liens and various other transactions are exempt from the tax.

  Computation of Tax Rate

  Net Taxable Estate	Applicable Tax Rate
  Not over $40,000	5.5% of net taxable estate
  Over $40,000 but not over $240,000	$2,200, plus 6.5% of the excess over $40,000
  Over $240,000 but not over $440,000	$15,200, plus 7.5% of the excess over $240,000
  Over $440,000	$30,200, plus 9.5% of the excess over $440,000

• Personal Income Tax

  Tennessee does not tax earned income. The Nashville area also benefits from one of the lowest average household tax burdens of any major U.S. city. A 6 percent tax is levied on dividends and interest received by individuals or other entities, including partnerships and trusts. The first $1,250 on an individual tax return and $2,500 on a joint return are exempt from the tax.

• Professionals Tax

  Tennessee levies a tax of $200 annually on a wide range of professional persons, including engineers, architects, health care practitioners, attorneys, investment and securities professionals and others. Payment is required of all those who maintain their current credentials.

• Tax on Telecommunications

  Telephone services are subject to various Tennessee taxes. Local line charges, intrastate long distance, intrastate WATS service and cellular service are treated as services subject to the state 5.5 percent sales tax and a flat 1.5 percent local rate on all calls that originate or terminate in Tennessee and are billed or charged to a Tennessee service address.

• Business Licenses and Fees

  Business licensing in the Nashville Economic Market is typically easier than in many areas due to consolidated governments and public and private development organizations that are familiar with and capable of expediting business needs. The initial corporate organization fees are:

  • Domestic corporation: $100 flat fee
  • Foreign corporation: $600 flat fee
  • Domestic limited partnership: $50 flat fee
  • Foreign limited partnership: $300 flat fee

  If a business is liable under the Federal Unemployment Tax Act, has a total payroll of $1,500 or more in any quarter of the tax year or has at least one employee (full- or part-time) on any day during 20 different weeks of the tax year, that business must obtain a Tennessee Employer Identification Number from the Tennessee Department of Employment Security.