Taxes

Local Tax

Expand all Collapse all

• Overview

  Nashville’s local taxes are among the lowest in the nation.

  Type of Tax	Percent
  Sales and Use	1% - 2.25%
  General Property   City   County	$0.06-$1.40 per $100 of assessed value $2.03-$4.04 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: 2008 Property Tax Rates from the Tennessee Comptroller of the Treasury Division of Property Assessment

• Property Tax

  Property tax rates in the Nashville Economic Market are modest 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

State Tax

Expand all Collapse all

• 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 20 days of beginning business in Tennessee to pay the filing fee 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 1/8 to 1/60 of 1 percent of gross receipts with manufacturers and certain professionals exempt from taxation. The minimum tax burden is the $15 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 in 1993 that credits $2,000 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

  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.

• 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.

Federal Tax

Expand all Collapse all

• Overview

  The sources of federal tax revenue in the Unites States are individual income taxes; Social Security and other payroll taxes; corporate income taxes; excise taxes; and estate and gift taxes. In 2004, individual income taxes accounted for 43 percent of total federal revenue.

  Social Security taxes accounted for 39 percent. Corporate income taxes accounted for 10 percent; excise taxes accounted for 4 percent; and estate and gift, customs, and miscellaneous taxes accounted for the remaining 4 percent of total revenue.

• Federal Individual Income Tax

  The individual income tax is the major source of federal revenues. There are four main filing categories under the individual income tax: married filing jointly, married filing separately, head of household, and single individual.

  The individual income tax base is composed of wages, salaries, tips, taxable interest and dividend income, business and farm income, realized net capital gains, income from rents, royalties, trusts, estates, partnerships, taxable pension and annuity income, and alimony received. The individual income tax has six marginal income tax rates: 10, 15, 25, 28, 33, and 35 percents. These marginal income tax rates are applied against taxable income to arrive at a taxpayer’s gross income tax liability.

  Long-term capital gains — that is, gain on the sale of assets held more than 12 months — and qualified dividend income are taxed at lower tax rates. Tax credits are subtracted from gross tax liability to arrive at a final tax liability. The major tax credits include the earned income tax credit, the child tax credit, the education tax credit, the tax credit for the elderly and the disabled, and the credit for child and dependent care expenses.

• Federal Corporate Income Tax

  Corporate taxable income is subject to a set of graduated rates: 15, 25, 34, and 35 percents, with the lower rates applying to firms with lower taxable incomes. The base of the corporate income tax is net income, or profits, as defined by the tax code. Deductible costs include materials, interest, and wage payments.

  Another important deductible cost is depreciation — an allowance for declines in the value of a firm’s tangible assets, such as machines, equipment, and structures.

• Federal Payroll Taxes

  Payroll taxes are used to fund specific programs, largely Social Security and Medicare. Social Security and Medicare taxes make up the largest share of federal payroll taxes by a wide margin.

  Social Security and Medicare taxes are paid at a combined rate of 15.3 percent of wages, with 7.65 percent being paid by the employee and employer alike. In 2005, the Social Security part of the tax (6.2 percent for both employees and employers) is levied only on the first $90,000 of wages, with the cap adjusted annually for increases in average wages in the economy. The Medicare portion(1.45 percent) is applied to all wages.

• Federal Estate and Gift Tax

  The federal estate tax is imposed when property is transferred at death. The taxable unit is the estate, in contrast to an inheritance tax, which is levied on heirs.

  The base of the federal estate tax is property transferred at death, less allowable deductions and exemptions. The base is subject to graduated rates that rise from 18 percent to 48 percent as estate size increases.

• Federal Excise Taxes

  Excise taxes are a form of consumption tax. Unlike sales taxes, they apply to particular commodities, rather than to broad categories. Federal excise tax revenues are small compared to other federal taxes. In FY2004, $70 billion in excise taxes were collected, amounting to 3.7 percent of total federal receipts and 0.6 percent of Gross Domestic Product.

  Federal excise taxes are levied on a variety of products; their collection point varies, ranging from the production level to retail sales. In terms of receipts, the single largest tax is the excise tax on gasoline, which made up 30.4 percent of all excise tax receipts in FY2003. Other prominent excise taxes are those on diesel fuel, domestic air passengers, distilled spirits, beer, cigarettes, and telephone services.

• The U.S. Fiscal Position Compared to Other Nations

  Using aggregate budget data for all levels of government relative to economic output (budget aggregates as a percentage of gross domestic product, GDP) as one measure of the size of public sectors, several observations can be made.

  Compared with the other major industrialized nations, the public sector (including all levels of government) in the United States is relatively small. For example:

  • In terms of revenue, Japan and the U.S. public sectors collect the least amount of revenue relative to their economic output.
  • In terms of outlays, the U.S. public sector has the lowest level of outlays relative to its economic output.
  • The United States, Japan, Germany, France, Italy, and the United Kingdom are all estimated to run a public sector deficit in 2003.

Other Taxes

Expand all Collapse all

• Property Tax

  Property taxes are levied by county and municipal governments. There is no state property tax. The 2008 tax rates below are for the counties in the Nashville Economic Market.

  All tax rates apply to each $100 of assessed value of property. The assessment ratios are:

  • 25 percent for residential property
  • 40 percent for industrial and commercial real property
  • 30 percent for industrial and commercial personal property

  Note: A corporation may claim all its capital losses in the year incurred with no carryback or carryover.

  Property Taxes by County

  As shown in the following chart, additional tax levies occur within most municipalities and a few special school districts. For example, Williamson County has a basic rate of $2.26. However, if you live in the city of Franklin (a city in Williamson County), there is a $2.03 county tax rate along with a $0.44 city rate for a total of $2.63. If you live in the city of Franklin and in the Franklin Special School District (SSD) there is a $2.03 county tax rate, a $0.44 city rate and a $1.14 SSD rate for a total of $3.60. The probable local property tax burden can only be determined by consultation with city and county tax officials.

  			Tax Rates
  County	City	Special School Dist.	Co.	City	SSD	Total
  Cheatham			$2.7800			$2.7800
  Cheatham	Ashland City		$2.7800	$0.4638		$3.2438
  Cheatham	Kingston Springs		$2.7800	$0.7800		$3.5600
  Cheatham		Kingston Springs RF	$2.7800		$0.2193	$2.9993
  Cheatham		Pegram Fire District	$2.7800		$0.1673	$2.9473
  Cheatham		Pegram RF	$2.7800		$0.1521	$2.9321

  Source: 2008 Property Tax Rates from the Tennessee Comptroller of the Treasury Division of Property Assessment (http://www.comptroller.state.tn.us/cpdivpa.htm) 

  For more information, please contact the Comptroller of the Treasury Division of Property Assessment at (615) 401-7737.

• Unemployment Insurance

  Unemployment insurance provides benefits to unemployed workers who have lost their jobs through no fault of their own.

  The Tennessee Department of Employment Security administers the state insurance program. All employers are subject to the tax except self-employed persons who are also a sole employee, sole proprietorships without employees or general partners who are not liable for the premiums. The Tennessee tax portion serves as a credit against a portion of any federal taxes owed for unemployment insurance.

  Unemployment Compensation Tax Rates

  State tax rate is 6.5 percent for most new employers to Tennessee.

  After three full calendar years, the employer is evaluated and a tax rate is assigned.

  Employer's history of taxes and benefits paid to laid-off employees determines the tax rate.

  • Minimum rate: 0 percent
  • Maximum rate: 10 percent
  • Minimum tax rate 0.15 percent to 0 percent with a reserved ratio of 20 percent or more

  Estimated average tax rate is 1.7 percent of total wages (1995).

  Tax paid is based on first $7,000 of wages of each employee.

  Taxable wages include: salaries, commissions, bonuses, tips, vacation and severance pay.

  Non-taxable payments include: payments made by employer for insurance, retirement, and annuities.

  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.

• Workers' Compensation

  Workers’ compensation guarantees that an employee who is injured or becomes sick while on the job will be compensated for any expenses.

  In 2004, the Tennessee legislature instituted a wide range of changes aimed at lowering workers' compensation costs. Since then, the number of workers' compensation lawsuits has fallen in counties across the State and the percentage of settlements without a lawsuit has risen.

  Major changes to Tennessee's workers' compensation program include:

  Maximum weekly benefits:
  Increased from 100% of the State's weekly average wage to 105% for the first year of the new law and then 110% beginning July 1, 2005.

  Lower medical fees:
  Sets maximum fees that medical providers can charge in workers' compensation cases.

  Future medical expenses:
  In serious injuries, the employer cannot offer lump-sum payments to settle future medical costs for at least three years.

  Lower multiplier:
  Used to determine final benefits in a settlement where the injured employee returns to the same job. The multiplier dropped to 1.5 times the doctor's impairment rating for accidents that happen after July 1, 2004. Multiplier remains 2.5 times for injuries before that date.

  Benefit review:
  Made mandatory for cases occurring after July 1, 2004, in which the employer and employee can't agree on a settlement. It is now a required step before a lawsuit can be filed, however, not required when both sides agree to a settlement.