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Business Tax Credits

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Business Tax Credits

Jobs Tax Credit

Tennessee allows “qualified business enterprises” a credit against their franchise and excise taxes based on their capital investment and the number of jobs created. The amount of the credit and the period of time during which it can be used varies according to the size of the investment.

A company investing $500,000 and creating 25 new jobs can claim a Job Tax Credit of $4,500 per job to offset up to 50% of the combined F&E tax. Any unused Job Tax Credit may be carried forward for up to 15 years.

Qualified business enterprises must meet the $500,000 investment and 25 new job threshold in a 12 month period if locating or expanding in an Attainment County or Tier 1 Enhancement County (see map). Businesses locating in a Tier 2 county may take 3 years to create 25 jobs or 5 years to create 25 jobs in a Tier 3 county.

For example, if a qualified business enterprise meets the capital investment and job creation requirements in any Tennessee county @ $4,500 per job.

Jobs Created Amount of Credit
25
$112,500
100
$450,000
250
$1,125,000
500
$2,250,000

Qualified business enterprises can include:

  • Manufacturing
  • Warehousing and distribution
  • Processing tangible personal property
  • Research and development
  • Computer services
  • Call centers
  • Qualified data centers
  • Headquarters facilities
  • Convention or trade show facilities
  • Repair service facilities for aircraft owned by unrelated commercial, foreign or government


    persons

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Rural Opportunity Initiative Enhanced Job Tax Credit

Tennessee’s focus on creating job opportunities in rural areas of Tennessee presents unique hurdles and yet tremendous opportunity. Governor Bredesen has called providing broad access to higher skilled, better paying jobs in Tennessee one of the most persistent challenges he’s faced during his time in office. Whether because of limited road access, lack of public infrastructure or difficulty in matching labor skills to job requirements, a different approach is needed. That’s why the state of Tennessee offers a program aimed at addressing this challenge called the Rural Opportunity Initiative, or ROI. The ROI provides for Enhanced Job Tax Credits to businesses locating or expanding in certain Tennessee counties considered Tier 2 or Tier 3 Enhancement Counties.

The Enhanced Job Tax Credit was created to promote new industry locations and expansions in more rural areas of the state. On July 1 of each year, the Commissioner of Economic and Community Development may determine that a county qualifies as an Enhancement County if the county experiences substantial characteristics of economic distress. Upon determining that a county qualifies as an Enhancement County, the Department of Economic and Community Development shall designate the county as a Tier 1, Tier 2 or Tier 3 Enhancement County based on unemployment, per capita income and poverty levels of all Tennessee counties using statistical data prepared by an agency of state or federal government. A list of all Tier 1, Tier 2 and Tier 3 Enhancement Counties is published annually by the Department of Economic and Community Development.

If a qualified business enterprise locates or expands in a Tier 2 or Tier 3 Enhancement County, the company will be eligible for an annual Enhanced Job Tax Credit of $4,500 for each qualified job, provided that the job remains filled during the year in which the credit is being taken. The annual credit may be used to offset up to 100% of the company's total franchise and excise (F&E) tax liability each year for a three-year period in Tier 2 counties and a five-year period in Tier 3 counties. The Enhanced Job Tax Credit for Tier 2 and Tier 3 Enhancement Counties is in addition to the regular Job Tax Credit and cannot be carried forward.

Attainment

Attainment Counties: $4,500 per job tax credit to qualified businesses making a $500,000 capital investment and creating a minimum of 25 net new full-time jobs in a 12 month period. Job Tax Credit may offset up to 50% F&E liability with 15 year carry forward

 

Tier 1

Tier 1 Enhancement Counties: $4,500 per job tax credit to qualified businesses making a $500,000 capital investment and creating a minimum of 25 net new full-time jobs in a 12 month period. Job Tax Credit may offset up to 50% F&E liability with 15 year carry forward.

 

Tier 2 Distressed Counties

Tier 2 Enhancement Counties: $4,500 per job tax credit to qualified businesses making a $500,000 capital investment in a 12 month period and creating a minimum of 25 net new full-time jobs in a period not to exceed 3 years. Job Tax Credit may offset up to 50% F&E liability with 15 year carry forward. Additional Enhanced Job Tax Credit of $4,500 per job each year for 3 years to offset up to 100% of F&E liability with no carry-forward.

 

Tier 3 Distressed Counties

Tier 3 Enhancement Counties: $4,500 per job tax credit to qualified businesses making a $500,000 capital investment in a 12 month period and creating a minimum of 25 net new full-time jobs in a period not to exceed 5 years. Job Tax Credit may offset up to 50% F&E liability with 15 year carry forward. Additional Enhanced Job Tax Credit of $4,500 per job each year for 5 years to offset up to 100% of F&E liability with no carry-forward.



TN Jobs Tax Credit Enhancement Counties

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By building strong partnerships around ROI, the return on Tennessee’s investment will be stronger communities, more vibrant local economies and better lives for our citizens.

Jobs Tax Super Credit

For larger, more capital intensive investments, Tennessee has created a Super Credit which applies to those companies investing capital of $100 million or more and creating a minimum of 100 jobs paying at least 100% of Tennessee’s average occupational wage. These credits can be used to offset up to 100% of the company's F&E tax liability each year for 3 to 20 years starting the first tax year after the job creation and capital investment thresholds have been met. The Super Credit does not include carry-forward provisions. The Super Credit is in addition to the regular Job Tax Credit which will still have the fifteen (15) year carry forward and the normal 50% offset. The only difference is by qualifying for the Super Credit, the amount of the regular Job Tax Credit increases to $5,000 per new occupational wage job instead of the regular $4,500.

In addition to the jobs portion of the Super Credit, a company that qualifies for the Super Credit may exempt two thirds (2/3) of the required capital investment made during the investment period from its franchise tax base on Schedule G of the company’s F&E tax return during the tax years in which the annual credit is actually taken. The investment period for the Super Credit is 3 years, but can be expanded to 5 years for investments of $100 million or more and to 7 years for investments of $1 billion or more with the approval of the Commissioner of Economic and Community Development.

Super Credits are available at the following levels:

Capital Investment Occupational Wage
Jobs Created		 Annual Per Job
Credit		 Number of Years
for Annual Credit
$100 million
100
$5,000
3
$250 million
250
$5,000
6
$500 million
500
$5,000
12
$1 billion
500
$5,000
20

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Integrated Supplier and Integrated Customer Tax Credit

Tennessee extends certain tax credits to integrated suppliers and integrated customers located within the footprint of a project meeting the $1 billion investment threshold and creating 500 or more occupational wage jobs. The purpose of the Integrated Supplier and Integrated Customer Tax Credit is to expand the impact of large “anchor” projects by encouraging co-location of suppliers and customers. An integrated supplier or integrated customer locating within the footprint of such a project will qualify for a Job Tax Super Credit equal to $5,000 per qualified job with a 15 year carry-forward, plus an additional $5,000 per job each year for 6 years.

The Integrated Supplier Tax Credit applies regardless of capital investment or number of jobs created. To qualify for this credit a supplier or customer must first be certified as “integrated” by the Commissioner of Revenue and Commissioner of Economic and Community Development.

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Industrial Machinery Tax Credit

For capital investments in industrial machinery, Tennessee offers qualified businesses an Industrial Machinery Tax Credit that may be used to offset up to 50% of the company’s F&E tax liability. To qualify for this credit, companies are not required to create new jobs. The credit applies to the purchase, installation and repair of industrial machinery as defined in T.C.A. 67-6-102. The credit also applies to the purchase and installation of computer, computer software and certain peripheral devices purchased in order to meet the capital investment thresholds of the Job Tax Credit.

Any unused Industrial Machinery Tax Credit may be carried forward for up to 15 years. The percentage of Industrial Machinery Credit allowed is dependent upon the investment made during the investment period as follows

Capital Investment Percentage of Credit
Less than $100,000,000
1%
$100,000,000
3%
$250,000,000
5%
$500,000,000
7%
$1,000,000,000
10%

The investment period for the Industrial Machinery Credit is 3 years, but may be expanded to 5 years for businesses investing less than $1 billion and to 7 years for businesses investing $1 billion or more.

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Headquarters Tax Credit

In order to encourage companies to locate and expand their regional, national or international corporate headquarters in Tennessee, the state offers a suite of enhanced tax credits to companies that establish or expand a qualified headquarters facility. A "qualified headquarters facility" means a regional, national or international headquarters facility where the taxpayer has made a minimum investment of either.

  • $50 million in a headquarters building or buildings, newly constructed, expanded or remodeled during the investment period, or.
  • $10 million in a headquarters facility and the creation of 100 new full-time jobs paying at least 150% of Tennessee’s average occupational wage during the investment period.

Super Jobs Tax Credit for Qualified Headquarters

If a taxpayer meets the $10 million capital investment and creates the minimum 100 headquarters jobs paying 150% of the average occupational wage in establishing or expanding a qualified headquarters facility, the taxpayer will also qualify for a Super Credit of $5,000 per job that can be used to offset up to 100% of the taxpayer’s F&E liability each year for 3 years with no carry forward.

  • The investment period is 3 years, but can be extended to 5 years (or in the case of a $1 billion investment, 7 years) at the discretion of the Commissioner of Economic and Community Development.
  • The Super Credit is in addition to the regular Job Tax Credit which can still offset up to 50% of the F&E liability and be carried forward for up to 15 years. The only difference is by meeting the thresholds for a qualified headquarters, the amount of the regular Job Tax Credit increases to $5,000 per new qualified headquarters job instead of the regular $4,500.

Sales and Use Tax Credit for Qualified Headquarters

  • For taxpayers meeting the minimum investments for a qualified headquarters facility in Tennessee, the State provides for a credit of 6.5% of the 7% state sales and use tax paid on qualified tangible personal property, including, but not limited to machinery, equipment, software, furniture, and fixtures used exclusively in the qualified headquarters facility.
  • The investment period investment period for the sales and use tax credit begins one (1) year prior to start of construction, expansion or remodeling and ending one (1) year after substantial completion. In no event shall period exceed six (6) years.
  • The taxpayer must file and receive approval of the Qualified Headquarters Business Plan with the Department of Revenue before taking the sales and use tax credits.

Headquarters Relocation Expense Credit

  • Companies establishing a qualified headquarters facility may also qualify for credits against their F&E tax liability based on the amount of qualified relocation expenses incurred in the establishment of a headquarters facility. This is a fully refundable tax credit.
  • The total budget for the Relocation Expense Credit is determined and calculated by the number of existing headquarters positions paying at least 150% of Tennessee’s average occupational wage relocated to Tennessee as follows:
    • Headquater Jobs Relocated Amount Per Position
    100-249 jobs
    $10,000 per position
    250-499 jobs
    $20,000 per position
    500-749 jobs
    $30,000 per position
    750 or more
    $40,000 per position
    $1 billion investment
    $100,000 per position
  • Relocation Expense Credits are limited to the qualified expenses actually incurred. The company may start to take Relocation Expense Credits in the first year it incurs qualified relocation expenses up to the amount allowed as a Relocation Expense Credit for that year.

Additional Tax Incentives for Qualified Headquarters

  • Companies with a regional, national or international qualified headquarters facility in Tennessee may, with approval from the Commissioner of Revenue and the Commissioner of Economic and Community Development, convert unused net operating losses (NOL) to a credit against F&E tax liability.
  • The NOL credit is available only if the company is unable to use the NOL to offset net income during the current tax year.

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Sales and Use Tax Credit for Qualified Facility to Support an Emerging Industry

  • Tennessee law makes a sales and use tax credit available to taxpayers that establish a qualified facility to support an emerging industry in Tennessee with a minimum capital investment of $100 million and the creation of at least 50 new full-time jobs paying 150% of Tennessee’s average occupational wage. The credit is equal to 6.5% of the 7% state sales and use tax paid to Tennessee on the sale or use of qualified tangible personal property.
  • An emerging industry is one that promotes high-skill, high-wage jobs in high-technology areas, emerging occupations, or clean energy technology, including, but not limited to clean energy technology research and development and installation, as determined by the Commissioner of Revenue and the Commissioner of Economic and Community Development.
  • The investment period begins 1 year prior to the start of the construction, expansion, or remodeling, and ending 3 years after substantial completion of the construction, expansion or remodeling of the qualified facility. However, in no event shall the investment period exceed 6 years.

Data Center Tax Credit

Companies may obtain tax credits for the purchase of materials related to the construction of a qualified data center, which is defined as a building or buildings housing high technology computer systems and related equipment in which the taxpayers had made a minimum capital investment of $250 million and has created 25 new jobs paying at least 150% of the state's average occupational wage.

  • Investments must be made during a 3 year period, but can be extended to 7 years at the discretion of the Commissioner of Economic and Community Development.
  • The purchase of computers, computer systems, computer software and repair parts for a qualified data center are considered purchases of industrial machinery and qualify for a minimum 5% Industrial Machinery Tax Credit against F&E liability.
  • Computers, computer systems, computer software and repair parts used in qualified data centers are classified as industrial machinery and exempt from sales and use taxes.
  • Qualified data centers also pay reduced sales taxes on the purchase of electricity (1.5% vs. the previous rate of 7%).
  • A taxpayer must submit an application for the Data Center Tax Credits to the Department of Revenue with a plan describing the investment to be made before claiming the credits.

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