Taxes and Incentives

Tax Rate: 6.5% of a company’s Tennessee-based net income

Corporations are eligible to receive excise tax credits equal to 1% of the following:

• The purchase, installation and/or repair of qualified industrial machinery.
• The purchase of qualified equipment associated with the required $500,000 capital investment by a distribution or warehouse facility.
• The purchase of computers, computer networks, software, computer systems, telephone systems, and any peripheral devices purchased to reach the “required capital investment” to qualify for the jobs tax credit.
• Net operating loss may carry forward 15 years.
• All capital losses may be claimed the year incurred.

Tennessee has some of the lowest property taxes in the U.S. Per $100 of assessed value.

• Assessment Ratio: Residential Property 25%
• Assessment Ratio: Farm Property 25%
• Assessment Ratio: Commercial/Industrial Property 40%

Source: State of Tennessee, 2025

Tax Rate: $0.25 per $100 of a company’s Tennessee-based net worth.

Corporations are eligible to receive franchise tax credits equal to the following:

Tax credit of $4,500 per new full-time employee:

• In businesses that meet requirements of a minimum 25 new full-time jobs and additional capital investment of $500,000 and offer a minimal health care plan.
• For new jobs in the future resulting in a net increase in jobs.

No franchise tax on:

• Finished goods inventory in excess of $30 million for fiscal year beginning on July 15, 1998.
• Property under construction, not being utilized by the business.
• Pollution control equipment.

Property rented from an industrial development board may be capitalized on the business books.

For companies that increase Tennessee investment while also doing business in other states, Tennessee offers double, weighted sales apportionment formula for franchise and excise taxes. This means that property, payroll, and sales are all taxed, but they are taxed in fourths, not thirds. Property and payroll have one fourth each and sales has two fourths.

The jobs tax credit can be applied to both the franchise and excise tax. The percentage of franchise and excise tax liability may be offset by 50% of total liability.

• No tax on personal earned income in Tennessee.
• 6% tax levied on dividends and bond interest received by individuals or other entities, including partnerships and trusts.
• First $1,250 on an individual return and $2,500 on a joint return are exempt from dividend and interest tax.
• Corporations are eligible to receive personal income tax credits.

There is a local levy only, which varies by jurisdiction.

There is no property tax in Tennessee on:

• Goods-in-process
• Finished goods inventories in hands of manufacturers
• Inventories of merchandise for sale
• Goods-in-transit (free port)
• Pollution control equipment required for compliance with federal, state or local environmental protection laws

7% state; local levies vary from 0-2.75%

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 engaged in consumer sales is required to register with the Department of Revenue, which provides periodic sales tax return forms.

There is no sales tax in Tennessee on:

• Purchases, installation, and repairs of qualified industrial machinery.
• Purchases of material handling and racking equipment associated with the required capital investment of $10 million by a distribution or warehouse facility.
• Raw materials for processing.
• Pollution control equipment of manufacturers.
• Reduced sales tax for manufacturers’ use of energy fuel and water.
• Reduced sales tax for manufacturers’ use of energy fuel and water. Rates are:
  • 1 percent for water sold to or used by manufacturers;
  • 1.5 percent vs. 7% for energy fuels sold to or used by manufacturers.
• Tax-exempt if used directly in the manufacturing process and separately metered.
• Any materials that become a component part of the finished product.
• Containers, labels and packaging materials if they are sold with or accompany the product at no additional charge.