Taxes & Incentives
In addition to lower transportation costs because of our central location, the overall cost of doing business in Tennessee ranks very favorably nationwide. Companies will find a competitive, pro-business environment here that has been thoughtfully structured to benefit both the company and the people who live here. Leaders in government, the utilities, and the economic development community have also put together an attractive package of state, local and utility incentives to help new or expanding companies enjoy a low-cost start up. Information on our costs and benefits is provided below:
- Corporate Excise Tax
- Franchise Tax
- Personal Income Tax
- Property Tax
- Sales and Use Tax
- Unemployment Compensation Tax
- FastTrack Program (Infrastructure and Training)
- TVA Electric Utility Benefits
Corporate Excise Tax
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.
Franchise Tax
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 maybe offset by 50% of total liability.
Personal Income Tax
- No tax on personal earned income in Tennessee
- A 6% tax is levied on dividends and bond interest received by individuals or other entities, including partnerships and trusts.
The 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.
Property Tax
Local levy only - 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
- Attractive depreciation schedules
Sales and Use Tax
7%, 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, are required to register with the Department of Revenue which provides the 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. Rates are: 1 percent for water sold to or used by manufacturers; and 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.
Unemployment Compensation Tax
2.7% for most new employers to Tennessee (exceptions are mining 6%, construction 5%, manufacturing sect 31 - 5.5%, manufacturing sect 33 - 6%)
Collected by both the federal and state governments, Tennessee's portion is a credit against part of the federal taxes owed.
Unemployment Compensation Tax is paid by employers only and cannot be deducted from employee's wages.
The first $7,000 in wages paid to each employee is subject to this tax.
Taxable wages include: tips, meals, lodging and other payments in kind. Non-taxable wages include: payments made by employer for insurance, retirement, or annuities.
FastTrack
Tennessee has a state funded program called FastTrack. Included in the program is the FastTrack Infrastructure Development Program (FIDP)-[Community generated] and the FastTrack Job Training Assistance Program (FJTAP)-[Company generated].
Under the guidelines of this program the state can make grants to local governments to help them meet the public infrastructure requirements for locating and expanding industries as well as address the training needs of a company.Both programs require application for financial assistance.
FastTrack Infrastructure Development Program (FIDP)
The FastTrack Industrial Development Program is Tennessee's initiative to support the public infrastructure needs of the local community to support expansion or location of industry. Project funding is determined by evaluating each project in terms of capital investment, new jobs created, the types of the created jobs, and the community in which the project locates. Once a targeted funding amount of eligible activity is established, final approval is subject to FIDP funding appropriated by the Tennessee General Assembly and approval by the Department of Economic and Community Development's Loan & Grant Committee. There are state regulations that apply relative to procurement/bidding procedures.
FastTrack Job Training Assistance Program (FJTAP)
The FastTrack Job Training Assistance Program is Tennessee's initiative to support industrial recruitment and expansion through direct training assistance for newly hired employees, employees in upgraded positions, and employees retained through instruction. FJTAP staff assists each individual company to develop customized training plans and to provide funding. Eligibility for FJTAP support and levels of funding for training assistance are determined by:
• The amount of company investment
• The number of new hires
• The types of skills and knowledge that must be obtained by prospective or newly hired employees
Job Specific Training (Training assistance is targeted to production/technician level individuals.)
• Classroom - formal instruction relating to specific skills presented in a classroom environment
• On-the-Job Training - instruction that focuses on the development of specific skills and knowledge vital to production. Training is provided by company technicians or instructors mutually acceptable to FJTAP and the company.
• Vendor - manufacturer of actual manufacturing equipment or service provider being used by the client may be utilized to deliver specific skills training.
• System Support - instruction associated with plant-wide applications. Instruction may include new methods for increasing mechanization, quality, materials handling, etc.
• Development and Coordination - supports the cost associated with the development of instructional materials and coordination of the overall training program.
Travel
• Supporting the expense of travel for the purpose of training can be considered as a viable option for the training of new hires and especially for persons who will serve as a company instructor.
Job Based Training (JBT)
Program to offer potentially faster reimbursement monies associated with training. Once the project commitment is determined and cost per job established, this quick start program may offer the company an accelerated portion of training dollars.
• After the first 3 months (60 work days) The Company records are reviewed {proper documentation will be required}for number of new jobs created.
• Calculation is made to determine salary paid to those new jobs multiplied by 25%.
• Calculation is made of predetermined cost-per-job multiplied by the number of jobs created during this period.
The company will be entitled to Job Based Training dollars for whichever above scenario is LESS.
• After 3 additional months the same calculation is run, with proper documentation, to allow an additional 25% computation on salaries for jobs created during the period, compared to the calculation of number of new jobs multiplied by again, the established cost-per-job.
The company is again entitled to JBT dollars for whichever scenario is LESS.
Depending on the number of new jobs to be created during the periods of review, it may be possible for the company to receive the entire training commitment IF the total committed job number is reached.
It is the company's elective to pursue the training commitment in either type of reimbursement method or in a combination thereof. If the commitment is not met in JBT, then direct training can be used for the balance IF the total job commitment is met.
Employee Recruitment and Screening (Provided by Dept. of Labor & Workforce Dev.)
The Tennessee Department of Labor and Workforce Development, Job Service Division, will provide recruitment and screening services. Utilizing the client/company's prepared job specifications, Job Service will recruit the number of persons requested by the company. The persons will be screened using the company's specifications. Those persons meeting the specifications will be referred to the company for employment considerations.
Workforce Development
• Leadership Training - is directed toward providing supervisors, team leaders, and managers with the interpersonal skills necessary to motivate and lead production workers towards the accomplishment of organizational goals.
• Team Training - is provided for manufacturing/production employees where interpersonal communication is important in fostering interdependence, cooperation, commitment, motivation, etc.
• Instructor Certification - Certification of company personnel insures the availability of certified instructors not only at startup but also on a long term basis. The weeklong certification seminar provides candidates with the facilitation skills necessary to deliver a wide range of programs.
State Industrial Access Program (SIAP)
Other state assistance can be considered for providing needed transportation improvement for the project. Through the State Industrial Access Program (SIAP), local governments submit their requests on behalf of new industry moving into their communities, which the Department of Transportation reviews to determine the most feasible design.
Industrial Revenue Bond Financing
Industrial Revenue bond financing is available in Tennessee for both taxable and tax-free situations.
TVA Electric Utility Benefits
As a potential employer in the Tennessee Valley, a company may be eligible for several programs that can benefit its operations, electric service, operating costs and bottom line. Potential benefits from the programs are based on the number of jobs created, capital investment, average wage, and electric use characteristics of the project.
Power Rates and Reliability
TVA and the distributors of TVA power are known for excellent reliability and competitively priced electric rates. Our well-diversified system of fossil, nuclear, hydro, and renewable energy sources keeps power flowing through more than 17,000 miles of transmission line serving over 9 million residents in an 80,000-square-mile area.
Rates
TVA and its distributor customers offer some of the lowest electricity rates in the nation, complemented by attractive pricing programs and rate credits. Our rates fall well below the national averages as these percentages show (2008 Energy Information Administration data):
- Industrial rates: 19% lower
- Commercial rates: 10% lower
- Residential rates: 21% lower
Reliability
While keeping rates competitive, TVA has maintained its world-class transmission reliability. In fact, TVA has achieved 99.999% reliability for nine years in a row, beginning in 2000.
The TVA transmission system is one of the largest in North America. TVA's transmission system has interconnections with 13 neighboring electric systems, and delivered more than 176 billion kilowatt-hours of electricity to its customers in 2008.
TVA also has achieved outstanding performance in two key reliability factors: Customer Connection Point Interruptions, in which TVA achieved the best rate in its history, and Load Not Served, a measure of the frequency and magnitude of outages. This is not unusual for TVA, a power provider that the North American Electric Reliability Corporation has characterized as having a culture of reliability.
The Valley Advantage
Through the Valley Advantage initiative, TVA makes direct cash investments in major economic development projects in the Tennessee Valley. Valley Advantage funding is paid directly to the company and it may be used in a variety of ways including public or private infrastructure development, the purchase of fixed assets, energy efficiency or other purposes. Funding amounts are based on the economic impact of the project within the first three years, as measured by the capital investment, number of jobs created, wages average and load factor. The program will only be used for projects determined to be environmentally sound. The program's minimum requirements are listed below:
Capital investment: $20 million
Employment: 100 new jobs
Load Factor: 65%
Wages: 10% above the local average
Enhanced Growth Credit (EGC)
The Enhanced Growth Credit program provides credits on power bills to new or expanding industrial companies that create new, firm electrical demand of 100 kW or more for an SIC-qualified company, or 250 kW for an all-electric user. Customers may choose one of the following EGC options:
- Four-year "flat rate" option - allows a monthly $6 credit per kW for the life of the credit.
- Eight-year "declining rate" option - allows a monthly $6 credit per kW in the first year; monthly credit is reduced by $0.75 per kW in each subsequent year.
The credit amounts will vary based upon each month's actual demand, and there is no maximum credit amount. Benefits of the EGC accrue on qualifying load above that baseline demand. A table of potential savings scenarios follows:
| New Firm MW Demand | Four Year Option Savings | Eight Year Option Savings |
| 100 kW (minimum) | $28,800 | $32,400 |
| 250 kW | $72,000 | $81,000 |
| 500 kW | $144,000 | $162,000 |
| 750 kW | $216,000 | $243,000 |
| 1 MW | $288,000 | $324,000 |
| 2 MW | $576,000 | $648,000 |
| 3 MW | $864,000 | $972,000 |
| 4 MW | $1,152,000 | $1,296,000 |
| 5 MW | $1,440,000 | $1,620,000 |
| 6 MW | $1,728,000 | $1,944,000 |
| 7 MW | $2,016,000 | $2,268,000 |
| 8 MW | $2,304,000 | $2,592,000 |
| 9 MW | $2,592,000 | $2,916,000 |
| 10 MW | $2,880,000 | $3,240,000 |
Small Manufacturing Credit (SMC)
Companies whose monthly demand falls between 1,000 and 5,000 kW and SIC code is between 20 and 39, will qualify to receive the substantial benefits of the Small Manufacturing Credit Program. These credits are offered by TVA and the local power distributor to assist new and expanded businesses. The credits are assessed based upon energy and demand at individual meter points. The credit is available under Part 3 of the GSA or TGSA rate schedules. In any month when the metered demand for firm power exceeds 1,000 kW, a credit is applied to each kW of metered demand used in determining the firm billing and each kWh of firm energy. The monthly credit is equal to the sum of:
- $1.38 per kW for the first 1,000 kW of metered demand
- $1.63 per kW of any metered demand amount in excess of 1,000 kW, and
- $0.0054 per kWh of firm energy (0.54 cents/kWh)
Sixty-Minute Response Power
Sixty-Minute Response Power (60 MR), allows participating commercial and industrial customers to qualify for credits on their power bills in exchange for giving TVA the right to suspend the availability of power within 60 minutes notice to address the reliability needs of the TVA system. Qualifying participants earn a credit of $1.70 per kW on the highest maximum of 60 MR demand established in any billing month in which the customer's load factor exceeds 50%. The program requirements are:
- A minimum total contract demand greater than 1,000 kW at a single delivery point.
- A minimum Effective Interruptible Demand (EID) of at least 500 kW. EID is the amount of demand reduction that TVA expects the customer to accept if suspended during TVA's highest 200 hours of system demand each year.
- The 60 MR program is limited to a maximum EID of 1,000 MW.
- A minimum average load factor greater than 40%.
- An adequate plan for meeting 60 MR suspension requirements.
- A five minute interval demand meter must be installed
Economic Development Loan Funds (EDLF)
TVA provides EDLF loans to established companies relocating or expanding their operations in the Tennessee Valley. Funds may be used for building expansions, equipment purchase, and other purposes. Loan amounts, terms and interest rates are dependent upon criteria such as number of jobs created, total capital investment, security provided, and impact on the community. All loans are subject to a financial and eligibility review.
- Loan amounts are determined based upon job growth, capital investment leveraged, and identified project needs.
- Interest rates vary by project, but are typically below the prime lending rate.
- Loan terms for equipment loans may be up to 5 years, while building and real estate loans may be up to 15 years.
- Leveraging other funds is TVA's role as a lender, and we are seeking to leverage $3 to every $1 invested through the EDLF program.
- Generally, the approval process is quicker and rates are lower for loans secured with letters of credits.
Consulting and Technical Services
Comprehensive Services Program
Through the Comprehensive Services Program, TVA and participating distributor partners offer a wide variety of program services designed to help companies identify energy solutions that generate savings and increase profit. These programs are typically available at little or no cost. Such services include; identifying energy efficiency improvements for buildings and equipment, recommending energy-efficient construction guidelines, power quality monitoring and recommendations, providing lighting analyses and recommendations, analyzing energy management systems, consulting on HVAC systems and technologies, infrared and ultrasonic testing services, and many others.
Engineering and Design Services
TVA's team of professional engineers and designers can help companies make better decisions, yielding time and money savings, by providing preliminary site evaluations and layouts as well as conceptual building designs and models.
Economic Analysis and Market Research
TVA can provide a wealth of economic, demographic, and industry data, along with associated analyses, to support local and regional economic development efforts.
