Tennessee Tax Credits

Sales and Use Tax Credit for Qualified Facility to Support an Emerging Industry 
The following benefits are also available:

• 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.

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. Other criteria are as follows:

• 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 franchise and excise 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.

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. Consider the following criteria:

• Located its headquarters facility in a Central Business District or Economic Recovery Zone and received approval from the Commissioner of Revenue as a "qualified headquarters facility." 
  
• $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
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 franchise and excise taxliability each year for 3 years with no carry forward. Other considerations are as follows:

• The Commissioner of Revenue may lower the wage requirement and investment criteria for a qualified headquarters facility if the headquarters locates in a Central Business District or Economic Recovery Zone.
  
• The investment period for the Super Job Tax Credit is 3 years, but may be expanded to 5 years with approval from the Commissioner of Economic and Community Development.
  
• The taxpayer must file and receive approval of the Qualified Headquarters Business Plan and the Job Tax Credit Business plan before taking the Super Job Tax Credit.
  

Sales and Use Tax Credit 
The following are sales and use tax considerations:

• ​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 purchased for the headquarters during the investment period.
  
• The investment period for the sales and use tax credit begins one year prior to construction or expansion and ends one year after construction or expansion is substantially complete and cannot exceed 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
The following criteria may quality for relocation expense credits:

• Companies establishing a qualified headquarters facility may also qualify for credits against their franchise and excise 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.
  
• "Qualified headquarters relocation expenses" are those expenses that both the Commissioner of Revenue and Commissioner of Economic and Community Development determine, in their sole discretion, are necessary to relocate headquarters staff employees to a qualified headquarters facility in conjunction with the initial establishment of such facility.
  
• The taxpayer must file and receive approval of the Qualified Headquarters Business Plan with the Department of Revenue before claiming the Headquarters Relocation Expense Credit.
  

The total budget for the Relocation Expense Credit is determined and calculated by the number of existing qualified headquarters positions relocated to Tennessee as follows:

No. of Jobs Relocated                   Amount Per Position

       100-249                                           $10,000

      250-499                                           $20,000

      500-749                                           $30,000

      750 or more                                     $40,000

However, if the headquarters is a $1 billion investment or more the credit amount per position is $100,000.

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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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.

EXAMPLE 1: A company investing $500,000 and creating 25 net new jobs in a 36 month period can claim a Job Tax Credit of $4,500 per job to offset up to 50% of the combined franchise and excise tax. Any unused Job Tax Credit may be carried forward for up to 15 years.

EXAMPLE 2: A qualified business locating or expanding in a Tier 2 county may take 3 years to create 25 jobs, and business locating or expanding in a Tier 3 county may take 5 years to create 25 jobs. The credit may not be taken until the year the 25 job threshold is met unless the business has requested and received a waiver from the Commissioner of Economic and Community Development and Commissioner of Revenue.

Every 100 new jobs equates to a $450,000 franchise and excise tax credit.

In 2010 Tennessee amended the statutory requirements to allow the Commissioner of Economic and Community Development and Commissioner of Revenue to waive the minimum job requirement of 25 net new jobs if the company has made the necessary $500,000 investment in a 12 month period and the jobs are high-skill, high-wage jobs in high technology areas, emerging occupations or skilled manufacturing. A company must request and receive a waiver before claiming the Job Tax Credit.

​Qualified business enterprises are as follows:

• 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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Job credit enhancements for rural Tennessee counties are found at this link.