Franchise Tax

The franchise tax rate is based on the issued and outstanding stock, surplus, and undivided profits, apportioned to Tennessee, at the end of the fiscal year. The franchise tax rate is $.25 per $100 with a minimum tax of $10. The basis of this tax cannot be less than the book value of the property owned and used in Tennessee. The value of property rented is determined by multiplying net annual rental times 8 for real property, 3 for machinery and equipment 2 for office furniture and equipment, and 1 for delivery or mobile equipment.

The franchise tax applies to foreign and domestic corporations doing business in Tennessee, including business trusts and regulated investment companies. General welfare, non-profit, welfare, and industrial development corporations are exempted from the franchise tax. Insurance companies doing business in Tennessee may deduct gross premium taxes from the sum of the franchise and excise taxes. In computing the minimum basis of the franchise tax, the following incentives apply:

A credit of $2,000 ($3,000 if located in an economically distressed county) is applied against the amount of increase in the corporation's franchise tax liability caused by its expansion in Tennessee. In order to qualify for this credit, the business must create a minimum of 25 new jobs and increase its capital investment in Tennessee by at least $500,000 ($10 million for convention or trade show facilities). Any unused credit may be carried forward 15 years.

Property under construction and not being utilized by the corporation is not included in the franchise tax base.

Property rented by the corporation from an industrial development corporation may instead be valued by capitalizing it on the corporate books.

Property erected in Tennessee by the corporation for compliance with air, water, or hazardous waste pollution regulations is exempt from the franchise tax.

Finished goods inventory in excess of $50,000,000, $40,000,000 and $30,000,000 for fiscal years beginning on or after July 15, 1996, July 15, 1997, July 15, 1998, respectively, may be excluded from the franchise tax.

For corporations doing business within and outside of Tennessee, the capital stock, surplus and undivided profits are to be apportioned from franchise tax purposes by a three-factor formula consisting of property, payroll and sales.

The corporation's net earnings are apportioned by the same three-factor formula to determine its excise tax liability.