Direct Financial Incentives

Grants and loans: Tennessee allocates on an annual basis a significant amount of the available Small Cities CDBG dollars for an industrial grant and loan program. These funds are awarded for grants and loans to assist industries in locating or expanding in Tennessee. Grants are made for public infrastructure and loans are made for industrial buildings and equipment.

Infrastructure financing: Through the Tennessee Industrial Infrastructure Program (TIIP), funds are allocated to assist local governments in providing infrastructure to support new or expanding industry. The following types of activities are eligible: water systems, wastewater systems, transportation projects, site improvement, or other specific infrastructure improvements required to support economic growth. Grants are limited to a maximum of $750,000 with amounts determined for individual projects. For more information about the Industrial Infrastructure Program, please click here.

SBA 504 loans: The Small Business Administration 504 Loan Program provides long-term, fixed-asset financing of 40 percent of a project, not to exceed $750,000 for businesses whose net worth does not exceed $6 million and average net profits do not exceed $2 million. The loan cannot be used for working capital, debt consolidation repayment, refinancing, or venture capital.

Other financing programs: Tennessee Valley Authority (TVA) economic development investment funds are designed to provide capital to finance projects that support the growth of small business and the creation of new companies in the Tennessee Valley, as well as to generate high-value jobs, capital investment, new power load, and a return on TVA investment.

The Economic Development Loan Fund (EDLF) is an annual $100 million revolving loan program that provides low-interest loans to established companies relocating or expanding their operations in the Tennessee Valley. Loans are made for buildings, plant equipment, infrastructure, or property based on the capital investment leveraged, the number of jobs created, the power load generated, and geographic diversity. The maximum loan investment is $2 million. TVA economic development staff markets the program, manages the loan review process, and manages the loan portfolio.

The Special Opportunities County Fund (SOC) is a $15 million revolving loan program that provides low-interest loans that are targeted to companies expanding or relocating in the Tennessee Valley’s most economically distressed counties. Loans are made for buildings, plant equipment, infrastructure, or property. Loans are based on the capital investment leveraged and the number of jobs created. The maximum loan investment is $300,000. TVA economic development staff markets the program, manages the loan review process, and manages the loan portfolio.

The Valley Management, Inc. (VMI) fund is a $15 million fund designed to invest in equity or debt to finance the growth and development of socially and financially disadvantaged businesses. VMI will consider investments in start-up, growth, or established companies, and it will finance their working capital, building, or plant equipment needs. Businesses must be located in the Tennessee Valley. Those firms that meet VMI investment criteria can apply for $100,000 to $1 million to support their business. TVA economic development staff markets the program and submits projects for review by VMI management. As the principal investor in VMI, TVA economic development management sits on the VMI board, reviews investment decision-making processes, and monitors return on investment.

Commerce Capital, L.P., is a Small Business Investment Company (SBIC) chartered by the Department of Commerce and the Small Business Administration. Commerce Capital’s $5 million equity fund leverages up to $90 million in federal dollars for rapidly growing small businesses’ operating-capital needs in the Tennessee Valley. These investments are made in both debt and equity financing for companies in healthcare, manufacturing, environmental services, communications, and information systems. Investments range from $500,000 to $3 million. TVA economic development staff markets the SBIC program to valley businesses and submits the projects for review by the Commerce Capital General Partner.

The Telecommunications Assistance Program (TAP) for small and/or minority-owned businesses assists small, minority-owned, and women-owned telecommunication businesses with gross receipts of less than $4 million in acquiring needed capital to maximize business opportunities in the area of telecommunications. The maximum amount of the loan guarantee is 80 percent of the principal amount of the loan, not to exceed $400,000 per project. Eligible activities include new construction, leasehold improvements, working capital, and/or equipment. Terms are 15 years on buildings, seven years on equipment, and three years on working capital. There is also one-on-one consulting for management on technical business problems and issues including loan packaging, business planning, marketing, procurement opportunities, and business development activities.

The Tennessee Small Business Energy Loan program is designed to assist in the identification, installation, and incorporation of approved energy-efficiency measures for existing Tennessee businesses. Businesses of fewer than 300 employees or $3.5 million in annual gross sales or receipts can receive loans of up to $100,000. These loans are repaid at 3 percent interest over a period of time not to exceed seven years.

New hire training assistance: The Industrial Training Service (ITS) provides training assistance as an incentive to attract new investment and to encourage existing business and industry to make additional investments in Tennessee. The training assistance is customized to each industry’s individual training needs.

Levels of training assistance are determined by the amount of the company’s investment, number of new hires, and the skills and knowledge that must be possessed by the prospective or newly hired employees. A customized training plan can be developed in direct coordination with company personnel. The training can be both pre-employment and postemployment, including classroom and on-the-job.

Reimbursement of instructional cost by company personnel and selected vendors is eligible for support, and the expense of travel, for the purpose of training, is a viable option for the training of new hires and persons who will serve as company instructors. Traditionally, manufacturing, warehousing/distribution, and service-related industries including back-office, financial, and telecommunications have been assisted.

Job skills program: Tennessee JobsSkills is a work-force development program giving priority to the creation and retention of existing jobs while focusing on employers in industries that promote high-skill, high-wage jobs in high-technology, demand, emerging occupations. Training grants can be awarded to employers as an incentive for investing in new technologies, with the training being focused on the performance skills of their present employees affected by the introduction of the new technology. Training assistance can also be awarded to employers who certify that a specific job or job openings exist and at the completion of the training project those participants in the project will fill such job openings. The starting wage for a new job created through the project will be equal to or greater than the prevailing starting wage for that occupation in the local labor market.

Basic Business Taxes

Corporate income or excise tax:

Tennessee levies an excise tax of 6 percent on net earnings of corporations, foreign or domestic, from business conducted in the state or on a state apportionment of total earnings of multistate corporations. All taxes, except federal income tax and state excise taxes, are deductible in determining excise tax base. In allocating the income of a multistate corporation, the state uses a three-factor formula, comparing the sales, payroll, and property in the state to the overall corporation. The state double weights the sales factor.

In 1995, a bill was passed that provides an excise tax credit equal to 1 percent of the purchase price of qualified machinery and equipment associated with the required capital investment ($10 million+) by a distribution or warehouse facility. The taxpayer must invest in a building/equipment over a period not exceeding three years. Manufacturers are allowed an investment tax credit of 1 percent of the cost of industrial machinery purchased against the state excise tax liability. The credit cannot exceed 50 percent of the excise tax liability. Unused portions can be carried forward 15 years.

Sales and use taxes: A 6 percent sales tax plus a 1–2.75 percent local sales tax are levied on the sale price of each item or article of tangible personal property and some specific services sold at retail. A use tax of the same rate is levied on the cost price of each article used, consumed, or stored for use in the state, upon which the sales tax is not imposed. Most manufacturing equipment is tax exempt. Energy fuels and water used by manufacturers are taxed at 1.5 percent.

There is no sales tax on the purchase of qualified industrial machinery or materials-handling equipment and racking systems associated with the required capital investment ($10 million+) by a distribution or warehouse facility.

There is a credit for state sales and use taxes paid on building materials, machinery, and equipment for new or expanded corporate headquarters meeting capital investment requirements.

Property tax: The state levies no property tax. Counties and cities levy property tax on real and personal property. Tax rates of industrial and commercial real property vary with locality. Property is assessed by county assessors.

Franchise tax: The franchise tax is based on the taxpayer’s net worth, or the book value of all real and tangible property owned or used in Tennessee, whichever is greater. The franchise tax rate is $0.25 per $100 with a minimum tax of $10. The franchise tax applies to corporations, foreign or domestic, limited liability companies, and limited partnerships doing business in Tennessee.

Jobs tax credit: Qualified business enterprises are eligible for the job credit of $2,000 for each new full-time job ($3,000 if in an economically distressed county) if they make the required $500,000 capital investment and create 25 full-time jobs in Tennessee, within a fiscal year.

The credit can be used to offset 33.3 percent of both the franchise and excise tax for that year. If a business has more than 1,000 total employees in the state it can offset 50 percent of both the franchise and excise liability; if 3,000 to 5,000 employees, the offset is 75 percent. Companies with more than 5,000 employees can reduce both by 100 percent. Unused credits may be carried forward for 15 years.

Business inventory: Finished goods inventory in excess $30 million may be excluded from the franchise tax base.

Goods in transit: Interstate and foreign sales are exempt from sales and use taxation. Railroad rolling stock and barges and vessels used in interstate commerce or outside the state are also exempt.

Personal property passing through the state or stored or repackaged while passing through the state is exempt from property taxation.

Pollution-control equipment: There is a sales and use tax exemption for pollution-control equipment used by a qualified manufacturer or processor.

Industrial fuels and raw materials: Component parts, containers and packaging materials, and repair parts used in manufacturing are not subject to sales and use taxation. If gasoline is used in the manufacturing process (such as in motors or equipment) the sales and use tax rate is 1.5 percent. If gasoline is used by a manufacturer for nonmanufacturing, off-road use, it is taxed at 6 percent with no local tax. Water and energy fuel used in the manufacturing process that come into direct contact with the product and are separately metered are completely exempt.

Tennessee State Contact: Department of Economic and
Community Development
Marketing Division
William Snodgrass/ TN Tower, 11th Fl.
312 Eighth Avenue North
Nashville, TN 37243-0405
(615) 741-1888

Tennessee

Tennessee Department of Economic and Community Development
Web: http://www.state.tn.us/ecd/index.htm
TN Tower, 11th Fl.
312 Eighth Avenue North
Nashville, TN 37243-0405
(615) 741-1888