Tax Structure
Business Taxes
Tennessee and Jackson-Madison County offer businesses a favorable tax climate. Tennessee, for example, does not tax earned income; it taxes only personal income on stocks and bonds. Tennessee does not tax the sale of air/water pollution control equipment, raw materials for processing, industrial machinery, or repairs to industrial machinery. Companies do not have to pay property tax on works-in-progress, finished product inventory, or goods in transit (freeport). At the same time, the state offers a variety of tax incentives.
Corporate Income Tax: The state levies an excise tax of 6 percent on net earnings of corporations doing business in Tennessee. All taxes, except federal income tax and state excise taxes, are deductible in determining the excise tax base. In allocating the income of a multi-state corporation, the state uses a three-factor formula, comparing the states, payroll, and property in the sate to the overall corporation.
Sales and Use Tax: A 7 percent state sales tax plus a 2.75 percent local sales tax are levied in the sale 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 sales tax is not imposed. Both taxes are levied on the lease price of tangible personal property.. Manufacturers' use of energy fuels are taxed at 1.5 percent. Water used by manufacturers is taxed at 1 percent by the state and 0.5 percent at the local level.
Tennessee Tax Structure
| State Property Tax: | None |
| Corporate Excise Tax: | 7% on net earnings |
| Franchise Tax: |
|
| Unemployment Tax: | New employers 2.7% for first 36 months |
| Tax Base: | First $7,000 of wages for each employee |
| Sales Tax: | 9.75% (7% state, 2.75 local option tax) |
| Personal Income Tax: | None |
Property Tax: The state levies no property tax. The City of Jackson and Madison County levy a property tax on real and personal property. The city's tax rate is $2.10 per $100 of assessed value; the county's rate is $2.31. Both assess industrial property at 40% of assessed value, personal property of equipment and machinery at 30%, and residential property at 25 percent.
Business Inventory: Property taken from inventory to be used in demonstration is exempt from a sales and use tax if returned to inventory within 120 days. All inventories of finished goods held by manufacturers and merchants are exempt from sales and use taxation.
Goods in Transit: Sales and use taxes are not levied against interstate and foreign sales and railroad rolling stock and barges and vessels used in interstate commerce. Personal property passing through the state or stored or repackaged while passing through the state is exempt from property taxation.
Pollution Control Equipment: Pollution control equipment is exempt from sales and use taxes. Pollution equipment has a value equal to its salvage value, which cannot exceed 0.5 percent of acquisition value.
Industrial Machinery and Equipment: Sales and use taxes are exempt from industrial machinery equipment transferred between the parent company and subsidiary, if sales or use tax has already been paid.
Industrial Fuels and Raw Fuels: Gasoline on which no refund from the privilege tax is received is not subject to sales and use taxation. Fuels and water used directly in the manufacturing process, explosives and component parts, containers and packaging materials, and replacement parts are not subject to sales and use taxes.
Targeted Jobs Tax Credit: Tennessee gives a company a tax credit when it hires employees from "targeted" groups of economically disadvantaged youths and adults. The company will qualify for a tax credit up to $2,400 per employee the first year the person is on the payroll.
Unemployment Insurance, Workers' Compensation: Tennessee's rates for these business costs are competitive against other Southeastern states and against states in the Midwest, West Coast, and Northeast. The tax base for unemployment compensation taxes is the first $7,000 in wages for each employee. The maximum tax rate for new employers is 2.7% for the first 36 consecutive months, ending on December 31. Employers in high negative reserve industry groups, such as construction and mining, will be assigned the industry average rate. The average unemployment tax rate for July, 2000 was a low 2.7 percent.
Local Tax Structure
| Type | City | County |
| Property tax (per $100 value) |
$2.10 | $2.31 |
| Ratio of assessment: | ||
| Residential | 25% | 25% |
| Industrial | 40% | 40% |
| Personal (equipment) | 30% | 30% |
| Sales Tax: 9.75 (7% state tax, 2.75 local option tax) | ||
| Inventory Tax: None on finished goods | ||
| Payroll Tax: None | ||
Source: Madison County Assessor's Office
For more information, visit the Tennessee Department of Revenue's Web site at www.Tennessee.gov/revenue.
