The State of Tennessee offers lucrative tax credits for companies across the state, but many businesses fail to cash in on these opportunities.
One of the most common tax credits in Tennessee is the Jobs Tax Credit (JTC), which is a credit of $4,500 per new job made available for “qualified business enterprises” that add a certain amount of new full-time employees.
The credit is limited to 50% of the company’s current franchise and excise (F&E) tax liability. Any credit amount not utilized in the current year can be carried forward for 15 years.
Qualified business enterprise: A “qualified business enterprise” is a business that is engaged in manufacturing, warehousing, distribution, processing, research and development, computer services, call centers, data centers, headquarters facilities, convention/trade show facilities, or aircraft repair service facilities in Tennessee. Businesses that promote high-skill, high-wage jobs in high-technology areas can also qualify for this credit.
Capital investment: To qualify for the JTC, the company must make a capital investment of $500,000 in real or tangible property in Tennessee.
Business plan: Companies must submit a business plan to the Department of Revenue before claiming the credit.
Full-time jobs: Each of the company’s new positions must be a “full-time job,” which is defined as a permanent position providing at least 37 1/2 hours of work per week, for at least 12 consecutive months. And the employee must receive the minimum healthcare benefits.
The counties in Tennessee are divided into one of four incentive tiers based on the economic conditions of the area. Tiers are updated annually, most recently July 1, 2021. The number of jobs and the time frame in which they must be created are determined by each county’s tier classification. The tiers are:
- Tier 1 & 2: 25 net new full-time positions within a 36-month period
- Tier 3: 20 net new full-time positions within a 60-month period
- Tier 4: 10 net new full-time positions within a 60-month period
An expanded credit is available for qualifying businesses located in “economically distressed” counties categorized as Tier 2, Tier 3, or Tier 4.
Based on the assigned tier of the county, the additional credit is allowed on an annual basis for the following time frames:
Tier 2: Additional three years at $4,500 per year with no carry forward
Tier 3 & 4: Additional five years at $4,500 per year with no carry forward
The expanded credit can be used to offset 100% of the taxpayer’s F&E tax liability for that year. This portion of the credit does not carry forward beyond the year in which the credit originated.
Most Middle Tennessee counties — Cheatham, Davidson, Dickson, Maury, Montgomery, Robertson, Rutherford, Sumner, Williamson, and Wilson — are classified as Tier 1. Click here to see the full map of Tennessee counties.
If you’d like to discuss your company’s potential to take advantage of the JTC or other tax credits, please reach out to a KraftCPAs professional.