OVERVIEW OF TENNESSEE TAX SYSTEM

Corporation Income Tax

This tax is levied at the rate of 6 percent of net earnings of each corporation. Net earnings are defined as in the federal law administered by the Internal Revenue Service. Losses can be carried forward and used as a credit against net earnings for a period of 5 years. This is important for a new company which is apt to suffer substantial losses during its early years of operation.

Tennessee has an investment tax credit which is a deduction from the corporation income tax liability. This credit is 1 percent of the purchase price of industrial machinery.

Sales Tax

Tennessee exempts industrial machinery from the sales tax. All of the manufacturing equipment in a factory, representing the major part of the investment, is exempt. The sales tax would apply to office and warehouse equipment, as well as the construction materials used in the factory building. The state sales tax rate is 6 percent. In the majority of Tennessee counties the rate is 2 1/4 percent, making the combined state-local rate 8 1/4 percent. The tax rate is reduced to 1 1/2 percent for energy fuel and water used by a manufacturer. All repairs to industrial machinery are exempt from the sales tax.

Unemployment Compensation

The unemployment compensation tax rate is 2.7 percent of the first $7,000 of wages of each employee. The rate is frozen for 3 years, after which the employer can earn a lower rate based upon a merit rating formula.

Payroll and Personnel Income Taxes

Neither the state government nor any local governments in Tennessee are authorized to levy personal income or payroll tax on wages and salaries, other than the unemployment compensation and workers' compensation taxes.

Property Taxes

The state government has no property tax. The property tax in Tennessee is a local tax.

Cities and counties levy property taxes at rates that are expressed in dollars per $100 of assessed value. Commercial/industrial real property (land and buildings) is assessed at 40 percent of appraised value, and personal property (manufacturing equipment) is assessed at 30 percent of actual value. Also assessed at 30 percent of appraised value are raw material inventories. But finished goods and goods in process inventories are exempt from property taxation. Residential real property is assessed at 25 percent of appraised value.

The property tax rates for Oak Ridge are: Tax Rate City of Oak Ridge $ 1.51 per $100 of assessed value Anderson County $ 2.95 per $100 of assessed value (within city limits) Roane County $ 3.24 per $100 of assessed value (within city limits)