Life, 03/09/2018 - 09:16
When starting or expanding a business in Tennessee, it is important to understand the tax obligation. This article will provide you with a basic understanding of the most common taxes that can affect you while doing business in Tennessee.
The information will help you estimate tax payments in the cash flow projections of your company's business plan. You should also consider applicable local property taxes and excise taxes.
The main taxes small businesses must pay are local, state, federal, franchise, and excise taxes, and sales and use taxes.
Local, state and federal taxes
The Tennessee General Assembly authorizes counties and municipalities to impose a privilege tax, that is, a tax for the privilege of operating a business in their jurisdictions. All counties tax the tax as a business license tax, incorporated cities may also impose the privilege tax.
This tax is based on a percentage of gross sales or receipts in successive years. If the business has a local location in different cities or counties, the company is responsible to each city or county based on cumulative sales or receipts in each location.
Generally all companies are subject to this tax. Exempt companies include manufacturers, companies with annual sales of less than $ 3,000, and professionals such as doctors and lawyers.
The United States Department of the Treasury collects federal taxes through the Internal Revenue Service (IRS). Your company's legal structure will determine what federal taxes are due or must be paid.
There are four types of federal taxes for a business: federal income tax, self-employment tax, employment tax, and excise tax. Each business must file an annual income tax return with the federal government.
The Tennessee Department of Revenue is the state's primary tax collector and is responsible for collecting approximately 92% of the state's total tax revenue.
Franchise taxes and consumption taxes
Tennessee franchise and excise taxes are corporate taxes. Franchise tax is based on the net worth of the corporation or the book value of real and tangible property owned or used in the state, plus rental values; whichever is higher is applied.
Consumption tax is based on the net earnings of taxable entities within Tennessee.
With a few exceptions, most companies organized to make profits and do business in Tennessee are subject to state franchise tax and state consumption tax.
Companies that are out of state but do business in Tennessee are liable, even if they are not incorporated in Tennessee, but may apportion their tax base.
Sales and use tax
The sales and use tax is a consumer-oriented tax imposed on the manufacture, distribution, or retail sale of tangible personal property within the state. It is also imposed on many forms of services. Any business that sells, leases, or rents tangible personal goods or services (unless the business is specifically exempt) is responsible for paying this tax.
The state of Tennessee allows businesses to obtain franchise tax and consumption tax credits based on a minimum level of capital investment and the number of jobs created.
The amount of tax credits and the length of time the credits can be used are determined by the size of the business investment. Typically, the minimum requirements are $ 500,000 in capital investment and the creation of 25 new full-time jobs with benefits during a 36-month investment period.
Employers may be eligible for a tax credit if they hire employees with disabilities who have received vocational rehabilitation services through the state Division of Rehabilitation Services.
Tax incentives are based on Tennessee statutes established by the Tennessee State General Assembly. You can find detailed information about the mentioned tax credits at TNECD.com.
If you also need more tax information, the IRS and the Tennessee Department of Revenue assist new and existing businesses in understanding and meeting tax burdens.
The IRS also sponsors educational workshops that are taught through Small Business Development Centers throughout the state of Tennessee. The IRS also offers instructions to small businesses in their site, while the Tennessee Department of Revenue publishes a tax guide for new businesses. You can find additional information at https://www.tn.gov/revenue