What Is Franchise and Excise Tax in Tennessee

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Franchise and excise tax is a form of taxation imposed on businesses by the state of Tennessee. It is a key source of revenue for the state and is levied on both domestic and foreign corporations operating within its jurisdiction. The tax is calculated based on the net worth or tangible property of the business, as well as its income or sales.

The franchise tax component is based on a business’s net worth, which includes the value of its stock, surplus, and undivided profits. This tax is due annually and is calculated using a graduated tax rate structure. The rates vary depending on the business’s net worth, with higher rates imposed on businesses with larger net worth values.

On the other hand, the excise tax component is based on a business’s income or sales. This tax is also due annually and is calculated using a tax rate that is applicable to the business’s taxable income or sales. The rates for excise tax also vary, with higher rates applied to businesses with higher taxable income or sales.

Tennessee’s franchise and excise tax is unique in that it is a combination of both taxes. This means that businesses are required to pay both franchise tax and excise tax, based on their net worth and income or sales, respectively. The tax is administered by the Tennessee Department of Revenue, which provides guidelines and forms for businesses to calculate and file their tax obligations.

Frequently Asked Questions (FAQs):

1. Who is required to pay franchise and excise tax in Tennessee?
– All domestic and foreign corporations operating in Tennessee are subject to franchise and excise tax.

2. How is the franchise tax component calculated?
– The franchise tax is calculated based on a business’s net worth, including stock, surplus, and undivided profits, using a graduated tax rate structure.

3. How is the excise tax component calculated?
– The excise tax is calculated based on a business’s taxable income or sales, using a tax rate that corresponds to the amount of taxable income or sales.

4. Are there any exemptions or credits available for franchise and excise tax?
– Yes, there are certain exemptions and credits available, such as the Small Business Job Credit and the Rural Job Opportunity Credit. Eligibility and requirements for these exemptions and credits can be found on the Tennessee Department of Revenue’s website.

5. When are franchise and excise tax returns due?
– The franchise and excise tax returns are generally due on the 15th day of the fourth month following the end of the tax year. For example, if the tax year ends on December 31st, the returns would be due on April 15th of the following year.

6. Can franchise and excise tax be paid in installments?
– Yes, businesses with a franchise and excise tax liability of $10,000 or more are eligible to pay their tax in quarterly installments.

7. What are the consequences of failing to pay franchise and excise tax?
– Failure to pay franchise and excise tax can result in penalties, interest, and potential legal action by the Tennessee Department of Revenue.

8. How can I get more information about franchise and excise tax in Tennessee?
– For more information, businesses can visit the Tennessee Department of Revenue’s website or contact their local Department of Revenue office. The website provides detailed guidelines, forms, and resources to assist businesses in understanding and fulfilling their tax obligations.
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