When a qualified data center expands with new capital investment and new jobs, how does Tennessee's franchise and excise job tax credit treat positions temporarily filled by contract employees, multi-facility job counts, and prior-round jobs that shouldn't double-count?

Plain-English summary

The same Taxpayer from the related LR 11-06/11-07 ruling cluster — a qualified headquarters facility and qualified data center spanning a Production Facility, Back-up Facility, and Administrative Facility — is planning a third major expansion ("Investment 3") and asked how Tennessee's franchise and excise (F&E) job tax credit (§ 67-4-2109(b)) applies, including a distinctive HR practice: the company fills most new and vacated positions with contract employees on a roughly 90-day trial basis before converting them to permanent staff.

Eight rulings, the most operationally significant being #5 (contract employees) and #6 (multi-facility aggregation):

1-2. Credit eligibility and software. The proposed investment and job creation will qualify for both the standard job tax credit ($4,500/job, § 67-4-2109(b)(1)) and the enhanced additional annual credit ($5,000/job, § 67-4-2109(b)(2)(B)(iv)). Both prewritten and custom computer software count toward the "required capital investment" threshold — but only software that is capitalized (not expensed) under GAAP and included in the franchise tax minimum-property-value measure can have two-thirds of its value excluded from that measure, and only in years the enhanced credit is actually claimed.

3. Compensation floor. Jobs qualifying for the enhanced credit must pay at least the state's published average occupational wage for the year the job was created.

4. Job-count baseline. The starting point for counting "new" jobs created during the investment period is the company's actual headcount on the effective date of its new business plan — not an earlier snapshot.

5. Contract employees count. This is the practical heart of the ruling: positions temporarily filled by contract employees during the company's roughly 90-day vetting/trial period still count as "qualified jobs," because Tennessee law treats a position as continuously "filled" as long as any vacancy is refilled within 90 days — matching almost exactly how the company's trial-to-permanent pipeline works.

6. Multiple facilities aggregate. Jobs and capital investment at the Production Facility, Back-up Facility, and Administrative Facility all count together toward the job tax credit, because they operate as a single "qualified business enterprise" — consistent with a prior letter ruling reaching the same conclusion for an earlier investment round.

7. Timing and thresholds. If the new investment plan calls for over $100 million in capital and 100+ new jobs, the company can start taking the standard $5,000-per-job credit once it reaches the $500,000/25-job minimum threshold; the enhanced credit follows in the next tax year, though credits must be taken in consecutive years once started.

8. Offset limits. The standard credit offsets up to 50% of F&E liability (with 15-year carryforward); the enhanced additional credit can offset up to 100%, but any unused enhanced credit in a given year does NOT carry forward — use it or lose it.

What this means for you

Companies that use contract-to-hire or trial-employment staffing models

A position temporarily filled by a contract worker during a structured vetting period doesn't disqualify it from job-tax-credit eligibility — as long as any gap in coverage stays within 90 days and the position otherwise meets the permanent, full-time, minimum-health-care criteria of a "qualified job."

Multi-building campuses operating as one enterprise

Jobs and capital investment spread across several buildings in the same county/metro area can be aggregated for credit purposes, as long as they function as a single qualified business enterprise — useful for data center or campus-style operations that separate production, backup, and administrative functions physically.

Accountants and tax professionals

This is the job-tax-credit companion to LR 11-06 (sales/use tax headquarters credit) and LR 11-07 (industrial machinery F&E credit) for the same proposed expansion — all three confirm the same principle that prior investment rounds are walled off from new ones for credit-qualification purposes, requiring separate documentation per round. Note the asymmetric carryforward: the STANDARD job tax credit carries forward up to 15 years, but the ENHANCED additional annual credit does not carry forward at all.

Common questions

Q: Does temporarily filling a new position with a contract worker disqualify it from the job tax credit?
A: Not under these facts — as long as the position is refilled (whether by the same contract worker converting to permanent or someone else) within 90 days of any vacancy, it still counts as a "qualified job."

Q: Can jobs and investment from an earlier expansion round count toward a brand-new expansion's thresholds?
A: No — each investment round is tracked and measured separately; the company must document which jobs/investments belong to which round.

Q: Does unused enhanced job tax credit carry forward to future years like the standard credit does?
A: No — unlike the standard credit (15-year carryforward), unused enhanced additional annual credit in a given tax year is lost, not carried forward.

Q: Can another data center or large employer rely on this letter ruling for its own hiring/investment plans?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to. This summary is informational only, not legal or tax advice.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2109(b)(1) (standard job tax credit, $4,500/job; 50% offset cap; 15-year carryforward at (b)(1)(D))
• § 67-4-2109(b)(2)(B) (enhanced additional annual job tax credit, $5,000/job tier at (b)(3)(A); tiered duration at (b)(2)(B)(iii)-(iv))
• § 67-4-2109(a)(5) (definition of "qualified business enterprise"); § 67-4-2109(a)(6) (definition of "qualified job," incl. (a)(6)(A) permanence/health-care, (a)(6)(B) newly-created, (a)(6)(C) 90-day refill rule)
• § 67-4-2109(a)(3) (definition of "industrial wage job"); § 67-4-2004(3) (definition of "average occupational wage")
• § 67-4-2109(a)(7) (definition of "required capital investment" for job tax credit purposes)
• § 67-4-2108(a)(1), (a)(3), (a)(6)(G) ("exempt required capital investments" exclusion from franchise tax minimum measure)
• § 67-4-2109(b)(12)(vi) (no carryforward of unused enhanced additional annual credit)
• 2009 Tenn. Pub. Acts ch. 530 § 1 (amended required-capital-investment definition to include all computer software, effective June 25, 2009)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/fae/11-08fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11- 08
WARNING
Letter rulings are binding on the Department only with respect to the individual
taxpayer being addressed in the ruling. This presentation of the ruling in a
redacted form is information only. Rulings are made in response to particular
facts presented and are not intended necessarily as statements of Department
policy.
SUBJECT
Eligibility and job creation requirements for the franchise, excise tax job tax credits
provided by Tenn. Code Ann. § 67-4-2109 with regard to the expansion of a qualified
headquarters facility.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a
specific set of existing facts furnished to the Department by the taxpayer. The rulings
herein are binding upon the Department, and are applicable only to the individual
taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such
revocation or modification shall be effective retroactively unless the following conditions
are met, in which case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted
material facts involved in the transaction;
(B) Facts that develop later must not be materially different
from the facts upon which the ruling was based;
(C) The applicable law must not have been changed or
amended;
(D) The ruling must have been issued originally with respect
to a prospective or proposed transaction; and
(E) The taxpayer directly involved must have acted in good
faith in relying upon the ruling and a retroactive revocation of
the ruling must inure to his detriment.
FACTS
In [YEAR], the [TAXPAYER], established a Tennessee “qualified headquarters facility”
(the “Facility”), as the term is defined in Tenn. Code Ann. § 67-6-224(b)(9). The Facility
consisted of two separate locations in the [TENNESSEE CITY] Metropolitan Statistical
Area. The first location is a production facility (the “Production Facility”) [REDACTED

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INFORMATION]. The second location is a back-up facility (the “Back-up Facility”),
which [REDACTED INFORMATION]. The Production Facility and the Back-up Facility
are treated as a single location for purposes of the “qualified headquarters facility” credit
provided by Tenn. Code Ann. § 67-6-224. This investment is designated as “Investment
1.”
In [YEAR], [TAXPAYER] announced a plan to significantly increase capacity following a
merger with [COMPANY X]. Under the plan, the Production Facility would handle all
production for [TAXPAYER]. [REDACTED INFORMATION]. In connection with its
application as a “qualified data center” (“QDC”), as the term is defined in Tenn. Code
Ann. § 67-6-102(76), [TAXPAYER] announced plans to spend [DOLLAR AMOUNT –
TOTAL INVESTMENTS ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES
SOUGHT] in capital improvements in Tennessee. The majority of this expenditure
related to servers, computer software and other hardware.
[TAXPAYER] also
committed to create at least [NUMBER – NUMBER OF JOBS CREATED ARE
SUFFICIENT TO QUALIFY FOR TAX INCENTIVES SOUGHT] new jobs in connection
with the investment. This investment is hereafter referred to as “Investment 2.”
In connection with Investment 2, [TAXPAYER] made capital improvements at its
Production Facility including [REDACTED INFORMATION]. All administrative services,
previously located at the Production Facility, were moved to office space off [HIGHWAY
NAME] in [TENNESSEE CITY] (the “Administrative Facility”).
Also in connection with Investment 2, [TAXPAYER] submitted its Business Plan for Job
Tax Credits and received a letter dated [DATE] from the Department of Revenue (the
“Department”) tentatively approving its Business Plan for the investment period starting
with the fiscal year ended [DATE]. In connection with Investment 2, [TAXPAYER]
qualified for the job tax credit, the industrial machinery exemption for sales and use tax
purposes pursuant to Tenn. Code Ann. §§ 67-6-206(a) and 67-6-102(42)(K)(2008
supp.), and the industrial machinery credit provided by Tenn. Code Ann. § 67-42009(4)(A). [TAXPAYER], was granted an industrial machinery exemption for sales tax
purposes effective [DATE].
On [DATE], the Department issued Letter Ruling [NUMBER] which ruled that the
Production Facility, Back-up Facility, and Administrative Facility will be treated as a
single location for purposes of the job tax credit provided by Tenn. Code Ann. § 67-42109(c)(2)(A)(2008 supp.)
Pursuant to Letter Ruling [NUMBER], [TAXPAYER]’s full-time Tennessee job count of
[NUMBER] was deemed to be the starting point for determining net new full-time jobs
required to be a QDC and meet the requirements in connection with Investment 2. As
of [DATE], [TAXPAYER] had [NUMBER] filled full-time positions in Tennessee.
[TAXPAYER] posts a requisition (the “Requisition”) when a position is available to be
filled. The Requisition may be filled by an existing [TAXPAYER] employee that desires

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to move into another job, by any qualified individual not currently employed by
[TAXPAYER], or by a contract employee.
If a contract employee occupies a newly-created position or the position vacated by a
[TAXPAYER] employee who moved into a newly-created position, the position is
occupied in 95% of cases by the contract employee on a temporary basis for a period
generally not exceeding 90 days.
During this 90 day period, the individual will have interviews with multiple levels of
[TAXPAYER] management and must pass all of the normal drug and background
checks of a regular employee. In addition, the contract employee is trained and
supervised just as if he or she were a permanent employee until recommended for
permanent placement or release.
If at any time within this 90 day period, either the temporary employee or [TAXPAYER]
management no longer desires to continue the relationship, it is terminated at that time.
If the contract employee is still in the position after 90 days, in almost all cases the
individual is hired as a permanent employee of [TAXPAYER]. This arrangement
operates much like a probationary or trial employment period.
In [YEAR] [TAXPAYER] announced plans to increase investment in one of its U.S.
facilities [REDACTED INFORMATION]. In connection with the new investment,
[TAXPAYER], plans to spend at least spend [DOLLAR AMOUNT – TOTAL
INVESTMENTS ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES SOUGHT] in
capital improvements and create at least [NUMBER – NUMBER OF JOBS CREATED
ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES SOUGHT] new full-time jobs.
[REDACTED INFORMATION]. The potential new investment is referred to hereafter as
“Investment 3.”
If Tennessee is chosen as the site for Investment 3, [TAXPAYER] will file a Business
Plan for Job Tax Credit for Investment 3 with a start date of [DATE]. In connection with
Investment 3, [TAXPAYER] will also seek to be designated as a “qualified headquarters
facility,” as the term is defined in Tenn. Code Ann. § 67-6-224(b)(9).
QUESTIONS PRESENTED

1. Will [TAXPAYER] be eligible for the standard job tax credit provided by Tenn. Code
   Ann. § 67-4-2109(b)(1)(A) and the enhanced additional annual job tax credit
   available under Tenn. Code Ann. § 67-4-2109(b)(2)(B)?
2. Will prewritten and custom computer software be included in the calculation of the
   required capital investment for purposes of the job tax credit provisions of Tenn.
   Code Ann. § 67-4-2109(b) and for purposes of exclusion from the franchise tax
   minimum measure requirements of Tenn. Code Ann. § 67-4-2108(a)(1)?

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3. What is the compensation requirement that must be met for each job for purposes of
the enhanced additional annual job tax credit, and at what point in time must the
salary requirements be met?

4. Will the [TAXPAYER] full-time job headcount as of [DATE], be the starting point for
   determining newly created jobs during the investment period for purposes of Tenn.
   Code Ann. § 67-4-2109(b)?
5. Will job requisitions be included in the calculation of “qualified jobs” for purposes of
   the job tax credit provided in Tenn. Code Ann. § 67-4-2109(b)?
6. Will [TAXPAYER] be able to include jobs created and capital investments made at
   the Production Facility, the Back-up Facility, and the Administrative Facility in
   determining its qualification for the job tax credits provided in Tenn. Code Ann. § 674-2109(b)?
7. When will [TAXPAYER] be eligible to begin taking the $5,000 per new full-time job
   tax credit provided by Tenn. Code Ann. § 67-4-2109(b) in connection with its new
   investment?
8. What percentage of franchise, excise tax will [TAXPAYER] be allowed to offset in
   connection with its qualified headquarters facility investment?
   RULINGS
9. Yes, the proposed investment and job creations described in the facts presented
   will qualify [TAXPAYER] for the standard job tax credit provided by Tenn. Code
   Ann. § 67-4-2109(b)(1) and will also qualify [TAXPAYER] for the enhanced annual
   job tax credit provided in Tenn. Code Ann. § 67-4-2109(b)(2)(B)(iv), provided that
   [TAXPAYER] meets all applicable statutory requirements.
10. Yes. However, computer software that is expensed and is not included in the
    franchise tax minimum measure in accordance with generally accepted accounting
    principles does not qualify for the exclusion from the franchise tax minimum
    measure requirements of Tenn. Code Ann. § 67-4-2108(a)(1). Investments made
    in connection with the previous Facility creation (Investment 1) and its subsequent
    expansion (Investment 2) will be treated separately and will not count toward the
    new required capital investment (Investment 3).
    [TAXPAYER] will need to certify the purpose and use of any purchases proposed
    to be counted in the new capital investment requirement and show the Department
    documentation with regard to which of the qualifying jobs were created in
    connection with its prior creation of the Facility under Investment 1 and its
    subsequent expansion under Investment 2 and which where created in connection
    with its new Investment 3.

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3. The compensation requirement for each job that qualifies for the additional annual
franchise, excise job tax credit is $[DOLLAR AMOUNT] for qualifying jobs created
in [YEAR], which is 100% of the state’s average occupational wage for [YEAR] as
published by the Tennessee Department of Labor and Workforce Development.

4. If the effective date of [TAXPAYER]’s Business Plan for the job tax credit is
   [DATE], the starting point for determining newly created jobs during the investment
   period in connection with Investment 3 for purposes of Tenn. Code Ann. § 67-42109(b) will be [DATE]. For purposes of counting new jobs qualifying for the
   franchise, excise tax job tax credit, the starting point for the count will be the
   [NUMBER] qualifying job.
5. For purposes of the franchise, excise tax job tax credit provided by Tenn. Code
   Ann. § 67-4-2109(b), Requisitions, including Requisitions that are temporarily filled
   by contract employees, will be included in the calculation of “qualified jobs,” as
   defined by Tenn. Code Ann. § 67-4-2109 for purposes of the job tax credit,
   provided that such employees meet all applicable statutory requirements, such as
   the minimum health care coverage required by Tenn. Code Ann. § 67-42109(a)(6)A) and the requirement provided by Tenn. Code Ann. § 67-42109(a)(6)(C) that filled job positions that become vacant must be refilled within 90
   days, and all other applicable statutory requirements are met. Jobs created in
   connection with the previous Facility creation (Investment 1) and its subsequent
   expansion (Investment 2) will be treated separately and will not count toward the
   new jobs required (Investment 3).
   [TAXPAYER] will need to certify the purpose and use of any purchases proposed
   to be counted in the new capital investment requirement and show the Department
   documentation with regard to which of the qualifying jobs were created in
   connection with its prior creation of the Facility under Investment 1 and its
   subsequent expansion under Investment 2 and which where created in connection
   with its new Investment 3.
6. Yes, [TAXPAYER] will be able to include jobs created and capital investments
   made at the Production Facility, the Back-up Facility, and the Administrative
   Facility in determining its qualification for the job tax credits provided in Tenn. Code
   Ann. § 67-4-2109(b), provided that all statutory requirements are met.
7. If [TAXPAYER]’s Business Plan for franchise, excise tax job tax credits in
   connection with Investment 3 provides for a capital investment in excess of $100
   million and the creation of at least 100 new qualified jobs within the investment
   period, [TAXPAYER] will be eligible to take the standard job tax credit of $5,000 for
   each qualifying job created as a result of Investment 3 at the point that its capital
   investment reaches $500,000 and 25 qualifying new jobs are created. In
   accordance with Tenn. Code Ann. § 67-4-2109(b)(1)(C), the qualified business
   enterprise must, within twelve (12) months of the effective date of the business
   plan, make the required capital investment and create at least twenty-five (25)
   qualified jobs. In addition, [TAXPAYER] will be eligible for, but not required to take,

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the enhanced additional annual franchise, excise tax job tax credit in the tax year
after the initial job tax credit is created, provided that all applicable statutory
requirements for the enhanced additional job tax credit are met. Although not
required to take job tax credits for which it is eligible, job tax credits must be taken
in consecutive tax years.

8. Assuming that [TAXPAYER] is able to meet all applicable statutory requirements to
   qualify for the franchise, excise job tax credits, [TAXPAYER] will be entitled to
   offset 100% of its franchise, excise tax liability by the amount of additional annual
   credits earned and utilized pursuant to Tenn. Code Ann. 67-4-2109(b)(2). Any
   additional annual credit that remains unused during the tax year in which the credit
   is taken will not be carried forward beyond that tax year.
   The standard job tax credit under Tenn. Code Ann. § 67-4-2109(b)(1) can be used
   to offset up to 50% of the taxpayer’s franchise, excise tax liability for a given year,
   with any unused portion being carried forward for up to fifteen years pursuant to
   Tenn. Code Ann. § 67-4-2109(b)(1)(D).
   ANALYSIS
   1.

[TAXPAYER] Will Qualify for the Standard Job Tax Credit Provided by
Tenn. Code Ann. § 67-4-2109(b)(1)(A) and the Enhanced Job Tax Credit
Available Under Tenn. Code Ann. § 67-4-2109(b)(2)(B)

The following provisions are contained in Tenn. Code Ann. § 67-4-2109(b)(1) with
regard to the standard job tax credit:
(A) Subject to the requirements set forth in this subsection (b), there shall be
allowed to any qualified business enterprise that makes the required capital
investment a credit equal to four thousand five hundred dollars ($4,500) for
each qualified job created during the investment period.
(B) The qualified business enterprise shall file a business plan with the
commissioner in order to qualify for the credit provided by this subsection (b).
The business plan shall be filed in a manner prescribed by the commissioner
and shall describe the investment to be made, the number of jobs the
investment will create, the expected dates the jobs will be filled and the
effective date of the plan.
(C) In order to qualify for the credit, the qualified business enterprise must, within
twelve (12) months of the effective date of the business plan, make the required
capital investment and create at least twenty-five (25) qualified jobs.
For this purpose, a “qualified business enterprise” is defined by Tenn. Code Ann. § 674-2109(a)(5), as an enterprise:

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(A) In which the business has made the required capital investment necessary to
permit the creation or expansion of manufacturing, warehousing and
distribution, processing tangible personal property, research and development,
computer services, call centers, headquarters facilities, as defined in § 67-6224(b), or convention or trade show facilities;
(B) In which the business has made the required capital investment necessary to
permit the creation or expansion of a repair service facility primarily engaged in
providing repairs for aircraft owned by unrelated commercial, governmental or
foreign persons; or
(C) That promotes high-skill, high-wage jobs in high-technology areas, emerging
occupations or skilled manufacturing jobs in which the business has made the
required capital investment necessary to permit an increase in the number of
qualified jobs in that county and that receives an approval from the
commissioner of revenue and the commissioner of economic and community
development in a manner prescribed by the department of revenue[.]
Tenn. Code Ann. § 67-4-2109(b)(3)(A) provides for an increase in the job tax credit from
$4,500 to $5,000 per job when a “qualified business enterprise,” as defined by Tenn.
Code Ann. § 67-4-2109(a)(5), is eligible for the additional annual job tax credit provided
by Tenn. Code Ann. § 67-4-2109(b)(2)(B).
Tenn. Code Ann. § 67-4-2109(b)(2)(B) sets forth the following eligibility requirements for
an additional annual job tax credit. The credit amounts are dependant on the level of
job creation and “required capital investment,” as defined by Tenn. Code Ann. § 67-42109(a)(7). Tenn. Code Ann. § 67-4-2109(b)(2)(B)(iv), set forth below, applies to
Investment 3 proposed by [TAXPAYER]:
If the investment exceeds one hundred million dollars ($100,000,000) and at least
one hundred (100) industrial wage jobs are created, the additional annual credit shall
be allowed for a period of three (3) years beginning with the first tax year after the
initial job tax credit is created[.]
The Facts presented state that [TAXPAYER] has announced that [TAXPAYER]’s
proposed plan for expansion of its facilities in Tennessee will result in expenditures
totaling at least [DOLLAR AMOUNT – TOTAL INVESTMENTS ARE SUFFICIENT TO
QUALIFY FOR TAX INCENTIVES SOUGHT] and the creation of at least [NUMBER –
NUMBER OF JOBS CREATED ARE SUFFICIENT TO QUALIFY FOR TAX
INCENTIVES SOUGHT] new full-time jobs. Such an investment will qualify for the
standard job tax credit provided by Tenn. Code Ann. § 67-4-2109(b)(1) and will also
qualify for the enhanced annual job tax credit provided in Tenn. Code Ann. § 67-42109(b)(2)(B)(iv), provided that [TAXPAYER] meets all applicable statutory
requirements.
2.

Both Prewritten and Custom Computer Software, Valued in Accordance with

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Generally Accepted Accounting Principles (“GAAP”), Will be Included in the
Calculation of the Required Capital Investment for Purposes of the Job Tax Credit
And Will be Excluded from the Franchise Tax Base as “Exempt Required Capital
Investments” Under the Provisions of Tenn. Code Ann. § 67-4-2108(a)(1)
For purposes of the franchise, excise tax job tax credit, Tenn. Code Ann. § 67-42109(a)(7), set forth in pertinent part below, defines the “required capital investment”
that must be made to qualify for the franchise, excise tax job tax credit:
“Required capital investment” . . . means an investment of five hundred thousand
dollars ($500,000) in real property, tangible personal property or computer software
owned or leased in this state valued in accordance with generally accepted
accounting principles. . . . A capital investment shall be deemed to have been
made as of the date of payment or the date the business enterprise enters into a
legally binding commitment or contract for purchase or construction.
The statute was amended by Section 1 of Chapter 530 of the Public Acts of 2009 to
include all computer software in the “required capital investment” definition. The
amendment was effective June 25, 2009 but is applicable to all business plans filed on
or after July 1, 2009. By using the term “computer software” without making any
distinction as to different types of computer software, it appears that the Tennessee
legislature intended for all types of computer software, whether prewritten computer
software or custom computer software, to be included in the calculation of the “required
capital investment” for purposes of the franchise, excise tax job tax credit.
Tenn. Code Ann. § 67-4-2108(a)(1) defines the minimum measure of the Tennessee
franchise tax as follows:
The measure of the tax levied by this part shall in no case be less than the actual
value of the real or tangible property owned or used in Tennessee, excluding exempt
inventory and exempt required capital investments.
For this purpose, Tenn. Code Ann. § 67-4-2108(a)(6)(G) defines “exempt required
capital investments” as follows:
“Exempt required capital investments” means two thirds (2/3) in value of all capital
investments that are the basis for a taxpayer's entitlement to credits under § 67-42109(b)(2)(B); provided, however, that the investments shall qualify as “exempt
required capital investments” only in those tax years in which the additional annual
credit is actually allowed under § 67-4-2109(b)(2)(B).
Since the legislature specified that 2/3 of the “. . . capital investments that are the basis
for a taxpayer's entitlement to credits under § 67-4-2109(b)(2)(B) . . . ” are to be
excluded from the franchise tax minimum measure, it necessarily follows that the
legislature intended that all such capital investments, including investments in computer
software, be included in the franchise tax minimum measure.

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This conclusion is consistent with the fact that the legislature used the same language
with regard to the valuation of property included in the franchise tax minimum measure
and computer software included in the calculation of the required capital investment.
Tenn. Code Ann. § 67-4-2108(a)(3) states that, for purposes of the franchise tax
minimum measure, “. . . ‘property’ shall be valued . . . in accordance with generally
accepted accounting principles . . .” and the similar language is used in Tenn. Code
Ann. § 67-4-2109(a)(7) which states that computer software included in the calculation
of a “required capital investment” shall be “. . . valued in accordance with generally
accepted accounting principles. . . .”
Accordingly, computer software that is not expensed is required to be included in the
franchise tax minimum measure valued in accordance with generally accepted
accounting principles. When used to calculate the “required capital investment” for
purposes of the job tax credits available under Tenn. Code Ann. § 67-4-2109(b)(2)(B),
two thirds of such computer software qualifies as “exempt required capital investments”
under the provisions of Tenn. Code Ann. § 67-4-2108(a)6)(G) and may be excluded
from the franchise tax minimum measure under the provisions of Tenn. Code Ann. § 674-2108(a)(1) in those tax years in which the additional annual credit is actually allowed
under § 67-4-2109(b)(2)(B). Computer software that is expensed and not included in
the franchise tax minimum measure in accordance with generally accepted accounting
principles does not qualify for exclusion from the franchise tax minimum measure
requirements of Tenn. Code Ann. § 67-4-2108(a)(1). Investments made in connection
with the previous Facility creation (Investment 1) and its subsequent expansion
(Investment 2) will be treated separately and will not count toward the new required
capital investment (Investment 3).
[TAXPAYER] will need to certify the purpose and use of any purchases proposed to be
counted in the new capital investment requirement and show the Department
documentation with regard to which of the qualifying expenditures were made in
connection with its prior creation of the Facility under Investment 1 and its subsequent
expansion under Investment 2 and which where made in connection with its new
Investment 3.
3.

The Compensation Requirement for each Job that Qualifies for the
Additional Annual Franchise, Excise Job Tax Credit is $[DOLLAR AMOUNT] for
Qualifying Jobs Created in [YEAR]

The Facts presented state Investment 3 will involve at least [DOLLAR AMOUNT –
TOTAL INVESTMENTS ARE SUFFICIENT TO QUALIFY FOR TAX INCENTIVES
SOUGHT] in new capital improvements and the creation of at least [NUMBER –
NUMBER OF JOBS CREATED ARE SUFFICIENT TO QUALIFY FOR TAX
INCENTIVES SOUGHT] new full time jobs.

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With regard to the required capital investment and job creation necessary to qualify for
the enhanced job tax credit provisions set forth in Tenn. Code Ann. § 67-42109(b)(2)(B), Tenn. Code Ann. § 67-4-2109(b)(2)(B)(iii) and (iv) state that:
(iii) If the investment exceeds two hundred fifty million dollars, ($250,000,000) and
at least two hundred fifty (250) industrial wage jobs are created, the additional
annual credit shall be allowed for a period of six (6) years beginning with the
first tax year after the initial job tax credit is created. An integrated supplier or
integrated customer, as defined in § 67-4-2004, shall qualify for the credit
provided in this subdivision (b)(2)(B)(iii), regardless of the level of its capital
investment or the number of jobs created;
(iv) If the investment exceeds one hundred million dollars ($100,000,000) and at
least one hundred (100) industrial wage jobs are created, the additional annual
credit shall be allowed for a period of three (3) years beginning with the first tax
year after the initial job tax credit is created[.]
For purposes of the franchise, excise tax job tax credit, Tenn. Code Ann. § 67-42109(a)(6) defines a “qualified job” without wage criteria. However, Tenn. Code Ann. §
67-4-2109(a)(3) states that an “industrial wage job” means “. . . a qualified job with
wages equal to or greater than the state’s average occupational wage, as defined in §
67-4-2004, for the month of January of the year during which the job was created[.]”
For this purpose, “average occupational wage” is defined by Tenn. Code Ann. § 67-42004(3) as follows:
“Average occupational wage” means the average wage for all industries as reported
by the department of labor and workforce development in the most recent annual
quarterly census of employment and wages super sector data for the state,
aggregate of all ownerships.
The Tennessee Department of Labor and Workforce Development has published the
average occupational wage for [YEAR], which is applicable to jobs created in [YEAR], to
be $[DOLLAR AMOUNT]. Therefore, this is the minimal compensation level for
industrial wage jobs created in connection with Investment 3 for qualification for the
enhanced additional job tax credit available under Tenn. Code Ann. § 67-4-2109(b)(2).
4.

Provided that the Effective Date of [TAXPAYER]’s Business Plan is [DATE], the
Starting Point for Determining Newly Created Jobs for the Investment
Period in Connection with Investment 3 will be [DATE] and the Job Count
Will Begin with the [NUMBER] Qualifying Job

Tenn. Code Ann. § 67-4-2109(b)(2)(B)(iii) and (iv) state that the “. . . annual credit shall
be allowed . . . beginning with the first tax year after the initial job tax credit is created.”
If Tennessee is chosen for Investment 3, [TAXPAYER] will file its Business Plan to
establish its qualification for the franchise, excise tax job tax credit in connection with
Investment 3 with a starting effective date of [DATE]. The Facts presented state that on

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[DATE] [TAXPAYER] had [NUMBER] filled full-time positions in Tennessee in
connection with Investment 2.
If the effective date of [TAXPAYER]’s Business Plan for the job tax credit is [DATE], the
starting point for determining newly created jobs during the investment period in
connection with Investment 3 for purposes of Tenn. Code Ann. § 67-4-2109(b) will be
[DATE] and the job count will begin with the [NUMBER] qualifying job.
5.

Requisitions, Including Requisitions that are Temporarily Filled by Contract
Employees, Will be Included in the Calculation of New “Qualified Jobs” for
Purposes of the Franchise, Excise Tax Job Tax Credit, Provided that all
Statutory Requirements are Met

The Facts presented state that [TAXPAYER] posts a Requisition when a position is
available to be filled. The Requisition may be filled by an existing [TAXPAYER]
employee that desires to move into another job, by any qualified individual not currently
employed by [TAXPAYER], or by a contract employee.
If a contract employee occupies a newly-created position or the position vacated by a
[TAXPAYER] employee who moved into a newly-created position, the position is
occupied in 95% of cases by the contract employee on a temporary basis for a period
generally not exceeding 90 days.
During this 90 day period, the individual will have interviews with multiple levels of
[TAXPAYER] management and must pass all of the normal drug and background
checks of a regular employee. In addition, the contract employee is trained and
supervised just as if he or she were a permanent employee until recommended for
permanent placement or release.
If at any time within this 90 day period, either the temporary employee or [TAXPAYER]
management no longer desires to continue the relationship, it is terminated at that time.
If the contract employee is still in the position after 90 days, in almost all cases the
individual is hired as a permanent employee of [TAXPAYER]. This arrangement
operates much like a probationary or trial employment period.
Tenn. Code Ann. § 67-4-2109(a)(6), set forth below, provides the criteria for the creation
of a “qualified job” for purposes of the standard franchise, excise tax job tax credit:
“Qualified job” means a job that meets all of the following criteria:
(A) The job position is a permanent, rather than seasonal or part-time, employment
position providing employment in a qualified business enterprise for at least
twelve (12) consecutive months to a person for at least thirty-seven and one half
(37 1/2) hours per week with minimum health care, as described in title 56,
chapter 7, part 22;

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(B) The job position is newly created in this state and, for at least ninety (90) days
prior to being filled by the taxpayer, did not exist in this state as a job position of
the taxpayer or of another business entity;
(C) The job position is filled; provided, however, that a position will be deemed filled if
it subsequently becomes vacant but is refilled within a period of not more than
ninety (90) days; and
(D) The job position is filled prior to January 1, 2016[.]
The Facts presented describe [TAXPAYER]’s Requisition procedure and state that the
procedure is similar in operation to a probationary or trial employment period. Tenn.
Code Ann. § 67-4-2109(a)(6)(C) states that a job position will be considered filled if it
subsequently becomes vacant but is refilled within not more than 90 days. The fact that
an employee may not, or does not, survive his probationary or trial employment period
does not mean that the employee’s position is not a permanent, rather than seasonal or
part-time employment position as is required by Tenn. Code Ann. § 67-4-2109(a)(6)(A),
as long as the position is refilled within not more than 90 days.
Requisitions, including Requisitions that are temporarily filled by contract employees,
will be included in the calculation of “qualified jobs,” as defined by Tenn. Code Ann. §
67-4-2109 for purposes of the job tax credit, provided that such employees meet all
applicable statutory requirements, such as the minimum health care coverage required
by Tenn. Code Ann. § 67-4-2109(a)(6)(A) and the requirement provided by Tenn. Code
Ann. § 67-4-2109(a)(6)(C) that filled job positions that become vacant must be refilled
within 90 days, and all other applicable statutory requirements are met. Jobs created in
connection with the previous Facility creation (Investment 1) and its subsequent
expansion (Investment 2) will be treated separately and will not count toward the new
jobs required (Investment 3).
[TAXPAYER] will need to certify the purpose and use of any purchases proposed to be
counted in the new capital investment requirement and show the Department
documentation with regard to which of the qualifying jobs were created in connection
with its prior creation of the Facility under Investment 1 and its subsequent expansion
under Investment 2 and which where created in connection with its new Investment 3.
Under the circumstances described with regard to [TAXPAYER]’s Requisition
procedure, Requisitions, including Requisitions that are temporarily filled by contract
employees, will be included in the calculation of “qualified jobs,” as defined by Tenn.
Code Ann. § 67-4-2109 for purposes of the job tax credit, provided that such employees
meet all applicable statutory requirements, or if terminated, the job position is refilled
within 90 days and all other applicable statutory requirements are met.
6.

[TAXPAYER] Will be Able to Include Jobs Created and Capital Investments
Made at the Production Facility, the Back-up Facility, and the Administrative
Facility in Determining Its Qualification for the Job Tax Credits Provided in

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Tenn. Code Ann. § 67-4-2109(b)
In Letter Ruling [NUMBER] issued [DATE], the Department ruled that net new qualifying
Tennessee jobs created at all of [TAXPAYER]’s Production Facility, Back-Up Facility
and Administrative Facility will be counted for purposes of the franchise, excise tax job
tax credit in connection with Investment 2.
[TAXPAYER]’s proposed expansion of the Production Facility, Back-Up Facility and
Administrative Facility will involve capital investment and the creation of new jobs at
each of these facilities, all of which will continue to operate as a part of the same
“qualified business enterprise,” as defined in Tenn. Code Ann. § 67-4-2109(a)(5) for
purposes of the franchise, excise job tax credit. Accordingly, for the same reasons
given in Letter Ruling [NUMBER], [TAXPAYER] will be able to include jobs created and
capital investments made in connection with Investment 3 involving the expansion of its
Production Facility, Back-Up Facility and Administrative Facility in determining
franchise, excise tax job tax credits provided in Tenn. Code Ann. § 67-4-2109(b),
provided that all applicable statutory requirements are met.
7.

If [TAXPAYER]’s Business Plan in Connection with Investment 3 Provides for a
Capital Investment in Excess of $100 Million and the Creation of 100 New Qualified
Jobs Within The Investment Period, [TAXPAYER] will be Eligible for the Standard Job
Tax Credit at the Point its Capital Investment Reaches $500,000 and 25 Qualifying New
Jobs are Created. A Qualified Business Enterprise Must, Within Twelve (12) Months of
the Effective Date of the Business Plan, Make the Required Capital Investment and
Create at Least 25 qualified Jobs. In Addition, [TAXPAYER] Will be Eligible to Take the
Enhanced Additional Job Tax Credit in The Tax Year Following the Year in which the
Standard Job Tax Credit is Created, Provided that all
Applicable Statutory Requirements are Met

Provided that all other applicable statutory requirements are met, Tenn. Code Ann. §
67-4-2109(b)(2)(B)(iv) states that an investment in excess of $100,000,000 and the
creation of at least 100 industrial wage jobs will qualify for the additional annual
franchise, excise job tax credit that is available under the provisions of Tenn. Code Ann.
§ 67-4-2109(b)(2). Tenn. Code Ann. § 67-4-2109(b)(2)(B)(iv) states that the enhanced
additional annual job tax credit “. . . shall be allowed for a period of three years
beginning with the first tax year after the initial job tax credit is created. Since the
standard job tax credit provided by Tenn. Code Ann. § 67-4-2109(b)(1) contains the
minimum qualification requirements for a job tax credit, it is apparent that the term
“initial job tax credit” used in Tenn. Code Ann. § 67-4-2109(b)(2)(B)(iv) refers to the
standard job tax credit provided by Tenn. Code Ann. § 67-4-2109(b)(1).
The standard job tax credit provided by Tenn. Code Ann. § 67-4-2109(b)(1)(C) requires
a $500,000 capital investment to be made “. . . within twelve(12) months of the effective
date of the business plan. . .” and the creation of “. . . at least twenty-five (25) qualified
jobs.” Tenn. Code Annotated § 67-4-2109(b)(2)(B)(vii) provides that the investment
period during which a capital investment qualifying under Tenn. Code Annotated § 67-4-

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2109(b)(2)(B) may be made can be extended under certain circumstances, and
[TAXPAYER]’s investment period has been extended from 3 to 5 years with regard to
Investment 3. No statute requires any taxpayer to take a job tax credit for which it is
eligible. However, job tax credits must be taken in consecutive tax years.
If [TAXPAYER]’s Business Plan for franchise, excise tax job tax credits in connection
with Investment 3 provides for a capital investment in excess of $100 million and the
creation of at least 100 new qualified jobs within the investment period, [TAXPAYER]
will be eligible to take the standard job tax credit of $5,000 for each qualifying job
created as a result of the Investment 3 at the point that its capital investment reaches
$500,000 and 25 qualifying new jobs are created. In addition, [TAXPAYER] will be
eligible for, but not required to take, the enhanced additional annual franchise, excise
tax job tax credit in the tax year following the year in which the standard job tax credit is
created, provided that all statutory requirements for the enhanced additional job tax
credit are met. However, as noted above, job tax credits must be taken in consecutive
tax years.
8.

[TAXPAYER] May Offset 50% of its Franchise, Excise Tax Liability by the
Standard Job Tax Credit and 100% of the Enhanced Additional Job Tax Credit
Related to its Tennessee Facility Expansion, Provided that All Applicable
Statutory Requirements are Met.

Assuming that [TAXPAYER] is able to meet all applicable statutory requirements to
qualify for the franchise, excise job tax credits, [TAXPAYER] will be entitled to offset
100% of its franchise, excise tax liability by the amount of additional annual credits
earned and utilized pursuant to Tenn. Code Ann. 67-4-2109(b)(2). Any additional
annual credit that remains unused during the tax year in which the credit is taken will not
be carried forward beyond that tax year. Tenn. Code Ann. § 67-4-2109(b)(12)(vi).
The standard job tax credit under Tenn. Code Ann. § 67-4-2109(b)(1) can be used to
offset up to 50% of the taxpayer’s franchise, excise tax liability for a given year, with any
unused portion being carried forward for up to fifteen years pursuant to Tenn. Code
Ann. § 67-4-2109(b)(1)(D).

Arnold B. Clapp
Special Counsel to the Commissioner

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02021103-01

APPROVED:

Richard H. Roberts, Commissioner

DATE:

___3-15-11_____

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