If a company generates a Tennessee job tax credit through a disregarded single-member LLC and then sells that LLC, can the parent company still use the leftover credit carryforward on its own future tax returns?

Plain-English summary

A corporation owns several single-member LLCs that are disregarded for Tennessee franchise and excise (F&E) tax purposes — meaning the LLC's activity is reported on the parent corporation's own return, as if the LLC were just a division of the corporation rather than a separate taxpayer. One of these LLCs ("SMLLC") ran a business in Tennessee and, based on its hiring and capital investment, generated a job tax credit used to offset F&E tax liability. Part of the credit was used on the corporation's returns over two years, leaving a leftover credit carryforward. Later, the corporation sold the SMLLC to an unrelated buyer. The corporation asked: can it still use the leftover carryforward on its own F&E returns going forward, even though the LLC that generated the credit is no longer part of the company? The Department said yes.

Why the carryforward survives the sale. Tennessee's job tax credit statute says a "credit carryforward may be taken only by the taxpayer that generated it" (§ 67-4-2109(e)(1)) — generally, each entity (corporation, LLC, etc.) files its own F&E return on a separate-entity basis. But there's a specific exception: a single-member LLC that is disregarded for federal income tax purposes is also disregarded for Tennessee F&E tax purposes, and is treated as a division of its parent corporation rather than a taxpayer in its own right (§§ 67-4-2007(d), -2106(c)). Because the SMLLC was disregarded — i.e., legally just a division of the corporation — at the time the job tax credit was generated, the corporation itself is the "taxpayer that generated" the credit, not the SMLLC. Selling the SMLLC afterward is simply a sale of a business division; it doesn't transfer or extinguish a credit that, legally, always belonged to the corporation. So the corporation may keep using the carryforward on its own future F&E returns, subject to the normal rules: a 15-year carryforward limit, and a cap of 50% of the combined F&E tax liability per return (§ 67-4-2109(b)(1)(D)).

What this means for you

Corporations using disregarded single-member LLCs to operate Tennessee business lines

If a disregarded LLC earns you a Tennessee job tax credit, that credit legally belongs to you, the parent — not the LLC. Selling or spinning off the LLC later doesn't strip you of an unused carryforward, as long as the LLC was disregarded (a true division, not a separately taxed entity) when the credit was generated.

Companies planning a divestiture or restructuring

This is a useful planning point: structuring a Tennessee operation as a disregarded SMLLC, rather than a separately taxed subsidiary, can let the parent retain job tax credits through a future sale of that business line. Contrast this with a true merger or consolidation of an existing separate taxpayer, where Tennessee law generally bars the successor from using the predecessor's credits (§ 67-4-2109(e)(1)), absent the narrow exception for merging into an empty shell successor (§ 67-4-2109(e)(2); Dana Corp. v. Chumley).

Accountants and tax professionals

The key move is timing: "taxpayer that generated" the credit is determined by entity status at the time the credit arose. A disregarded SMLLC's later conversion, sale, or even a change in disregarded status doesn't retroactively change who generated the credit. Watch the 15-year carryforward clock (§ 67-4-2109(b)(1)(D)) and the per-return 50%-of-liability cap regardless of which entity is using it.

Common questions

Q: Can a corporation keep using a job tax credit carryforward after selling the LLC that earned it?
A: Yes, if the LLC was a disregarded single-member LLC (treated as a division of the corporation) at the time the credit was generated — the corporation, not the LLC, is the "taxpayer that generated" the credit.

Q: Does the normal rule against successors claiming a predecessor's credits apply here?
A: No — that rule (§ 67-4-2109(e)(1)) addresses mergers/consolidations between separate taxpayers. Here, the SMLLC was never a separate taxpayer in the first place; it was always treated as part of the corporation.

Q: Are there limits on how long or how much of the carryforward can be used?
A: Yes — the standard rules still apply: a 15-year carryforward period, and the credit (plus carryforward) can't exceed 50% of the combined franchise and excise tax liability on any one return (§ 67-4-2109(b)(1)(D)).

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. Confirm your own situation with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; 2011 codification):

• § 67-4-2004(37) (definition of "persons" subject to F&E tax, including corporations and LLCs); § 67-4-2007(a) (6.5% excise tax on net earnings); §§ 67-4-2105(a), -2106(a) ($0.25 per $100 franchise tax on net worth)
• § 67-4-2109(b) (job tax credit against F&E liability for net new full-time jobs); § 67-4-2109(b)(1)(D) (15-year carryforward limit; credit capped at 50% of combined F&E liability per return)
• § 67-4-2109(e)(1) (each taxpayer is a separate entity; credit carryforward usable only by the taxpayer that generated it; predecessor's credit not deductible by a successor in a merger/consolidation); § 67-4-2109(e)(2) (exception allowing carryover where the predecessor merges out of existence into an empty-shell successor)
• §§ 67-4-2007(e)(1), -2106(c) (general separate-entity filing requirement); §§ 67-4-2007(d), -2106(c) (single-member LLC disregarded for federal income tax purposes is also disregarded for Tennessee F&E tax purposes, treated as a division of its corporate parent)

Cases cited by the ruling:

• Dana Corp. v. Chumley, 2010 WL 2176096 (Tenn. Ct. App. May 28, 2010) (a successor entity could not claim remaining job tax credits as successor to the entity that generated them)

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/12-17fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-17
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
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
The availability of a Tennessee job tax credit carryforward under TENN. CODE ANN. § 67-4-2109
(2011).
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 the taxpayer’s
detriment.
FACTS
[TAXPAYER] (the “Taxpayer”), a corporation [REDACTED], owns [REDACTED] single
member limited liability companies that are disregarded for Tennessee franchise and excise tax
purposes.
One of these disregarded entities (the “SMLLC”) operates a [REDACTED] business in
Tennessee. In [YEAR], the SMLLC filed a business plan setting forth its anticipated capital
investment and job creation in the state. A $[DOLLAR AMOUNT] job tax credit was generated

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in [YEAR 1]. A portion of this credit (totaling $[DOLLAR AMOUNT]) was utilized on the
Taxpayer’s franchise and excise tax returns for the tax years [YEAR 1] and [YEAR 2], leaving
as a remainder a $[DOLLAR AMOUNT] job tax credit carryforward (the “Job Tax Credit
Carryforward”). In [YEAR 3], the Taxpayer sold the SMLLC to an unrelated party.
RULING
May the Taxpayer utilize the Job Tax Credit Carryforward on its Tennessee franchise and excise
tax returns for tax years after the sale of the SMLLC?
Ruling: Yes. The Taxpayer may utilize the Job Tax Credit Carryforward on its Tennessee
franchise and excise tax returns for tax years following the sale of the SMLLC to an
unrelated party.
ANALYSIS
Tennessee imposes an excise tax at the rate of 6.5% on the net earnings of all persons, as defined
under TENN. CODE ANN. § 67-4-2004(37) (2011), doing business within Tennessee. TENN. CODE
ANN. § 67-4-2007(a) (2011). Tennessee also imposes a franchise tax at the rate of $0.25 per
$100, or major fraction thereof, on the net worth of a person doing business in Tennessee,
pursuant to TENN. CODE ANN. §§ 67-4-2105(a), -2106(a) (2011).1 Persons subject to the
Tennessee franchise and excise taxes include, but are not limited to, corporations and limited
liability companies. TENN. CODE ANN. § 67-4-2004(37).
TENN. CODE ANN. § 67-4-2109(b) (2011) generally provides that, if certain statutory
requirements are met, a taxpayer may take a job tax credit against its Tennessee franchise and
excise tax liability for each net new full-time employee job created.2 Any unused job tax credit
may be carried forward in any tax period until the credit is taken; however, the credit may not be
carried forward for more than fifteen years. TENN. CODE ANN. § 67-4-2109(b)(1)(D).
Importantly, TENN. CODE ANN. § 67-4-2109(e)(1) provides that each taxpayer is considered a
separate entity and that “a credit carryforward may be taken only by the taxpayer that generated
it.”3

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Note that, under TENN. CODE ANN. § 67-4-2108(a)(1) (2011), the franchise tax base “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 purposes of this section, “property” is to be “valued at cost less
accumulated depreciation in accordance with generally accepted accounting principles.” TENN. CODE ANN. § 67-42108(a)(3).
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Generally, the job tax credit, together with any credit carryforward, taken on any franchise and excise tax return
may not exceed 50% of the combined franchise and excise tax liability shown on the return before any credit is
taken. TENN. CODE ANN. § 67-4-2109(b)(1)(D).
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Note that TENN. CODE ANN. § 67-4-2109(e)(1) provides that “in the case of mergers, consolidations, and like
transactions, no tax credit incurred by the predecessor taxpayer shall be allowed as a deduction on the tax return
filed by the successor taxpayer.” However, TENN. CODE ANN. § 67-4-2109(e)(2) provides that “when a taxpayer
merges out of existence and into a successor taxpayer that has no income, expenses, assets, liabilities, equity or net
worth, any qualified Tennessee credit carryover of the predecessor that merged out of existence shall be available
for carryover on the return of the surviving successor; provided, that the time limitations for the carryover have not
expired.” See, e.g., Dana Corp. v. Chumley, 2010 WL 2176096 at *4 (Tenn. Ct. App. May 28, 2010) (holding that

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Accordingly, the Taxpayer may utilize the Job Tax Credit Carryforward on its Tennessee
franchise and excise tax returns for tax years following the sale of the SMLLC only if the
Taxpayer is the “taxpayer” that generated the credit carryforward.
In this case, the Taxpayer is properly considered the taxpayer that generated the Job Tax Credit
Carryforward. Generally, each taxpayer is considered a “separate and single business entity” for
Tennessee franchise and excise tax purposes, and must file a return on a separate entity basis
reflecting only its own business activities. TENN. CODE ANN. §§ 67-4-2007(e)(1), -2106(c). One
of the limited exceptions to this rule applies to a limited liability company that is disregarded for
federal income tax purposes and whose single member is a corporation. TENN. CODE ANN.
§§ 67-4-2007(d), -2106(c). A limited liability company that comes within this exception is
disregarded for Tennessee franchise and excise tax purposes, and is treated as a division of the
parent corporation. The parent corporation will accordingly include the operational results of the
disregarded entity on its franchise and excise tax return.
The facts indicate that, at the time the Job Tax Credit Carryforward was created, the SMLLC was
disregarded to the Taxpayer for Tennessee franchise and excise tax purposes. Because the
SMLLC was treated as a division of the Taxpayer at the time the Job Tax Credit Carryforward
was created, the Taxpayer is considered to be the entity that generated the credit carryforward.
In accordance with TENN. CODE ANN. § 67-4-2109(e)(1), the Taxpayer may therefore utilize the
Job Tax Credit Carryforward on its Tennessee franchise and excise tax returns for tax years
following the sale of the SMLLC to an unrelated party.

Kristin Husat
General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

October 10, 2012

successor entity was prohibited from claiming remaining job tax credits as a successor to the entity that generated
the credits).

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