How does Tennessee's franchise & excise job tax credit apply to a company expanding its Tennessee headquarters — what investment and job thresholds apply, how much is the credit per job, and which jobs count?

Plain-English summary

A company that runs a qualified headquarters facility in Tennessee asked the Department how Tennessee's franchise & excise (F&E) job tax credit would apply to a large expansion. Its plan: invest more than $50 million, consolidate business centers from other states into one Tennessee location, and create at least 100 net new full-time jobs paying at least 150% of Tennessee's average occupational wage. The Department answered ten detailed questions.

The two credits. Tennessee gives a job tax credit against F&E tax (§ 67-4-2109(b)(1)(A)) and, for larger projects, an additional annual credit (§ 67-4-2109(b)(2)(B)):

• Base job tax credit — $4,500 per qualified job. To earn it, the company must (1) be a qualified business enterprise, (2) file a Business Plan with the Department, and within 12 months of that Plan's effective date (3) make the required capital investment of at least $500,000 (in real property, tangible personal property, or computer software owned/leased in Tennessee) and (4) create at least 25 "qualified jobs."
• Additional annual credit — bumps the credit to $5,000 per job. It requires investing more than $10 million and creating at least 100 "headquarters staff employee" jobs that pay at least 150% of the state's average occupational wage (measured for January of the year each job is created). When earned, it runs for three years beginning the first tax year after the initial job tax credit is created, and the jobs must stay filled.

The ten answers, in brief:

1. Qualifies for the base credit? Yes — if it tops the $500,000 investment and creates ≥25 qualified jobs within 12 months of the Plan's effective date. Credit is $4,500/job (or $5,000/job if it also earns the additional annual credit).
2. Qualifies for the additional annual credit? Yes — if it invests >$10M and creates ≥100 jobs that are "headquarters staff employees" paying ≥150% of the average occupational wage.
3. Do HVAC, communications equipment, computer hardware/software, furniture, and fixtures count toward the "required capital investment"? Yes, provided they're owned or leased in Tennessee.
4. Are those same items "exempt required capital investment" (excluded from the franchise-tax property base)? Yes — if purchased/leased for the Facility during the Investment Period, reported on Schedule G of Form FAE 170 for that year, and the additional annual credit is allowed that year. (Only two-thirds of their value is exempt — § 67-4-2108(a)(6)(G).)
5. What's the pay requirement? At least 150% of Tennessee's average occupational wage for January of the year the job is created.
6. Do all W-2 wages (including bonuses) count toward that pay test? Yes — all compensation of the type reported on the employer's Occupational Employment Report counts.
7. Are mid-year hires' wages annualized? Yes.
8. What's the baseline for counting "new" jobs? The company's full-time headcount on the last day before the Investment Period (here, December 31, 2010).
9. When can it start taking the credit? In the tax year it both made the required investment and created 25 qualified jobs (within 12 months of the Plan's effective date); the $5,000 additional annual credit then runs for three years.
10. If it misses 100 jobs, does it get a prorated additional annual credit? No.

Why "no proration" — the timing point that drives the whole ruling. Tennessee amended these credit provisions in 2011 (effective July 1, 2011), changing some rules and adding the option to prorate the additional annual credit if fewer than 100 jobs are created. But those amendments apply only to proposals received after July 1, 2011. Because this company filed its application and investment plan before that date, the pre-2011 law governs — which is why every citation is to the "(Supp. 2010)" version and why there is no proration available.

The biggest practical catch — which jobs count. "Headquarters staff employees" are executive, administrative, or professional workers performing headquarters functions (§ 67-6-224(b)(5)). The statute expressly excludes call-center operations from "headquarters related functions," and customer-service positions don't qualify as executive/administrative/professional either. So the company's administrative-support, IT, finance, and management jobs count toward the 100-job target — but its call-center and customer-service jobs do not.

What this means for you

Companies planning a Tennessee headquarters or expansion

The job tax credit can be substantial ($4,500–$5,000 per qualified job), but it's gated by hard thresholds: a $500,000 investment and 25 jobs for the base credit; more than $10 million and 100 qualifying jobs for the richer, three-year additional annual credit. Equipment and software you buy or lease in Tennessee for the facility count toward the investment, and two-thirds of that value can also shrink your franchise-tax base — but only if you report it on Schedule G of Form FAE 170 and actually claim the additional annual credit that year. Timing matters at every step: the investment and jobs must land within 12 months of your Business Plan's effective date.

Watch which jobs count (and which don't)

For the 100-job additional-annual-credit test, only headquarters staff — executive, administrative, and professional roles — count. Call-center and customer-service jobs are excluded, even though they're real new jobs. If your expansion is heavy on customer-facing roles, model the credit on the headquarters-staff headcount, not your total new hires.

Accountants and tax professionals

The base credit lives in § 67-4-2109(b)(1)(A) ($4,500/job), stepped up to $5,000 by § 67-4-2109(b)(3)(A) when the (b)(2)(B) additional annual credit is earned; the (b)(2)(B)(v) test is >$10M + 100 headquarters-staff jobs at ≥150% of the average occupational wage (§ 67-4-2004(3)), for three years (jobs must stay filled, (b)(2)(B)(vi)). "Required capital investment" ($500,000; real property/TPP/software owned or leased in Tennessee) is § 67-4-2109(a)(7); "qualified job" is § 67-4-2109(a)(6); qualified business enterprise is § 67-4-2109(a)(5). Two-thirds of those investments are "exempt required capital investments" that drop out of the franchise-tax property floor (§ 67-4-2108(a)(1), (a)(6)(G)) when capitalized on Schedule G and the additional annual credit is allowed. Crucially, this taxpayer applied before July 1, 2011, so the pre-2011 statute controls (no proration under § 67-4-2109(b)(3)(I); investment/jobs measured within 12 months of the Business Plan's effective date). Companion F&E rulings in the corpus: apportionment (LR 13-14), IC-DISC (LR 13-08).

Common questions

Q: How big is Tennessee's franchise & excise job tax credit?
A: $4,500 per qualified job, increased to $5,000 per job if the company also qualifies for the additional annual credit (Tenn. Code Ann. § 67-4-2109(b)(1)(A), (b)(3)(A)).

Q: What does a company have to do to earn the base credit?
A: Be a qualified business enterprise, file a Business Plan, and within 12 months of that Plan's effective date invest at least $500,000 (in real property, tangible personal property, or computer software owned/leased in Tennessee) and create at least 25 "qualified jobs."

Q: What extra is required for the higher $5,000-per-job additional annual credit?
A: Invest more than $10 million and create at least 100 jobs that qualify as "headquarters staff employees" and pay at least 150% of Tennessee's average occupational wage (for January of the year each job is created). It runs for three years.

Q: Do call-center and customer-service jobs count toward the 100-job requirement?
A: No. The statute excludes call-center operations from "headquarters related functions," and customer-service roles aren't executive, administrative, or professional positions — so neither counts as a "headquarters staff employee" (§ 67-6-224(b)(5)).

Q: Can the company still get a partial credit if it falls short of 100 jobs?
A: Not here. The 2011 amendments that allow proration apply only to proposals received after July 1, 2011, and this company applied earlier — so the pre-2011 law, with no proration, governs.

Q: Do equipment and software purchases also reduce the franchise tax?
A: Up to two-thirds of their value can be excluded from the franchise-tax property base as an "exempt required capital investment," but only when the items are bought/leased for the facility during the Investment Period, reported on Schedule G of Form FAE 170, and the additional annual credit is allowed that year (§ 67-4-2108).

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, and this one applies the pre-2011 version of credit provisions that have since been amended. Confirm your own situation — and the current statute — with a tax professional.

Citations and references

Tennessee franchise & excise tax statutes (Tenn. Code Ann., Title 67):

• § 67-4-2109(b)(1)(A) (job tax credit — $4,500 per qualified job); § 67-4-2109(b)(3)(A) (credit increased to $5,000 per job with the additional annual credit)
• § 67-4-2109(b)(2)(B), (b)(2)(B)(v), (b)(2)(B)(vi) (additional annual credit — >$10M + 100 headquarters-staff jobs at ≥150% wage, three years, jobs must stay filled)
• § 67-4-2109(a)(5) (qualified business enterprise); § 67-4-2109(a)(6) ("qualified job"); § 67-4-2109(a)(7) ("required capital investment" — $500,000 in real property/TPP/computer software owned or leased in Tennessee)
• § 67-4-2109(b)(3)(I) (proration — 2011 amendment, not applicable to pre-July 1, 2011 applicants)
• § 67-6-224(b)(5) ("headquarters staff employee" — executive/administrative/professional); § 67-6-224(b)(4) ("headquarters related functions and services"; excludes operating a call center)
• § 67-4-2108(a)(1) (franchise-tax property-measure floor excludes exempt required capital investments); § 67-4-2108(a)(6)(G) ("exempt required capital investments" = 2/3 of value)
• § 67-4-2007(a) (excise tax — 6.5% of net earnings); § 67-4-2105(a), § 67-4-2106(a) (franchise tax — $0.25 per $100 of net worth); § 67-4-2004(38) ("person"); § 67-4-2004(3) ("average occupational wage")

Session law referenced:

• Act of May 21, 2011, ch. 508, 2011 Tenn. Pub. Acts (the 2011 amendments to the job tax credit and qualified-headquarters-facility provisions, effective for proposals received after July 1, 2011)

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/13-23fe.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 13-23
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and
circumstances presented, and is an interpretation of the law at a specific point in time. The
law may have changed since this ruling was issued, possibly rendering it obsolete. The
presentation of this ruling in a redacted form is provided solely for informational purposes,
and is not intended as a statement of Departmental policy. Taxpayers should consult with a
tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee franchise and excise tax job tax credit provisions under TENN.
CODE ANN. § 67-4-2109(b) (Supp. 2010).
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
In [YEAR], [TAXPAYER] (the “Taxpayer”), [REDACTED], established a qualified
headquarters facility (the “Facility”) pursuant to TENN. CODE ANN. § 67-6-224. The Facility
consists of one location in the [STATE OF TENNESSEE]. The Taxpayer provides a wide range
of [SERVICES]. [CUSTOMERS] are serviced by [BUSINESS CENTERS] in [CITY],
1

Tennessee, [AND OTHER LOCATIONS OUTSIDE OF TENNESSEE]. The [BUSINESS
CENTER] in [TENNESSEE] is a part of the Facility.
The Taxpayer plans to invest additional capital into the Facility, estimating a total capital
investment between [DATE], and [DATE] (the “Investment Period”) of over $50,000,000 (the
“Investment”). This Investment will accomplish two goals. First, it will consolidate the
operations of the Taxpayer’s [BUSINESS CENTERS] into one [BUSINESS CENTER] located
in [CITY], Tennessee. The operations at the Taxpayer’s [BUSINESS CENTERS] in
[LOCATIONS OUTSIDE OF TENNESSEE] will be shut down or downsized, and moved to
[CITY IN TENNESSEE]. Second, the Investment will expand the Facility in [CITY IN
TENNESSEE].
A significant portion of the Investment will consist of purchasing, leasing, or licensing computer
software and hardware related to a new and expanded enterprise resource planning system (“ERP
System”), as well as other information technology systems in connection with the expansion of
the [TENNESSEE BUSINESS CENTER]. The Taxpayer will house the global ERP System
software and hardware in its Facility located in [TENNESSEE]. The Taxpayer will also
purchase, lease, or license HVAC equipment, communications equipment, furniture, fixtures,
and labor as part of the Investment.
The Taxpayer predicts that it will retain the current job headcount of [NUMBER] at the Facility
as of [THE DAY BEFORE THE INVESTMENT PERIOD BEGINS], and that it will create at
least 100 net new full-time jobs during the Investment Period that pay at least 150% of
Tennessee’s average occupational wage. These jobs will include full-time customer service
positions, call center positions, administrative support positions, information technology
positions, finance positions, and management and other professional positions.
[THE TAXPAYER FILED ITS APPLICATION AND INVESTMENT PLAN WITH THE
DEPARTMENT OF REVENUE PRIOR TO JULY 1, 2011].
RULINGS

1. For Tennessee franchise and excise tax purposes, is the Taxpayer eligible for the job tax
   credit provided in TENN. CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010)?
   Ruling: The Taxpayer will qualify for the job tax credit if it exceeds the required $500,000
   investment threshold and creates at least twenty-five (25) qualified jobs within twelve (12)
   months of the effective date of its Business Plan. If the Taxpayer qualifies for the job tax
   credit under TENN. CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010), the credit will be in the
   amount of $4,500 per qualified job created during the investment period, unless the Taxpayer
   also qualifies for the additional annual credit under TENN. CODE ANN. § 67-4-2109(b)(2)(B)
   (Supp. 2010), in which case the credit will be in the amount of $5,000 per qualified job
   pursuant to TENN. CODE ANN. § 67-4-2109(b)(3)(A) (Supp. 2010).
2. For Tennessee franchise and excise tax purposes, is the Taxpayer eligible for the additional
   annual credit provided in TENN. CODE ANN. § 67-4-2109(b)(2)(B) (Supp. 2010)?
   2

Ruling: Assuming that the Taxpayer creates at least 100 qualified jobs that pay at least 150%
of the state’s average occupational wage for the month of January of the year in which the
jobs are created and the Taxpayer’s investment exceeds $10 million, the Taxpayer will be
eligible for the additional annual credit if the jobs it creates qualify as “headquarters staff
employee” positions within the meaning of TENN. CODE ANN. § 67-6-224(b)(5) (Supp. 2010).

3. Will HVAC equipment, communications equipment, computer hardware, computer software,
   furniture, and fixtures purchased, leased, or licensed for the Facility during the Investment
   Period be included in the calculation of the “required capital investment” for purposes of the
   jobs tax credit provisions enumerated in TENN. CODE ANN. § 67-4-2109(b) (Supp. 2010)?
   Ruling: Yes, provided the items are owned or leased in Tennessee.
4. Will HVAC equipment, communications equipment, computer hardware, computer software,
   furniture, and fixtures purchased, leased, or licensed for the Facility during the Investment
   Period be considered “exempt required capital investment” for purposes of exclusion from
   the Tennessee franchise tax base under TENN. CODE ANN. § 67-4-2108(a)(1), (a)(6)(a) (Supp.
   2010)?
   Ruling: Yes, provided that such items are purchased or leased for the Taxpayer’s Facility
   during the Investment Period, are reported on the Tennessee Franchise, Excise Tax Return
   (Form FAE 170), Schedule G for that tax year, and the credit under TENN. CODE ANN. § 674-2109(b)(2)(B) (Supp. 2010) is allowed for that tax year.
5. What is the compensation requirement that must be met for each job, for purposes of the
   TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010) additional annual credit?
   Ruling: The compensation requirement for each qualified job created by the Taxpayer for
   purposes of the additional annual credit under TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v)
   (Supp. 2010) is at least 150% of Tennessee’s average occupational wage for the month of
   January of the year in which the job is created.
6. Will all W-2 wages, including bonuses, be included when determining whether an
   employee’s wages meets the compensation requirements for purposes of TENN. CODE ANN.
   § 67-4-2109(b)(2)(B)(v) (Supp. 2010)?
   Ruling: All compensation paid by the Taxpayer to an employee and of the type reported on
   the employer’s Occupational Employment Report will be included in calculating whether
   that employee’s wages meet the compensation requirements set forth in TENN. CODE ANN. §
   67-4-2109(b)(2)(B)(v) (Supp. 2010).
7. If the Taxpayer hires an employee mid-year, will the employee’s partial year wage be
   annualized for purposes of determining whether the compensation requirements are met for
   purposes of TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v)?

3

Ruling: Yes.

8. What is the starting point for determining newly created jobs during the Investment Period,
   for purposes of TENN. CODE ANN. § 67-4-2109(b)?
   Ruling: The Taxpayer’s full-time job headcount on December 31, 2010, is the starting point
   for determining newly created jobs during the Investment Period.
9. When will the Taxpayer be eligible to begin taking the job tax credit provided by TENN.
   CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010) relating to its Investment?
   Ruling: The Taxpayer will be eligible to begin taking the job tax credit provided by TENN.
   CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010) in the tax year in which it made the required
   capital investment and created a total of 25 qualified jobs, provided that such investment is
   made and such jobs are created within twelve months of the effective date of its Business
   Plan. Provided that the Taxpayer has met the statutory requirements, the Taxpayer will be
   allowed to claim the $5,000 additional annual credit under TENN. CODE ANN. § 67-42109(b)(2)(B) (Supp. 2010) for a period of three years beginning with the first tax year after
   the initial job tax credit is created.
10. In the event the Taxpayer is not able to create 100 net new full-time employee jobs at a wage
    level equal to 150 percent of the statewide average occupational wage, will the Taxpayer be
    allowed a prorated additional annual credit, as provided in TENN. CODE ANN. § 67-42109(b)(3)(I) (2013)?
    Ruling: No.
    ANALYSIS
    Tennessee imposes an excise tax at the rate of 6.5% on the net earnings of all persons doing
    business within Tennessee.1 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.2 Persons
    subject to the Tennessee franchise and excise taxes include, but are not limited to, corporations
    such as the Taxpayer.3
    Tennessee also allows credits against a taxpayer’s franchise and/or excise tax liability in certain
    circumstances. For example, TENN. CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010) provides for
    a job tax credit when the statutory criteria are met. In addition, taxpayers qualifying for that job
    tax credit may also qualify for an additional annual job tax credit under TENN. CODE ANN. § 674-2109(b)(2)(B). These credits, and the applicable criteria to qualify, are discussed below.4
    1

TENN. CODE ANN. § 67-4-2007(a) (2013).

2

TENN. CODE ANN. §§ 67-4-2105(a), -2106(a) (2013).
See TENN. CODE ANN. § 67-4-2004(38) (2013).

3

4

The General Assembly amended the job tax credit provisions in 2011. See, e.g., Act of May 21, 2011, ch. 508,
§ 16, 2011 Tenn. Pub. Acts (amending TENN. CODE ANN. § 67-4-2109(b)(1)(C) to require that qualified jobs be

4

1. JOB TAX CREDIT
The Taxpayer will qualify for the job tax credit provided in TENN. CODE ANN. § 67-42109(b)(1)(A) (Supp. 2010) if it has exceeded the $500,000 investment threshold and has created
at least twenty-five (25) qualified jobs within twelve (12) months of the effective date of its
Business Plan. If the Taxpayer qualifies for the job tax credit, it will be in the amount of $4,500
per qualified job created during the Investment Period, unless the Taxpayer also qualifies for the
TENN. CODE ANN. § 67-4-2109(b)(2)(B) (Supp. 2010) additional annual credit,5 in which case the
credit will be in the amount of $5,000 per qualified job.
TENN. CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010) provides that if certain statutory criteria
are met, a taxpayer may take a job tax credit against its Tennessee franchise and excise tax
liability. The credit is in the amount of $4,500 for each qualified job created during the
investment period.6 TENN. CODE ANN. § 67-4-2109(b)(3)(A) (Supp. 2010) further provides that
the $4,500 credit allowed under TENN. CODE ANN. § 67-4-2109(b)(1) (Supp. 2010) will be
increased to $5,000 per job if the taxpayer qualifies for the additional annual credit allowed in
TENN. CODE ANN. § 67-4-2109(b)(2)(B) (Supp. 2010).7
To qualify for the job tax credit under TENN. CODE ANN. § 67-4-2109(b)(1)(A)-(C) (Supp. 2010),
the taxpayer must: 1) be a qualified business enterprise; 2) file a business plan with the
Department of Revenue; and, within twelve months of the effective date of the business plan:
3) make the required capital investment and 4) create at least twenty-five qualified jobs.
The first requirement is that the Taxpayer be a qualified business enterprise. A “qualified
business enterprise” includes an enterprise where “the business has made the required capital
investment necessary to permit the creation or expansion of . . . headquarters facilities, as defined
in § 67-6-224(b).”8 The Taxpayer has stated that it established its Facility as a qualified
headquarters facility in [YEAR] pursuant to TENN. CODE ANN. § 67-6-2249 in the [STATE OF

created within the investment period rather than within twelve (12) months of the filing of the business plan). The
amendments apply only to written proposals received by the Department of Revenue or the Department of
Economic and Community Development after July 1, 2011. See Act of May 21, 2011, ch. 508, § 34, 2011 Tenn.
Pub. Acts. Because the Taxpayer filed its application and investment plan with the Department of Revenue prior to
July 1, 2011, the law in effect prior to the 2011 amendments governs.
5

See infra, Question #2.

6

TENN. CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010).

7

See infra, Question #2.

8

TENN. CODE ANN. § 67-4-2109(a)(5) (Supp. 2010).

9

The General Assembly amended the qualified headquarters facility credit provisions and the qualified headquarters
facility relocation expense credit provisions in 2011. The amendments apply only to written proposals received by
the Department of Revenue or the Department of Economic and Community Development after July 1, 2011. See
Tenn, Pub. Act of May 21, 2011, ch. 508, §§ 1, 8-9. Because the Taxpayer filed its application and investment plan
with the Department of Revenue prior to July 1, 2011, the law in effect prior to the 2011 amendments governs.

5

TENNESSEE]. Having already qualified as a qualified headquarters facility, the Taxpayer is also
properly considered a qualified business enterprise.
The Taxpayer has also stated that it filed a Business Plan with an Investment Period start date of
[REDACTED], thereby meeting the second requirement.
The third requirement is that the Taxpayer make the required capital investment within twelve
months of filing its Business Plan. The “required capital investment,” for any enterprise other
than a convention or trade show enterprise, “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.”10
The Taxpayer has estimated that it will make a $50,000,000 Investment during the Investment
Period, but it does not state how much of that Investment will occur during the twelve months
within the effective date of its Business Plan. Consequently, the Taxpayer will meet the third
requirement only if at least $500,000 of the Investment is made within twelve months of the
effective date of its Business Plan.
The fourth requirement is that the Taxpayer create at least twenty-five qualified jobs within
twelve months of the effective date of the Business Plan. A “qualified job” is one that meets 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) months to a person for at least thirty-seven and one half (37
½) hours per week with minimum health care, as described in title 56, chapter 7,
part 22;
(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 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[.]11
The Taxpayer states that it will create at least 100 net new full-time jobs that pay at least 150%
of Tennessee’s average occupational wage [REDACTED], in addition to keeping all of its
employees as of [DATE]. The Taxpayer has not, however, stated when these new jobs will be
created. The Taxpayer will therefore meet the fourth requirement only if it creates jobs that
10

TENN. CODE ANN. § 67-4-2109(a)(7) (Supp. 2010).

11

TENN. CODE ANN. § 67-4-2109(a)(6) (Supp. 2010).

6

comply with the above referenced requirements within twelve months of the effective date of its
Business Plan.
Consequently, the Taxpayer will qualify for the job tax credit provided in TENN. CODE ANN.
§ 67-4-2109(b)(1)(A) (Supp. 2010) only if its actual investment exceeds the $500,000 investment
threshold and it has created at least twenty-five (25) qualified jobs within twelve months of the
effective date of its Business Plan. If the Taxpayer qualifies for the job tax credit, it will be in the
amount of $4,500 per qualified job created during the Investment Period, unless the Taxpayer
also qualifies for the additional annual credit, in which case the credit will be in the amount of
$5,000 per qualified job.

2. ADDITIONAL ANNUAL CREDIT
   The Taxpayer will qualify for the additional annual credit if the jobs it creates qualify as
   “headquarters staff employee” positions within the meaning of TENN. CODE ANN. § 67-6224(b)(5) (Supp. 2010).
   In addition to the job tax credit discussed above, an additional annual credit is allowed under
   TENN. CODE ANN. § 67-4-2109(b)(2) (Supp. 2010) in certain circumstances. For example, TENN.
   CODE ANN. § 67-4-2109(b)(2)(B)(vi) (Supp. 2010) states that an additional annual credit of
   $5,000 per job will be allowed with respect to jobs described in TENN. CODE ANN. § 67-42109(b)(2)(B)(i)-(v), provided certain requirements are met.12 In particular, TENN. CODE ANN.
   § 67-4-2109(b)(2)(B)(v) (Supp. 2010) provides that
   [i]f the investment exceeds ten million dollars ($10,000,000) and at least one
   hundred (100) qualified jobs are created that also meet the definition of
   headquarters staff employees under [TENN. CODE ANN.] § 67-6-224 and pay at
   least one hundred fifty percent (150%) of the state’s average occupational wage
   for the month of January of the year in which the 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.
   Thus, for the Taxpayer to be eligible for the additional annual credit under TENN. CODE ANN.
   § 67-4-2109(b)(2)(B)(v) (Supp. 2010), the following requirements must be met: 1) the
   Taxpayer’s Investment must exceed $10 million; 2) the Taxpayer must create at least 100
   qualified jobs; 3) the qualified jobs must also meet the definition of “headquarters staff
   employees” under TENN. CODE ANN. § 67-6-224 (Supp. 2010); and 4) the qualified jobs must
   pay at least 150% of the state’s average occupational wage for the month of January of the year
   in which the jobs are created.
   The Taxpayer has indicated that its Investment will total at least $50 million with respect to the
   expansion of its Facility. The Taxpayer also states that its Investment will create at least 100

12

Note that the jobs must remain filled during the year in which the additional annual credit is being taken. TENN.
CODE ANN. § 67-4-2109(b)(2)(B)(vi) (Supp. 2010).

7

additional new, full-time jobs that meet or exceed 150% of Tennessee’s average occupational
wage, thus likely meeting the first, second and fourth requirements.
The third requirement is that the qualified jobs meet the TENN. CODE ANN. § 67-6-224 (Supp.
2010) definition of “headquarters staff employees,” which includes “executive,13
administrative,14 or professional workers15 performing headquarters-related functions and
services.”16 “Headquarters related functions and services” in turn is defined to mean “those
functions involving administrative, planning, research and development, marketing, personnel,
legal, computer or telecommunications services performed by headquarters staff employees on
an international, national, or regional basis.”17 The definition of “headquarters related functions
and services” specifically excludes, however, “functions involving . . . operating a call center.”18
The Taxpayer intends to create a number of employee positions that are enumerated in the
statute, such as administrative and management positions. Other positions the Taxpayer intends
to create also fall within the statute, though not named. Examples of those types of positions
include finance and information technology jobs, which are executive and professional positions.
But some of the positions the Taxpayer intends to create are explicitly excluded from the
definition of “headquarters staff employees.” By definition, call center employees cannot
perform “headquarters related functions and services.”19 Customer service positions are similarly
excluded because they cannot be properly considered executive, administrative, or professional
positions within the meaning of TENN. CODE ANN. § 67-6-224(b)(5) (Supp. 2010).
Consequently, only those jobs that qualify as “headquarters staff employees,” such as the fulltime administrative support, information technology, finance, and management positions, count
towards the 100 jobs requirement, but customer service and call center positions do not.

3. REQUIRED CAPITAL INVESTMENT
   HVAC equipment, communications equipment, computer hardware, computer software,
   furniture, and fixtures purchased, leased, or licensed for the Facility during the Investment Period
   13

“An executive employee is a full-time employee who is primarily engaged in the management of all or part of the
enterprise.” TENN. CODE ANN. § 67-6-224(b)(5) (Supp. 2010).

14

“An administrative employee is a full-time employee who is not primarily involved in manual work and whose
work is directly related to management policies or general headquarters operations.” Id.

15

“A professional employee is an employee whose primary duty is work requiring knowledge of an advanced type
in a field of science or learning. This knowledge is characterized by a prolonged course of specialized study.” Id.

16

TENN. CODE ANN. § 67-6-224(b)(5) (Supp. 2010) (footnotes added).

17

TENN. CODE ANN. § 67-6-224(b)(4) (Supp. 2010).

18

Id.

19

Id.

8

will be included in the calculation of the “required investment capital” for purposes of the TENN.
CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010) job tax credit.
The “required capital investment” for purposes of the TENN. CODE ANN. § 67-4-2109(b)(1)(A)
job tax credit includes “real property, tangible personal property or computer software owned or
leased in this state valued according to generally accepted accounting principles.”20 The required
capital investment must be made within twelve months of the effective date of the Taxpayer’s
Business Plan,21 and for purposes of the job tax credit, a capital investment is “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.”22
HVAC equipment, communications equipment, computer hardware, computer software,
furniture, and fixtures are all properly considered real property, tangible personal property, or
computer software. Thus all of those items that the Taxpayer owns, leases, or licenses in
Tennessee may be included in the Taxpayer’s required investment capital calculation, provided
that they are purchased, leased, or licensed within twelve months of the effective date of the
Taxpayer’s Business Plan.

4. EXEMPT REQUIRED CAPITAL INVESTMENT
   The Taxpayer’s HVAC equipment, communications equipment, computer hardware, computer
   software, furniture, and fixtures items are properly considered “exempt requirement capital
   investments” for purposes of TENN. CODE ANN. § 67-4-2108(a)(1) (Supp. 2010), provided that
   such items are purchased or leased for its Facility during the Investment Period, are reported on
   the Tennessee Franchise, Excise Tax Return (Form FAE 170), Schedule G, for that tax year, and
   the TENN. CODE ANN. § 67-4-2109(b)(2)(B) (Supp. 2010) tax credit is allowed for that tax year.
   As stated above, Tennessee 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.23 A taxpayer’s net
   worth is generally defined as “the difference between a taxpayer’s total assets less its total
   liabilities computed in accordance with generally accepted accounting principles.”24
   TENN. CODE ANN. § 67-4-2108(a)(1) (Supp. 2010) provides, however, that “[t]he measure of the
   [franchise] tax 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.”25
   20

TENN. CODE ANN. § 67-4-2109(a)(7) (Supp. 2010).

21

See TENN. CODE ANN. § 67-4-2109(b)(1)(C) (Supp. 2010).

22

TENN. CODE ANN. § 67-4-2109(a)(7) (Supp. 2010).

23

TENN. CODE ANN. §§ 67-4-2105(a), -2106(a) (2013).

24

See TENN. CODE ANN. § 67-6-2106(b) (Supp. 2010).

25

(Emphasis added).

9

TENN. CODE ANN. § 67-4-2108(a)(6)(G) (Supp. 2010) defines “exempt required capital
investments” as “two thirds (2/3) in value of all capital investments that are the basis for a
taxpayer’s entitlement to credits under § 67-4-2109(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).”
The “required capital investment” for purposes of the TENN. CODE ANN. § 67-4-2109(b)(1)(A)
job tax credit (a prerequisite to receiving the TENN. CODE ANN. § 67-4-2109(b)(2)(B) additional
annual credit) includes “real property, tangible personal property or computer software owned or
leased in this state valued according to generally accepted accounting principles.”26 In addition,
those items must be capitalized and reflected on Schedule G of the Tennessee Franchise, Excise
Tax Return (Form FAE 170) to be included in exempt required capital investments.27
Thus if the Taxpayer purchases or leases items in Tennessee that are properly considered real
property, tangible personal property, or computer software as part of its Investment, then two
thirds (2/3) of the value of such items may be considered exempt required capital investments if
those items are reported as real and tangible property on Schedule G.
The Taxpayer’s HVAC equipment, communications equipment, computer hardware, computer
software, furniture, and fixtures are all real property, tangible personal property, or computer
software. Consequently, when such items are purchased or leased for its Facility during the
Investment Period, are reported on its Tennessee Franchise, Excise Tax Return (Form FAE 170),
Schedule G, for that tax year, and the TENN. CODE ANN. § 67-4-2109(b)(2)(B) tax credit is
allowed for that tax year, the items are properly considered “exempt requirement capital
investments” for purposes of TENN. CODE ANN. § 67-4-2108(a)(1) (Supp. 2010).

5. COMPENSATION REQUIREMENT
   The compensation requirement for each qualified job created by the Taxpayer for purposes of the
   additional annual credit under TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010) is “at
   least 150% of Tennessee’s average occupational wage for the month of January of the year in
   which the job [is] created.”28
   One must therefore determine Tennessee’s average occupational wage for the month of January
   of the year in which a particular job is created. TENN. CODE ANN. § 67-4-2004(3) defines
   “average occupational wage” as “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.”
   26

TENN. CODE ANN. § 67-4-2109(a)(7) (Supp. 2010).

27

If an item is treated as an expense rather than capitalized and depreciated, that item would not be considered part
of the exempt required capital investment because to do so would allow a deduction on Schedule G for an item not
reflected on Schedule G.

28

TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010).

10

Information provided by the Tennessee Department of Labor and Workforce Development
indicates that Tennessee’s average occupational wage for 2010-2013 is as follows:29
Year

Average Occupational Wage

150% of Average Occupational Wage

2010

$37,360

$56,040

2011

$38,325

$57,488

2012

$39,135

$58,702

2013

$39,320

$58,980

A job will count toward the creation of at least 100 jobs for purposes of TENN. CODE ANN. § 674-2109(b)(2)(B)(v) (Supp. 2010) if it meets the minimum compensation requirement for the year
in which it was created.

6. COMPENSATION CALCULATION
   All compensation paid by the Taxpayer to an employee and of the type reported on the
   employer’s Occupational Employment Report will be included in calculating whether that
   employee’s wages meet the compensation requirements set forth in TENN. CODE ANN. § 67-42109(b)(2)(B)(v) (Supp. 2010).
   To determine whether a job meets the compensation requirements for the additional annual
   credit, the job’s compensation is measured in the same manner that the Tennessee Department of
   Labor and Workforce Development measures compensation in calculating the average
   occupational wage.
   To calculate the average occupational wage, the Department of Labor and Workforce
   Development works in conjunction with the United States Department of Labor’s Bureau of
   Labor Statistics to collect Occupational Employment Reports from Tennessee employers. These
   reports are forwarded to the Bureau of Labor Statistics for processing, and the results are then
   made available to the Tennessee Department of Labor and Workforce Development for
   development into the average occupational wage tables, among other things.30 The instructions
   for the Occupational Employment Report form require employers to include as pay: the
   employee’s base rate (annual salary or hourly wage if the employee does not work a standard
   2,080 hours per year), commissions, tips, production bonuses, and incentive pay, among others.31
   29

Information regarding the Tennessee average occupational wage is published on the Tennessee Department of
Labor and Workforce Development’s website, available at http://www.state.tn.us/labor-wfd/wages/intro.htm (last
visited Oct. 29, 2013).
30

Id.

31

See, e.g., Occupational Employment Report Form, O.M.B. No. 1220-0042, Rev. Aug. 2013, available at
http://www.bls.gov/respondents/oes/pdf/forms/uuuuuu_fillable.pdf (last visited Nov. 14, 2013).

11

Thus, in order to maintain a consistent methodology, those wages paid to an employee and of the
type that would be reported on the Taxpayer’s Occupational Employment Report will be
included as compensation for purposes of meeting the compensation requirements set forth in
TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010).

7. MID-YEAR HIRES
   If the Taxpayer hires an employee mid-year, the employee’s partial year wage will be annualized
   for purposes of determining whether the compensation requirements set forth in TENN. CODE
   ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010) are met.
   As stated above, in order to count towards meeting the jobs requirement for the TENN. CODE
   ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010) additional annual credit, a job must “pay at least one
   hundred fifty percent (150%) of the state’s average occupational wage for the month of January
   of the year in which the job[ is] created.”32
   The statute does not address the appropriate treatment of an employee’s wages if he or she is
   hired in the middle of the year, but the Occupational Employment Report requires wages to be
   converted to an hourly wage rate that is then annualized for use on the occupational wage
   tables.33 It follows from the fact that the occupational wage tables are based on annualized
   figures that a mid-year hire’s wages should likewise be annualized.
   If the Taxpayer hires an employee mid-year, that employee’s partial year wage will therefore be
   annualized for purposes of determining whether the compensation requirements set forth in
   TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010).
8. COUNTING NEWLY CREATED JOBS
   The TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010) additional annual credit is only
   available if “at least one hundred (100) qualified jobs are created.”
   For purposes of counting the number of jobs created, the base line is the Taxpayer’s full-time
   headcount on the last day prior to the start of the Investment Period.
   The Taxpayer’s Business Plan specifies an Investment Period of [REDACTED]. Thus, the
   Taxpayer’s full-time headcount on [THE DAY BEFORE THE INVESTMENT PERIOD
   BEGINS] (which the Taxpayer indicates is [NUMBER] employees), is the base line.

32

TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v) (Supp. 2010).

33

See Occupational Employment Report Form, O.M.B. No. 1220-0042, Rev. Aug. 2013, available at
http://www.bls.gov/respondents/oes/pdf/forms/uuuuuu_fillable.pdf (last visited Nov. 14, 2013); accord BUREAU OF
LABOR STATISTICS, UNITED STATES DEPARTMENT OF LABOR, Occupational Employment Statistics, available at
http://stats.bls.gov/oes/1999/oes_tn.htm#b23-0000 (last visited Oct. 29, 2013) (“Annual wages have been calculated
by multiplying the hourly mean wage by a "year-round, full-time" hours figure of 2,080 hours.”).

12

Consequently, the Taxpayer should count the headquarters staff jobs added beginning [FIRST
DAY OF INVESTMENT PERIOD], to determine the number of “qualified jobs” created in
Tennessee during the Investment Period.

9. TIMING OF CLAIMING CREDITS
   The Taxpayer will be eligible to begin claiming the TENN. CODE ANN. § 67-4-2109(b)(1)(A)
   (Supp. 2010) job tax credit in the taxable year in which it made the required capital investment
   and created a total of 25 qualified jobs, provided that such investment is made and such jobs are
   created within twelve months of the effective date of its Business Plan.
   Provided that the Taxpayer has met the statutory requirements, the Taxpayer will be allowed to
   claim the $5,000 additional annual credit under TENN. CODE ANN. § 67-4-2109(b)(2)(B) (Supp.
   2010) for a period of three years beginning with the first tax year after the initial job tax credit is
   created.
   As noted above, TENN. CODE ANN. § 67-4-2109(b)(1)(A) (Supp. 2010) generally provides that, if
   certain conditions are met, a taxpayer may take the job tax credit against its Tennessee franchise
   and excise tax liability in the amount of $4,500 for each qualified job created during the
   investment period. TENN. CODE ANN. § 67-4-2109(b)(3)(A) (Supp. 2010) provides that the
   $4,500 credit allowed under TENN. CODE ANN. § 67-4-2109(b)(1) (Supp. 2010) will be increased
   to $5,000 per job if the taxpayer qualifies for the additional annual credit allowed in TENN. CODE
   ANN. § 67-4-2109(b)(2)(B) (Supp. 2010). In order to qualify for the credit, the qualified business
   enterprise must, within twelve months of the effective date of the business plan, make the
   required capital investment and create at least 25 qualified jobs.34
   An additional annual job tax credit is allowed under TENN. CODE ANN. § 67-4-2109(b)(2) (Supp.
   2010). TENN. CODE ANN. § 67-4-2109(b)(2)(B)(vi) (Supp. 2010) states that an additional annual
   credit of $5,000 per job will be allowed with respect to jobs described in TENN. CODE ANN. § 674-2109(b)(2)(B)(i)-(v) (Supp. 2010). In particular, TENN. CODE ANN. § 67-4-2109(b)(2)(B)(v)
   (Supp. 2010) provides that if
   the investment exceeds ten million dollars ($10,000,000) and at least one hundred
   (100) qualified jobs are created that also meet the definition of headquarters staff
   employees under § 67-6-224 and pay at least one hundred fifty percent (150%) of
   the state’s average occupational wage for the month of January of the year in
   which the 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.
   Note that the qualified jobs must remain filled during the year in which the credit is being
   taken.35
   34

TENN. CODE ANN. § 67-4-2109(b)(2)(C) (Supp. 2010).

35

TENN. CODE ANN. § 67-4-2109(b)(2)(B)(vi) (Supp. 2010).

13

10. PRORATION OF CREDIT
In the event the Taxpayer is not able to fully comply with the requirements for the additional
annual credit, the Taxpayer will not be allowed a prorated additional annual credit under TENN.
CODE ANN. § 67-4-2109(b)(3)(I) (2013).
The provisions relevant to the job tax credits were amended effective July 1, 2011, to allow
proration of the credit under certain circumstances.36 However, the Taxpayer’s Business Plan
states that its Investment Period begins effective on [DATE]. As explained above,37 the relevant
law for purposes of the job tax credit is the law in effect at the time the Taxpayer’s Business Plan
became effective.

R. John Grubb II
Senior Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

December 20, 2013

36

See Tenn. Pub. Act of May 21, 2011, ch. 508, §§ 21 and 34 (codified at TENN. CODE ANN. § 67-4-2109(b)(3)(I)
(2013)). The amended law, which does not apply retroactively, provides: “If determined to be in the best interests of
the state, the commissioner of revenue and the commissioner of economic and community development are
authorized to lower the number of jobs that must be created in order to qualify for the additional annual credit
provided in subdivision (b)(2)(B); provided, however, that the amount of the credit shall also be reduced in direct
proportion to the reduction in the job creation requirement. Under no circumstances, however, shall the job creation
requirement be lowered by more than fifty percent (50%).”
37

See supra note 4.

14