Deductions, Exemptions, and Credits
Certain deductions may be taken when computing the business tax. These deductions include, but are not limited to, cash discounts, trade-in amounts, amounts paid by a contractor to a licensed subcontractor, sales of services received by customers outside the state, and bad debt amounts. There are also certain federal and state excise taxes that may be deducted.
Certain entities under specific circumstances are exempt from paying the business tax. These may include, but are not limited to, people acting as employees, manufacturers, religious and charitable entities selling donated items, direct-to-home satellite providers, and movie theaters. Under very limited circumstances, certain people unable to see due to blindness and certain disabled former members of the armed forces are exempt from the business tax. Those qualifying for this particular exemption must also submit this affidavit.
Businesses with less than $100,000 in taxable sales sourced to a county are exempt from the state business tax in that county, and businesses with less than $100,000 in taxable sales sourced to a municipality are exempt from the municipality business tax in that municipality. Note, however, that if your taxable sales are less than $10,000 but more than $3,000, you will have a licensing obligation (see the Licensing section). The $100,000 threshold was updated as a result of a law change in Public Chapter 377 (2023) and applies to tax years beginning on or after December 31, 2023.
Sales of services are generally subject to the business tax. However, Tenn. Code Ann. § 67-4-708(3)(c)(i-xvi) lists 16 types of services that are exempt from business tax. To qualify as exempt, the service must fit the description of the statutorily exempted service provided in the Standard Industrial Classification Index. Only the sales of these 16 specific services listed in the Tennessee Code are exempt. If a taxpayer also makes sales of any goods or sales of other services that are not exempt, these sales would be taxable.
For more information on exempt services, see Classification 3 under the Classifications subpage on the left side of this page.
Taxpayers located in the state may take a credit for personal property tax paid. The amount of the credit can be up to 50% of the taxpayer’s business tax obligation. The property subject to the property tax must be located in the same place of business that is covered by the business tax return.