Tennessee Expands Brownfield Franchise and Excise Tax Credit

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On March 20, Gov. Lee signed into law SB 2158/HB 2227, which amends the Tennessee statute governing franchise and excise (F&E) tax credits available for brownfield redevelopment. Effective July 1, 2020, the law creates significant new opportunities to incentivize brownfield redevelopment in Tennessee through F&E tax credits. Key aspects of the legislation include:  

  • Tax credits apply against an entity’s combined franchise and excise tax liability. The franchise tax is based on the greater of net worth or the book value of real or tangible personal property owned or used in Tennessee. The excise tax is based on net earnings or income for the tax year (see https://www.tn.gov/revenue/taxes/franchise---excise-tax.html).
  • Incentive value and key requirements/limitations:
    • Projects in Tier 3 and Tier 4 counties (see https://tnecd.com/advantages/incentives-grants/)
      • Tax credits may equal 75% of the purchase price of a brownfield property. For projects in which property is purchased from a governmental entity (e.g., a county, municipality, or industrial development board) for less than one dollar ($1), the tax credit may equal 75% of the most recent purchase price of the brownfield property that was paid by the governmental entity.  
      • Tax credits may not exceed 75% of an entity’s combined F&E tax liability.
      • The minimum capital investment is $5 million.
      • The investment period is a maximum of five years.
      • Credits may be carried forward for up to 15 years.
    • Projects in Tier 1 and Tier 2 counties
      • Tax credits may equal 50% of the purchase price of a brownfield property. For projects in which property is purchased from a governmental entity (e.g., a county, municipality, or industrial development board) for less than one dollar ($1), the tax credit may equal 50% of the most recent purchase price of the brownfield property that was paid by the governmental entity.  
      • Tax credits may not exceed 50% of an entity’s combined F&E tax liability.
      • The minimum capital investment is $25 million.
      • The investment period is a maximum of five years.
      • Credits may be carried forward for up to 15 years.
    • Projects in all counties are subject to the following:
      • A project must be located on a property enrolled in the Tennessee Department of Environment and Conservation’s voluntary remediation program and subject to either a voluntary agreement or a consent order, i.e., a “brownfield agreement” (see https://www.tn.gov/environment/program-areas/rem-remediation/rem-brownfields-redevelopment-overview.html).
      • The five-acre minimum site size has been eliminated.
      • The definition of “capital investment” was modified by eliminating the requirement that the capital investment had to be in a business, so now any capital investment in real property, tangible personal property, or computer software owned or leased in Tennessee is eligible.  
      • A business plan for the project must be submitted to the Commissioner of Revenue. Among other things, the business plan must describe the capital investment and include a determination by three commissioners (Finance and Administration, Revenue, and Economic and Community Development) that the project is in the best interest of the state. 
      • The “best interest of the state” means that the project “is a result of the tax credit” and that the “economic benefits to this state resulting from the [project] outweigh the anticipated amount of the credit.”
      • Qualifying plans must be approved by the Commissioner of Revenue, at which time an approval letter authorizing the credit, the value of the credit, and the terms of the credit will be issued.
      • To receive the credit, the taxpayer must submit a claim along with other documentation required by the Commissioner of Revenue showing that the capital investment was made during the five-year investment period. The taxpayer is not eligible to receive the credit until the relevant minimum capital investment requirement (described above) has been met.
      • Projects are subject to ongoing oversight by the Department of Revenue.

With the enactment of SB 2158/HB 2227, the Tennessee “incentive tool kit” has been expanded to include new opportunities for brownfield redevelopment, potentially offsetting costs incurred in connection with environmental investigation and remediation, among other things. Developers, local community leaders, and economic development professionals evaluating the redevelopment of contaminated sites should evaluate opportunities under the amended F&E tax credit law. 

Please let us know if you have any questions or are interested is pursuing this incentive opportunity.