In my ongoing series about tax opportunities for manufacturers, I want to highlight another powerful incentive: the Tennessee Industrial Machinery Tax Credit. This often-overlooked program can provide significant savings when you're investing in equipment for your facility.
Editor's Note: This blog post is adapted from a transcript of our Manufacturing Minute podcast episode featuring Brian Wages of Specialty Tax Group. The content reflects the conversational nature of the original recording.
Here's something important to understand: while capital investment is required as part of the Tennessee Job Tax Credit, there's actually a separate credit specifically for industrial machinery purchases. This means your equipment investment can potentially qualify you for two different tax benefits.
The Tennessee Industrial Machinery Tax Credit is straightforward. The credit equals one percent of your qualified industrial machinery spend. While companies spending more than one hundred million dollars can qualify for a higher percentage, most manufacturers we work with fall into that one percent category—which is still a substantial benefit.
According to Brian Wages from the Specialty Tax Group, who joined me on our Manufacturing Minute podcast, this credit can be used to offset up to fifty percent of your franchise and excise tax liability. That's a significant reduction in your tax burden.
Just like the job creation credit, this program requires pre-approval. You must submit a business plan to the Tennessee Department of Economic and Community Development before making your equipment purchase. This pre-approval process is critical—if you buy the equipment before receiving approval, you won't be able to claim the credit.
Your business plan needs to detail:
Tennessee specifically wants to incentivize manufacturers to invest in modern, efficient equipment. This benefits not just individual companies but the entire state's manufacturing sector. By upgrading equipment, you're improving productivity, potentially creating safer work environments, and positioning your company for long-term success.
While the industrial machinery credit stands alone, it often works hand-in-hand with the job creation credit. Many manufacturers who are expanding their workforce are simultaneously investing in new equipment to support that growth. When you're planning a facility expansion or relocation that requires both new hires and new equipment, you may qualify for both credits simultaneously.
Remember, for the job creation credit, you need a minimum capital investment of five hundred thousand dollars along with your new hires. That same investment in qualified industrial machinery can also generate the separate equipment credit.
I cannot stress this enough: timing and planning are crucial. Both of these credits require pre-approval, which means you need to be in conversation with your CPA well before you sign any purchase orders or start construction. Even if you're just in the thinking stages of an expansion, reach out to your tax advisor.
During our podcast conversation, Brian emphasized that these are statutory tax credits. You don't have to be chosen or selected like you would for a grant. If you're meeting the letter of the law with your activities and your application is complete, you're entitled to these credits. But you have to follow the process correctly, starting with that pre-approval.
Whether you're buying production equipment, upgrading your facility infrastructure, or investing in pollution control or recycling equipment, there may be tax credits available to you. The key is knowing about these programs before you make your investment decisions.
As we work with manufacturing clients across Tennessee, I'm seeing more companies being acquired by private equity firms or international companies. It's essential that these new owners understand the incentives available in Tennessee. These credits are here for everyone to use—you just need to know they exist and how to apply for them.
If you're planning any significant equipment purchases in the coming year, now is the time to start the conversation with your CPA. We're entering the year-end tax planning season, and this is exactly the type of opportunity you should be exploring.
Our job as your trusted advisors is to save you as much in taxes as we can. If there are credits available, we want to make sure you're taking advantage of them. Don't leave money on the table because of a timing issue or lack of awareness.
The Tennessee Industrial Machinery Tax Credit is just one of many incentives designed to help manufacturers thrive in our state. Stay tuned for more insights on how to maximize these opportunities.
Megan Meador is an audit and assurance partner at Brown Edwards and currently serves as the industry leader for manufacturing and distribution.