The Tennessee R&D tax credit, explained
No, Tennessee has no state R&D tax credit against its franchise and excise tax. The federal credit is still fully available.
Last verified July 2026 against Tennessee Department of Revenue guidance.
The short answer
Does Tennessee have an R&D tax credit? No. Tennessee's franchise and excise tax, the state's equivalent of a corporate income tax, has no general research and development credit. The Department of Revenue's list of franchise and excise tax exemptions and credits does not include one.
Where that leaves Tennessee startups
Tennessee does offer a narrower benefit: a sales and use tax exemption for machinery and equipment used primarily in qualified research, available to companies that register as an R&D facility with the Department of Revenue. That is a sales tax break, not an income tax credit, and it only covers equipment purchases.
Tennessee also decoupled from the federal rule that let companies deduct research costs immediately, requiring 5-year or 15-year amortization for franchise and excise tax purposes instead. That is a cost-recovery rule, not a credit, but it affects how research spending shows up on the state return.
How it stacks with the federal credit
With no state income tax credit, the federal R&D credit is the primary benefit for Tennessee companies doing research, worth roughly 6% to 10% of qualified spend. Startups under $5 million in revenue can apply up to $500,000 of it against payroll taxes each year.
Example: a Nashville health tech startup with 16 employees and $1.7 million in qualified research wages could see a federal credit near $119,000 at a 7% effective rate. Most of that can go straight against payroll tax deposits if the company qualifies as a startup, rather than waiting on Tennessee franchise and excise tax liability.
A Tennessee company buying lab or testing equipment for research may also qualify for the state's sales tax exemption on that machinery, which lowers the upfront cost of building out an R&D facility even though it does not touch income tax.
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Claiming the federal credit instead
Since there is no state R&D income tax credit, there is no state credit form to file. Companies pursuing the machinery sales tax exemption register separately as an R&D facility with the Department of Revenue.
The federal R&D credit is claimed on Form 6765 with the company's federal return. Claimship prepares that study and package; the company's CPA files the federal return and handles the Tennessee franchise and excise tax return separately.
Any Tennessee company doing qualifying software, hardware, or process development work can pursue the federal credit regardless of its franchise and excise tax position.
Official source: Tennessee Department of Revenue.
Carryforward and deadlines
There are no state R&D credit carryforward rules to track in Tennessee, since no such credit exists.
The federal credit follows its own carryforward rules, generally up to 20 years for unused amounts, and the payroll tax offset election is made annually with the federal return.