Question

Walnut Company does business only in Tennessee and has $3,500,000 in net worth and $4,000,000 in the book value of property owned at December 31. They also rented a building during the year with an annual rental of $25,000. Their income subject to federal income tax is $1,500,000 for the year. They deducted $100,000 of Tennessee excise tax on its federal return. They made four quarterly payments of $25,000 each for the year, overpaid franchise and excise taxes by $5,000 for the prior year with no refund claimed, had an industrial machinery credit in the current year for $2,000, paid dividends to its stock holders of $500,000, and paid premiums for its insurance policies of $40,000. Calculate the Tennessee franchise tax for the year.

Answer 1

Tennessee Franchise Tax is 25 cents per $100, applied to the greater of a taxpayers net worth or the book value of property owned, in case property is rented, annual rent will be multiplied by 8.

In this case:

Book value of property owned is $ 4m and rented property as per multiplying formula comes at (25k*8) $ 200k

Gross Franchise Tax= $ 4,200,000 / 100 * 0.25 = $10,500

Deductions: Overpaid taxes and industrial machinery credit = 7,000

Net Franchise Tax= $3,500