Tennessee Code Annotated

Title 67: Taxes and Licenses

Chapter 2: Income Taxation

TCA 67-2-104: Exemptions.

(a) The tax imposed by this chapter does not apply to the first one thousand two hundred fifty dollars ($1,250) for each individual return or two thousand five hundred dollars ($2,500) of combined income for persons who file jointly, of income otherwise taxable under this chapter.

(b) For tax years beginning January 1, 2000, and thereafter, any person sixty-five (65) years of age or older having a total annual income derived from any and all sources of sixteen thousand two hundred dollars ($16,200) or less, or any persons who file a joint return and either spouse is sixty-five (65) years of age or older having a total annual joint income derived from any and all sources of not more than twenty seven thousand dollars ($27,000), are exempt from the income tax imposed by this chapter upon submission of evidence deemed acceptable by the commissioner to establish the age and income limitations stated in this subsection (b). For tax years beginning January 1, 2012, and thereafter, the income levels specified in the previous sentence in this subsection (b) shall change to twenty-six thousand two hundred dollars ($26,200) for single filers and to thirty-seven thousand dollars ($37,000) for persons filing jointly. For tax years beginning January 1, 2013, and thereafter, the income levels specified in the previous sentence in this subsection (b) shall change to thirty-three thousand dollars ($33,000) for single filers and to fifty-nine thousand dollars ($59,000) for persons filing jointly.

(c) The income from stocks and bonds, mortgages, and notes owned and held by blind persons, or by persons certified, in writing, by a medical doctor to be a quadriplegic, and where such income is derived from circumstances resulting in the individual becoming a quadriplegic, are exempt from the tax imposed by this chapter.

(d) No Tennessee citizen declared by the United States department of defense to be a prisoner of war is liable for payment of the tax provided for by this chapter during the time of such person's capture and imprisonment, nor for sixty (60) days upon such person's release, whenever it should occur.

(e) (1) Nothing contained in this chapter shall be construed or held to authorize the levy of an income tax on obligations of the United States, whether evidenced by bonds or otherwise and/or on shares of stock in corporations that are arms and agencies directly of the United States, insofar as such bonds and stocks are exempt from such taxation by the constitution or laws of the United States; or on the income derived from bonds of the state of Tennessee, or any county or municipality or other political subdivision of the state of Tennessee not subject to ad valorem taxation.

(2) Nothing contained in this chapter shall be construed or held to authorize the levy of an income tax on dividends from a regulated investment company qualified as such under Subtitle A, chapter 1, subchapter M of the Internal Revenue Code, compiled in 26 U.S.C. SC 851 et seq.; provided, that a part of the value of the investments of such regulated investment company shall be in any combination of bonds or securities of the United States government or any agency or instrumentality of the United States government or in bonds of the state of Tennessee, or any county or any municipality or political subdivision of the state of Tennessee, including any agency, board, authority or commission of the United States or the state of Tennessee. Such dividends shall be exempt from the levy of an income tax only in proportion to the income of the regulated investment company attributable to interest on bonds or securities of the United States government or any agency or instrumentality of the United States government or on bonds of the state of Tennessee, or any county or any municipality or political subdivision of the state of Tennessee, including any agency, board, authority or commission of the United States or the state of Tennessee.

(3) No corporation shall be required to pay any income tax that otherwise would be assessable under this chapter on any stocks and/or bonds that constitute a part of the aggregate of its corporate property on which it is now assessed or shall be assessed for ad valorem taxes; nor when such stocks and/or bonds constitute a part of the assets that determine the value of the shares that are now or shall hereafter be assessed for ad valorem taxes to the stockholder.

(4) No person shall be assessed with this tax on income from any stock in any corporation where the value of the shares is assessed ad valorem to the stockholder by this state.

(5) No person shall be assessed with this tax on income from any stock in any corporation licensed to do business in this state as an insurance company.

(6) No person shall be assessed with this tax on income from any stock in any bank, state or federally chartered, doing business in this state.

(7) No distribution of capital shall be taxed as income under this chapter, and no distribution of surplus by way of stock dividend shall be taxable in the year such distribution is made; but all other distributions out of earned surplus shall be taxed as income when and in whatever manner made, regardless of when such surplus was earned. Stock dividends issued within one (1) year of liquidation shall be taxable in the year received to the extent made out of earned surplus; provided, that gains over and above the par or original pro rata capital value of original shares held shall be taxed to the shareholder upon any transfer of stock to nonresidents in the year of such transfer, when such transfer occurs within one (1) year prior to liquidation or redemption. There shall, however, be exempt from taxation under this section distribution made pursuant to decrees ordering divestiture of stock in enforcement of antitrust statutes.

(8) The income from stocks and bonds of educational, religious or other like institutions organized for the general welfare and not for profit or individual gain that are exempt from taxation under the Assessment Act, codified in SC 67-5-212, shall be exempt from the taxes imposed by this chapter; provided, that if any educational, religious or other like institution issues stocks or bonds, the income or profit or any part of which goes to private individuals or corporations for profit or gain and not purely for educational, religious or charitable purposes, such income or profit shall be subject to the tax imposed in this chapter.

(9) The income from stocks and bonds of pension trusts and profit sharing trusts that are exempt from federal income taxation is exempt from the taxes imposed by this chapter.

(10) The income from stocks and bonds held by a fiduciary and paid to or irrevocably set aside for the benefit of educational, religious, or other like institutions organized for the general welfare and not for profit or individual gain that are exempt from taxation under the Assessment Act, codified in SC 67-5-212, is exempt from the taxes imposed by this chapter.

(11) All income from interest on loans to qualified businesses for improvements, expansions, operations, or real property within an enterprise zone, as defined in title 13, chapter 28, part 2 shall be exempt from tax.

(12) The income derived from the trust funds in a trust created for the perpetual care of a cemetery pursuant to title 46 shall be exempt from the taxes imposed by this chapter.

(13) Nothing contained in this chapter shall be construed or held to authorize the levy of any tax on earnings or distributions from an investment fund organized as a unit investment trust taxable as a grantor trust under 26 U.S.C. SCSC 671-677, or organized as a limited partnership taxable under 26 U.S.C. SCSC 701-761 and registered under the Investment Company Act of 1940, compiled in 15 U.S.C. SC 80a-1 et seq.; provided, that a part of the value of the investments of such investment fund shall be in any combination of bonds or securities of the United States government, or any agency or instrumentality of the United States government, or in bonds of the state of Tennessee, or any county or any municipality or political subdivision of the state of Tennessee, including any agency, board, authority or commission of the United States or the state of Tennessee. Such earnings or distributions shall be exempt from the levy of an income tax only in proportion to the income of the investment fund attributable to interest on bonds or securities of the United States government, or any agency or instrumentality of the United States government, or on bonds of the state of Tennessee, or any county or any municipality or political subdivision of the state of Tennessee, including any agency, board, authority or commission of the United States or the state of Tennessee.

(14) Nothing contained in this chapter shall be construed or held to authorize the levy of any tax on earnings or distributions from an education individual retirement account as defined in SC 213 of Public Law 105-34, so long as such earnings or distributions were not subject to federal income tax.

(15) Nothing contained in this chapter shall be construed or held to authorize the levy of any tax on earnings or distributions from a Roth IRA as defined in Section 302 of Public Law 105-34, so long as such earnings or distributions are not subject to federal income tax.

(16) The tax imposed by this chapter does not apply to an entity that satisfies both of the following requirements:

(A) It:

(i) Is classified as a partnership or trust in accordance with 26 U.S.C. SC 7701, and the federal regulations and rulings promulgated under 26 U.S.C. SC 7701;

(ii) Has elected to be treated as a real estate mortgage investment conduit (REMIC) under 26 U.S.C. SC 860D;

(iii) Has elected to be treated as a financial asset securitization investment trust (FASIT) under 26 U.S.C. SC 860L; or

(iv) Is a business trust, as defined in SC 48-101-202(a), or is classified as a trust under the laws of the state in which it is created and is disregarded for federal income tax under 26 U.S.C. SC 7701, and the federal regulations and rulings promulgated under 26 U.S.C. SC 7701, when the commercial domicile of the trustee is not in this state; and

(B) (i) The sole purpose of the entity, except for foreclosures and dispositions of the assets of foreclosures, is the asset-backed securitization of debt obligations, such as first or second mortgages, including home equity loans, trade receivables, whether an open account or evidenced by a note or installment or conditional sales contract, obligations substituted for trade receivables, credit card receivables, personal property leases treated as debt for purposes of the Internal Revenue Code of 1986, compiled in 26 U.S.C., home equity loans, automobile loans or similar debt obligations.

(ii) "Trade receivables" as used in subdivision (e)(16)(B)(i) means obligations arising from the sale of inventory in the ordinary course of business.

(17) The income from stock in any publicly traded real estate investment trust, as defined in SC 67-4-2004, is exempt from the tax imposed by this chapter.

(18) The income from stocks and bonds of trusts for perpetual care or improvement of private cemeteries, graves, or burial grounds are exempt from the taxes imposed by this chapter.

History: Acts 1931 (2nd Ex. Sess.), ch. 20, SCSC 4, 5, 16; 1933, ch. 60, SC 2; 1937, ch. 117, SC 2; 1949, ch. 221, SC 1; mod. C. Supp. 1950, SCSC 1123.1, 1123.4, 1123.5, 1123.32; Acts 1953, ch. 199, SC 1 (Williams, SC 1123.5); 1953, ch. 238, SC 1; 1955, ch. 135, SC 4; impl. am. Acts 1959, ch. 9, SC 14; Acts 1963, ch. 167, SC 1; 1963, ch. 271, SC 3; 1963, ch. 273, SC 1; 1968, ch. 431, SC 8; 1972, ch. 484, SC 1; 1976, ch. 638, SC 1; 1977, ch. 140, SC 8; 1977, ch. 347, SC 1; 1978, ch. 849, SC 1; modified; T.C.A. (orig. ed.), SCSC 67-2605 -- 67-2607, 67-2609 -- 67-2612, 67-2635; Acts 1985, ch. 395, SCSC 3, 5; 1987, ch. 378, SC 1; 1988, ch. 1008, SCSC 1, 2; 1989, ch. 222, SC 6; 1989, ch. 524, SC 2; 1989, ch. 560, SC 18; 1992, ch. 931, SCSC 1, 2; 1995, ch. 535, SC 1; 1998, ch. 1013, SC 1; 1998, ch. 1032, SC 1; 1999, ch. 236, SC 1; 2006, ch. 1019, SC 21; 2008, ch. 1106, SC 39; 2011, ch. 396, SC 1; 2011, ch. 490, SCSC 2, 3; 2012, ch. 667, SC 1; 2013, ch. 322, SC 1.