Tennessee Revenue explains franchise and excise tax exemption rules for venture capital funds

Meagan Choate, of the Taxpayer Services Division at the Tennessee Department of Revenue, presented guidance on franchise and excise tax exemptions for venture capital funds and the steps funds must take to qualify.

Choate said qualifying entities must meet the requirements of Tennessee Code Annotated section 67-4-2008 and must be a limited liability company, limited partnership, limited liability partnership or business trust. "The entity must be operated exclusively for the purpose of buying, holding and/or selling securities, including debt securities, primarily in non-publicly traded companies, on its own behalf and not as a broker," Choate said. She added that more than 50% of the capital must come from investors not affiliated with the fund.

To receive or renew the exemption, Choate instructed funds to file form FAE 183 (Application for Exemption/Annual Exemption renewal). She said franchise and excise tax returns (form FAE 170) must be filed electronically with any tax payment due "by the 15th day of the fourth month following the close of the taxable year." Choate warned, "Failure to timely file an application for exemption or renewal may result in the assessment of a $200 penalty."

Choate explained that entities that request a federal income tax extension are automatically granted an extension for franchise and excise tax and advised filers to check the box on the form indicating "Taxpayer has filed a federal extension" to ensure the extension is applied.

For more information and detailed instructions, Choate directed viewers to forms FAE 183 and FAE 170, Tennessee Code Annotated § 67-4-2008, and the franchise and excise tax manual available on the Tennessee Department of Revenue website (tn.gov/revenue). She also provided department contact options: email revenue.support@tn.gov and phone lines (general tax line 615-253-0600; franchise and excise questions 615-253-0700) during business hours.