When a taxpayer sells or removes from Tennessee any industrial machinery during its useful life that has generated an industrial machinery credit, a portion of the industrial machinery credit is recaptured in the tax period in which the machinery is sold or removed. The recapture amount is the amount of the credit that offset tax multiplied by the percentage of the industrial machinery’s remaining useful life at the time of disposal or removal. This amount should be reported on Schedule T, Line 13 and Schedule B, Line 6 of FAE 170 or FAE 174.
For example, a manufacturing stamping machine was purchased on July 1, 2017, for $100,000. The taxpayer claimed an industrial machinery tax credit of $1,000 that offset its December 31, 2017, franchise and excise tax. The equipment had a seven year useful life, but was sold on July 1, 2018. The recapture amount is $857 [$1,000 x (6 years/7 years)].
If earned industrial machinery credit populated the carryover table (Schedule V) but did not offset tax, the taxpayer should adjust the carryover table. For example, if the $1,000 credit earned in the above case populated the carryover table but did not offset tax in 2017 or 2018, the recapture amount of $857 would be reported on the December 31, 2017, return in the Expired or Recaptured column of Schedule V.
A worksheet is available for this calculation.