Tenn. Code Ann. § 67-4-711(a)(5) allows a contractor to deduct amounts paid to a subcontractors who are making improvements to real property or performing any other work described in Tenn. Code Ann. § 67-4-708(4)(a). The subcontractor must have a business tax license or a contractor's license. The contractor must gather the name, address, and license number of the subcontractor and maintain a copy of the subcontractor's license in its records. The contractor should also keep a record of the amount paid to each subcontractor.
This is deducted on the business tax return on Schedule A, Lines 2 and 8. It is calculated by completing Schedule C and transferring the amounts onto Schedule B, Lines 8 and 9. Schedule C is available on both the electronic and paper returns. Subcontractors are also required to file their own business tax returns with the Department of Revenue.
Reference: Tenn. Code Ann. §§ 67-4-708(4)(a) and 67-4-711(a)(5).