In the closing hours of the Tennessee legislative session, a compromise bill was approved on April 25, 2024 to overhaul the state’s franchise tax and refund more than $1 billion to business taxpayers. If enacted, this legislation will also change the calculation of the franchise tax going forward by eliminating the tangible property measure for tax years ending on or after January 1, 2024, costing the state approximately $400 million per year in revenue.
Senate Bill 2103 authorizes refunds on Tennessee returns filed on or after January 1, 2021, covering a tax period that ended on or after March 31, 2020. The Senate bill also incorporates modified transparency provisions that originated in the House version of the legislation. The transparency provisions would require a limited disclosure of the names of businesses claiming refunds as well as the amounts paid. The disclosures would be presented in four categories: $750 or less; between $751 and $10,000; greater than $10,000; and “pending,” if the final payment has not been determined at the time of posting. This refund information would be posted on the Department of Revenue’s website for a limited period between May 31 and June 30, 2025.
Tennessee Franchise Tax
Tennessee’s franchise tax is imposed on the larger of the business’s apportioned net worth or the value of its real and tangible property owned or rented in the state. The property measure would be repealed prospectively by the legislation, allowing all taxpayers to calculate their franchise tax on apportioned net worth. Refunds would be allowed for the applicable periods to the extent the taxpayer’s franchise tax on tangible property exceeds the tax on apportioned net worth. Refund claims would be filed on special form prescribed by the Commissioner and may not include claims related to any other issues. Taxpayers would also be required to include a statement that the taxpayer, upon accepting the refund, waives any claim or the right to file suit alleging that the franchise tax is unconstitutional by failing the internal consistency test.
It is anticipated that Governor Bill Lee will sign this bill. If enacted, the bill would require refund claims to be filed between May 15, 2024 and November 30, 2024. Any taxpayer not filing refund claims that wants to file suit challenging the constitutionality of the franchise tax would need to file by November 30, 2024.
Charles Fischer, State Income and Franchise Tax Principal at Ryan commented: “Taxpayers submitting refund claims pursuant to this legislation should carefully examine their net worth calculation and determine whether any separate adjustments may be needed. In addition, taxpayers utilizing tax credits to offset some or all of their franchise tax liability should carefully examine the legislation’s impact, including the need to submit a claim even if no refund is due as a result of credit utilization.”
Please contact our Ryan tax professionals to determine how these changes could impact your business.
TECHNICAL INFORMATION CONTACT:
Charles Fischer
Principal
Ryan
314.721.1300
charles.fischer@ryan.com
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