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Tennessee Bill Provides for Potential Franchise Tax Refunds

Tennessee businesses may qualify for franchise tax refunds under proposed legislation.
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On January 22, 2024, Tennessee introduced House Bill 1893/Senate Bill 2103, which would remove the real and tangible personal property base from the Tennessee franchise tax. The introduced legislation also requires refunds to be issued under certain conditions to requesting taxpayers who paid on the property base.

Per the Department of Revenue spokesperson, the state’s budget has currently anticipated a $1.2 billion fund for approximately 100,000 refund requests from taxpayers.

As of February 13, 2024, the bill has been referred to the Senate Finance, Ways, and Means Revenue Subcommittee.

Present Law

Under present law, all entities doing business in Tennessee and having a substantial nexus in the state, except for nonprofits and other exempt entities, are subject to the Tennessee franchise tax, a privilege tax imposed on entities for the privilege of doing business in Tennessee. Entities subject to the franchise tax include C corporations, subchapter S corps, limited liability companies, professional limited liability companies, registered limited liability partnerships, professional registered limited liability partnerships, limited partnerships, cooperatives, joint-stock associations, business trusts, regulated investment companies, real estate investment trusts, state-chartered or national banks, and state or federally chartered savings and loan associations.

Currently, the franchise tax is imposed on the greater of a taxpayer’s:

  • Apportioned net worth (reported on Schedule F1 or F2 of FAE170), or
  • Value of the real and tangible property owned or rented in the state (reported on Schedule G).

The franchise tax rate is $0.25 per $100 (0.25% or 0.0025) of the franchise tax base.

Proposed Changes

The legislation introduced removes any reference to real or tangible personal property owned or used from the franchise tax base.

In addition, the legislation requires that tax refunds must be issued for the difference in franchise tax had the present law regarding the value of property as the franchise tax base not been in existence. The refunds are subject to certain provisions:

  1. The refund must be claimed within three years from December 31 of the year in which the payment was made or within any period covered by an extension permitted by present law;
  2. The claim for refund must be filed on a form prescribed by the commissioner exclusively for the purpose of seeking a refund pursuant to this bill and must not include a claim for refund on any other basis;
  3. Any credits applied may be reinstated but not paid as a refund;
  4. Interest on the refund (at a rate less than applicable to other refunds) will not begin to accrue until 90 days after the claim is filed; and
  5. Other provisions relating to refund claims as currently enacted by present law.

This legislation requires that all refunds paid pursuant to this legislation must be paid from an appropriately designated fund established by the commissioner of Finance and Administration.

Actions to Consider

Taxpayers should consider the benefits of filing refund claims if they have been paying franchise tax on the property base in the recent past or present years. The legislation does direct that the commissioner must prescribe a form specifically for filing refund claims. If taxpayers opt to file protective claims that are rejected on procedural grounds, they may be required to resubmit their claim.

FORVIS will continue to monitor the legislation and report on updates as they progress.

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