Tennessee Franchise Tax Refund Opportunity with New Senate Bill
Taxpayers must file refund claims between May 15, 2024, and November 30, 2024, to potentially qualify for this franchise tax refund.
The Tennessee franchise tax has historically been calculated based on the greater of a taxpayer’s apportioned net worth, or the actual value of real and tangible personal property owned or used in Tennessee. However, a new law will change this calculation to solely use the apportioned net worth method. Furthermore, taxpayers who overpaid using the previous method can expect to receive refunds. This change will take effect for tax returns filed on or after January 1, 2021, and will apply to the 2020, 2021 and 2022 tax years.
What Is Changing with Tennessee Franchise Tax?
On April 25, 2024, the Tennessee Senate passed Tennessee Senate Bill (SB) 2103, following approval from the House. The bill was then sent to Governor Lee who officially signed it into law on May 10, 2024. This legislation was enacted in response to taxpayers filing lawsuits challenging the constitutionality of the tax based on the higher value of real and tangible personal property in the state compared to the apportioned net worth basis. The new law eliminates the use of the property measure and only uses the net worth measure.
The legislation authorizes refunds for taxpayers who filed Tennessee franchise tax returns for tax years ending on or after March 31, 2020 (originally filed on or after January 1, 2021), and paid the tax based on the real and tangible personal property tax base in Tennessee instead of the apportioned net worth basis. These taxpayers can recover the incremental tax based on the tangible property basis that exceeds the apportioned net worth basis. This change and refund opportunity generally benefits businesses with a significant amount of real and tangible property in the state. Furthermore, the alternative method of imposing the tax based on real and tangible personal property will be repealed for years ending on or after January 1, 2024.
Department of Revenue Guidance Update
The Department of Revenue (DOR) has yet to provide formal guidance on obtaining the refund, but it is expected that the process will involve filing amended returns for each year, executing special forms and making the claim through the Tennessee Taxpayer Access Point (TNTAP) portal. Taxpayers will also need to waive the right to file a lawsuit challenging the constitutionality of the franchise tax. Additionally, the DOR will publish a list of taxpayers who request refunds based on the range of refunds requested. Interest will be paid on the refunds at the federal short-term rate plus 0.5% beginning 90 days after the DOR receives the refund claim and supporting information.
Your Guide Forward
Due to the complexities involved in filing for the claims, the limited time period and the risk of a claim being permanently rejected if filed incorrectly, Cherry Bekaert’s State & Local Tax Advisory group can assist in staying compliant with the updated state legislation. In addition, companies should consider the repeal of the property measure when preparing estimated payments for 2024.
