Tennessee legislation proposes to repeal the real and tangible property base of the franchise tax and authorizes refunds

Tennessee franchise tax background

Currently, the Tennessee franchise tax is imposed on the greater of the apportioned net worth or the value of real and tangible property owned or rented in the state at a rate of .25%.

Proposed legislation

HB 1893 and SB 2103 were introduced on Jan. 22, 2024, and Jan. 29, 2024, respectively. Tennessee has a companion bill system, and therefore, the bills are the same.

The proposed legislation would repeal the real and tangible property base from Tennessee’s franchise tax, which would require the tax to be calculated solely using a taxpayer’s apportioned net worth.

Potential refunds

Refund calculation

The proposed legislation authorizes refunds in open years. Specifically, the legislation indicates the applicable refunds would be limited to the difference between the tax that was actually paid on the real and tangible property base and what would have been paid using the apportioned net-worth base.

The term “tax actually paid” includes any credits applied to the return. Credits must be reinstated but not paid as a refund.

Refund claims

The bills further provide that claims for refunds exclusively related to the proposed legislation must be filed on a form prescribed by the Commissioner, including information necessary to determine the proper refund amount due.

Further, the refund must be claimed within three years from Dec. 31 of the year in which the payment was made or within any period covered by an extension permitted by law. Interest will begin to accrue 90 days from the date that the Commissioner receives the refund claim and proper proof to verify that the refund or credit is due and payable.

It’s notable that the legislation does not prevent the Commissioner from auditing, adjusting or denying refund claims.

What’s next?

The proposed bills are still in the early stages of the legislative process and are currently in each chamber’s respective Finance, Ways and Means subcommittees.

While the bills progress through the legislative process, taxpayers should review their Tennessee franchise tax returns for the past three years. Taxpayers should also contact their tax advisors to discuss the franchise tax calculations, so that they understand the potential impact, if any, of the proposed legislation.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments. Baker Tilly US, LLP does not practice law, nor does it give legal advice, and makes no representations regarding questions of legal interpretation.