June 5, 2024
On May 10, 2024, Tennessee Governor Bill Lee signed Public Chapter 950 into law, eliminating the property measure for computing the franchise tax starting January 1, 2024. This change is expected to benefit many businesses across Tennessee, particularly those with substantial real and tangible property, such as in the real estate, retail, transportation, and manufacturing sectors. With the property measure removed, the net worth measure is now the sole method for calculating the franchise tax.
This legislation allows eligible taxpayers to claim refunds for overpaid taxes from the past three years. Tennessee estimates it will ultimately pay refunds of nearly $1.6 billion and experience an annual tax revenue reduction of approximately $400 million due to this change. Eligible taxpayers should act promptly to amend returns and claim refunds before the November 30, 2024, deadline. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
Historically, the franchise tax in Tennessee included a property measure, which considered the value of real and tangible personal property owned or used by a business within the state. This often resulted in higher taxes for companies with significant property holdings. For tax years ending before December 31, 2023, the franchise tax was calculated based on the higher of two amounts:
The tax rate is 0.25% of the tax base, with a minimum franchise tax of $100. Public Chapter 950 eliminates the property measure from the tax calculation. Starting with tax years ending in 2024, businesses will exclude Schedule G and calculate the franchise tax based solely on net worth using Schedule F. This simplification is expected to reduce the overall tax liability for many businesses.
Additionally, the legislation authorizes the Tennessee Department of Revenue to issue refunds to eligible taxpayers who overpaid their franchise tax due to the now-eliminated property measure. Eligible taxpayers include those who paid franchise tax based on the property measure using Schedule G for tax years ending on or after March 31, 2020, for which a return was filed with the Tennessee Department of Revenue on or after January 1, 2021.
Refund claims must be filed between May 15, 2024, and November 30, 2024. The amount of tax refundable is the difference between the franchise tax paid based on the Schedule G property measure and the tax that would have been owed based on the Schedule F net worth measure for the applicable tax years.
The Department must publish the name of each taxpayer temporarily issued a refund and the applicable range corresponding to the total amount refunded. This information will be published on the Department’s website from May 31, 2025, through June 30, 2025, with ranges categorized as $750 or less, between $751 and $10,000, and more than $10,000.
Who is eligible for a refund under Public Chapter 950?
Eligible taxpayers paid franchise tax based on the property measure using Schedule G for tax years ending on or after March 31, 2020, and filed their returns on or after January 1, 2021.
What is the deadline for filing refund claims?
The amended returns and the refund claim must be filed between May 15, 2024, and November 30, 2024.
What documentation is needed to support my refund claim?
If a refund of $200 or more is requested, refund claims must include a completed Report of Debts form. Additionally, supporting documents such as a balance sheet, schedule of assets/liabilities, or federal return pages may expedite the refund process.
What happens if my refund claim is accepted?
Upon acceptance of a refund claim, the taxpayer waives any claims in federal or state court against Tennessee regarding the constitutionality of the franchise tax as it existed before the recent legislation.
Public Chapter 950 marks a significant change in Tennessee’s franchise tax policy, offering financial relief to many businesses by eliminating the property measure and simplifying tax calculations. Eligible taxpayers are encouraged to act swiftly to amend their returns and file refund claims before the November 30, 2024, deadline. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.