September 20, 2024

Eligible for a Tennessee Franchise Tax Refund?

Recent changes in Tennessee tax law now allow businesses to claim refunds for franchise taxes on previous payments. On May 10, 2024, Public Chapter 950 was signed into law, eliminating the property measure from the franchise tax calculation. Starting January 1, 2024, businesses will calculate franchise taxes based only on net worth, simplifying the process and potentially lowering tax liabilities.

This change affects both future tax filings and past overpayments. Businesses that paid franchise tax based on the property measure for tax years ending on or after March 31, 2020, may now qualify for a refund. Eligible taxpayers will want to act quickly to amend their returns and file refund claims before the November 30, 2024, deadline. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Overview of the Tennessee Franchise Tax 

Historically, Tennessee’s franchise tax was calculated using the greater of two amounts:

• Net Worth: The business’s net worth (assets minus liabilities), apportioned for Tennessee and reported on Schedule F of the franchise tax return.
• Book Value of Property: The book value (cost minus accumulated depreciation) of the business’s real and tangible personal property owned or used in Tennessee, reported on Schedule G of the return.

The franchise tax was then applied at a rate of 0.25% of the higher of these two amounts, with a minimum franchise tax of $100. This calculation often resulted in higher tax liabilities for businesses with significant physical assets, such as those in real estate, retail, transportation, and manufacturing. As a result, some businesses challenged the property measure, arguing that it discriminated against interstate commerce and violated constitutional principles.

Starting January 1, 2024, the property measure has been removed, and businesses that previously paid franchise taxes based on property holdings may now be eligible for a refund. Refunds apply to tax years ending on or after March 31, 2020. For example, if a business paid $12,000 in franchise tax using the property measure for the 2023 tax year but would have paid $10,000 under the net worth method, it may be eligible to claim a $2,000 refund.

Eligibility for Refunds

Eligible taxpayers include businesses that:

• Paid franchise tax based on the property measure using Schedule G for tax years ending on or after March 31, 2020.
• Filed a return with the Tennessee Department of Revenue on or after January 1, 2021.

Refunds can be claimed for the difference between what was paid under the property measure and what would have been owed under the net worth measure. The state estimates that nearly $1.6 billion in refunds will be issued due to this legislative change.

Steps to Claim a Refund

1. Verify Eligibility: Businesses should review franchise tax filings for tax years ending on or after March 31, 2020. If the property measure was used to calculate the tax, the business may qualify for a refund.
2. Amend Past Returns: Eligible businesses must file amended returns for the applicable years, adjusting the tax calculation from the property to the net worth measure.
3. Submit a Refund Claim: Along with the amended return, a special refund claim form and a report of debts must be filed. These claims must be submitted between May 15, 2024, and November 30, 2024, as no extensions will be granted.
4. Use the TNTAP Portal: To expedite processing, the Tennessee Department of Revenue encourages businesses to use the Tennessee Taxpayer Access Point (TNTAP) portal to file amended returns, submit claims, and upload supporting documentation.
5. Review Apportioned Net Worth Calculations: Refunds are based on the difference between the property measure tax and the net worth measure tax. Businesses should carefully review their net worth calculations and apportionment factors for accuracy when filing claims.

Note: Refund claims for $200 or more may require additional documentation, such as balance sheets or federal tax returns. Businesses must also agree to certain conditions, including waiving any future claims related to the constitutionality of the franchise tax.

Deadline for Filing Refund Claims

The deadline to file refund claims is November 30, 2024. Extensions are not permitted. Once processed, the Tennessee Department of Revenue will publish the names of businesses receiving refunds between May 31, 2025, and June 30, 2025.

Contact Us

Businesses will want to act quickly to determine their eligibility for a refund. This includes analyzing tax filings from 2020 to 2023 and filing the necessary amended returns 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.