Tennessee Franchise Tax Proposal Creates Refund Opportunity

On January 22, the Tennessee House and Senate introduced legislation (H.B. 1893, S.B. 2103) that would repeal the franchise tax alternative measure based on the value of real or tangible property owned or used in Tennessee. The proposal is a response to challenges that the alternative measure violates the internal consistency test of the dormant U.S. commerce clause.

The proposed legislation authorizes the Tennessee Department of Revenue to refund taxpayers for the amount of tax actually paid in excess of what would otherwise be due using apportioned net worth for open years. Any refund must be claimed within three years of December 31 of the year when payment was made or within any period covered by an extension. Claims must be made on a form prescribed by the Department and cannot include refund claims made under any other bases.  

Although the bill is still in committee, it is likely to pass during the 2024 legislative session, which adjourns April 25. Gov. Bill Lee’s proposed budget includes the effects of approximately $1.2 billion in refund claims stemming from the repeal.

In addition to being a Tennessee franchise tax refund opportunity, other considerations include the potential impact for Tennessee estimated tax or extension payments and the interplay with existing Tennessee tax credits used on returns.