Tennessee Legislature Passes Franchise Tax Reform

On April 25, the Tennessee General Assembly passed a landmark reform (S.B. 2103) of the state's franchise tax system. Governor Bill Lee signed the bill May 10, 2024.

The General Assembly agreed to eliminate the franchise tax alternative based on the value of property in Tennessee. This change paves the way for businesses to receive retroactive refunds for amounts paid in excess of tax that would be due based on their apportioned net worth over the previous three years. However, this refund is conditioned on the temporary public disclosure of each business's name and the range of the refund amount they are receiving. Any credits used to offset franchise tax will not be refunded, but instead reconstituted and available for future use.

To be eligible for a refund, taxpayers must file their claims within a designated window, starting May 15, 2024, and ending November 15, 2024. During the period from May 31, 2025, to June 30, 2025, the Tennessee Department of Revenue will publish on its website the names of the businesses filing claims and the respective ranges of their refund amounts.

Taxpayers seeking refunds will likely be required to substantiate their claims with appropriate documentation, which may include federal tax returns, balance sheets, and a report of debts form for each applicable year. Further, by applying for a refund, businesses must agree to waive any rights to pursue additional tax refunds from the state for periods before the three-year look-back period. This waiver is a strategic trade-off, ensuring that businesses receive their refunds while providing closure on tax liabilities from earlier periods.