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SALT Alert: Tennessee Overhauls Franchise Tax

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On May 10, 2024, Tennessee Gov. Bill Lee signed SB 2103 into law, making substantial changes to the state’s franchise tax regime and creating refund opportunities for certain taxpayers.

Historically, Tennessee’s franchise tax has been imposed on the greater of a taxpayer’s net worth apportioned to the state or the real and tangible personal property owned and used in Tennessee. The recent legislation removes the references to real or tangible personal property employed in Tennessee from the franchise tax statute, effectively updating the computation of Tennessee franchise tax retroactively to be imposed only on a taxpayer’s net worth apportioned to the state.

This legislative change reflects a push to modify provisions in the franchise tax statute that have been challenged (or alleged) to be unconstitutional. Taxpayers who filed returns for the 2020 through 2023 tax years reflecting Tennessee franchise tax computed on the value of in-state property are eligible for a refund of the difference in the tax paid on the original return filings and franchise tax that would have been computed based on apportioned net worth.

The Tennessee Department of Revenue has released Notice #24-05, which provides additional guidance on the amended return and refund claim filing process. Affected taxpayers must file refund claims between May 15 and November 30, 2024. Please see our recent SALT alert on the guidance in Notice #24-05 for additional information.

Next Steps

Taxpayers who have historically filed Tennessee returns and paid franchise tax based on the value of their in-state property should work with their tax advisors to submit amended returns and refund claims in accordance with the Department’s recent guidance. The return filing and refund claim process prescribed by the state is different than that which typically applies to amended returns or refund claims based on other grounds. Additionally, the limited time frame for filing these claims means that affected taxpayers should act promptly to ensure they are eligible to receive the refunds authorized by the recent legislation.

If you have any questions on how the enactment of SB 2103 may impact your business, contact your Frazier & Deeter tax advisor or Brian Strahle, Partner-in-Charge of FD’s State and Local Tax Practice.

Contributors

Brian Strahle, Partner-in-Charge, State & Local Tax Practice

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