On April 25, 2024, HB 1893 and SB 2103 were passed in the Tennessee General Assembly, repealing the franchise tax property measure. Tennessee Governor Bill Lee then signed the legislation into law on Friday, May 10, 2024.
On Jan. 22, 2024, legislation was introduced that would potentially remove the alternative/real property base from the Tennessee franchise tax, and allow payment for certain taxpayers, significantly impacting Tennessee franchise tax obligations.
The following is a breakdown of what the proposed legislation would do:
What Could Change for Tennessee Franchises?
- Alternative tax base eliminated: The proposed bills (HB 1893 and SB 2103) would remove the option to pay franchise tax based on the value of real and tangible property in Tennessee. This means all taxpayers would be subject to the net worth base (apportioned net worth reported on Schedule F1 or F2 of FAE170).
- Refunds for open years: If enacted, taxpayers who paid franchise tax based on the property base in past years would be eligible for refunds for those “open years.” This could be a significant windfall for some businesses.
Who’s Impacted by the Legislation?
- All Tennessee businesses: Any entity doing business in the state and subject to franchise tax (corporations, LLCs, partnerships, etc.) could be affected.
- Businesses that paid on the property base: These businesses stand to benefit from potential refunds if the legislation passes.
Key Considerations for Tennessee Taxpayers
- Statute of limitations: Taxpayers subject to the franchise tax in Tennessee would have three years from December 31 of the year in which tax was paid to file a refund claim. For calendar year taxpayers, this means the earliest year open under statute of limitations would most likely be the year 2020. It is important to note that even if taxpayers choose a “wait-and-see” approach to see if legislation passes before taking action, this means a year would fall from the statute after Dec. 31, 2024.
- Prescribed form: The legislation requires using a specific form for refund claims. Filing a “protective claim” on a different form might be rejected on procedural grounds and then required to file another claim.
- Litigation deadline: If the legislation takes time to pass, or action on your claim is delayed, filing a protective claim early could put pressure on the one-year deadline to file a lawsuit.
What Can Tennessee Taxpayers Do Right Now?
In addition to monitoring the progress of the legislation and any updates from the Tennessee Department of Revenue, Tennessee taxpayers subject to the franchise tax should meet with their tax advisor to assess their specific situation, advise on potential refund opportunities and provide guidance through the claims process. Windham Brannon’s State and Local Tax Practice continues to monitor legislation that would impact Tennessee taxpayers and can provide insight into actions steps to take now that best fit your situation.
While the proposed changes seem promising, it’s important to stay informed and seek professional advice to ensure you make the best decisions for your business. For questions or more information, contact your Windham Brannon advisor today, or reach out to Tim Clancy.
