Tennessee franchise tax refunds update  

On May 10, Tennessee enacted Senate Bill (SB) 2103, which changes the method for computing state franchise tax. Prior to enactment, Tennessee imposed a tax on the greater of apportioned net worth (apportioned net worth measure) or the value of property owned or used in the state (property measure). In response to concerns about constitutionality, SB 2103 repeals the property measure, meaning that franchise tax is determined only based on apportioned net worth.

Several changes to the bill were made as it worked its way through the Tennessee House and Senate, including:

• Refunds are allowed for tax periods ending on or after March 31, 2020.
• Claims must be filed between May 14, 2024, and Nov. 30, 2024.
• Taxpayers claiming a refund waive the right to challenge the franchise tax as unconstitutional.
• The Tennessee Department of Revenue will publish on its website the names of taxpayers receiving refunds along with a range of the amount of the refund each taxpayer received. The applicable ranges are $750 or less, more than $750 and less than or equal to $10,000, more than $10,000, and pending.

The franchise tax change is effective for tax years beginning on or after Jan. 1, 2024.

Crowe observation

For the 2023 tax year, taxpayers should continue to calculate their franchise tax using both franchise tax bases and request a refund, if applicable.

The Department of Revenue's website contains more information on refunds.

Looking ahead

The window for making refund claims is relatively short. Businesses subject to the Tennessee franchise tax should discuss with their tax advisers the potential for franchise tax refunds consistent with SB 2103 and the guidance provided.