Potential refund opportunity from Tennessee General Assembly axing franchise tax property measure

by: Will Clarke and Emily Kuper

The Tennessee General Assembly recently passed significant changes to the Tennessee franchise tax via S.B. 2103. These changes, passed on April 25^th, 2024, directly repeal the property tax measure of the Tennessee franchise tax. Incorporated in the passed legislation, the Tennessee Department of Revenue is required to issue franchise tax refunds to taxpayers who owed franchise tax based on the property measure. The refund will be equal to the amount of franchise tax paid, less the amount of franchise tax due, without taking into consideration the property measure of the franchise tax base. As of the writing of this alert, the TN DOR has not issued guidance on the process for claiming amended returns.

What does this mean for you?

• Between May 15, 2024 and November 30, 2024, taxpayers will be able to file a claim for refund for returns filed with the Tennessee Department of Revenue dating from on or after January 1, 2021 for a tax period that ended on or after March 31, 2020.
• Any unfiled 2023 tax returns must first be filed under the old laws and tax remitted using the greater of the equity or property tax measure.  Once filed, the 2023 returns then must be amended using the same process as the other years.
• The claim for refund, including information necessary to determine the proper amount due, must be filed on a form prescribed by the commissioner exclusively for the purpose of seeking a refund and must not include a claim for refund on any other basis.
• By filing a claim for refund, the taxpayer knowingly waives any claim by the taxpayer or right to file suit alleging that the franchise tax provisions at issue are unconstitutional by failing the internal consistency test. Taxpayers will submit a form to the state that will waive their rights to file suit.
• The name of each taxpayer issued a refund will be published on the Tennessee Department of Revenue’s website, with the amount refunded. The names will be listed in broad categories based on the amount of refund received, but the actual amount received by a taxpayer will not be specifically listed.  

Please use the form below to contact your Elliott Davis tax advisor should you have questions regarding Tennessee S.B. 2103 and its impact on your Tennessee franchise tax filings.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.