There could be big changes coming to Tennessee’s franchise tax this year. Earlier this month Governor Bill Lee proposed amending the 89-year-old franchise tax to enact changes that could reduce the franchise tax for many taxpayers prospectively.

Under the Governor’s proposal, the alternative tax base on the value of property that a taxpayer owns or uses in Tennessee would be eliminated. Going forward, taxpayers would calculate tax based on net worth only.

In addition to a potential reduced tax liability going forward, there may also be an opportunity for some taxpayers to seek refunds for franchise taxes paid in prior years (2021 and later). These changes are outlined in proposed legislation that was filed in the General Assembly on Monday, January 22, 2024 (House Bill 1893).

It is expected that Governor Lee may address this issue in his upcoming State of the State address on Monday, February 5, 2024.

There is a long way to go in the legislative process before this becomes final. The proposal will have to go through the committee processes and be enacted by both Houses of the General Assembly before it can take effect. Additionally, the proposal could be changed in any number of ways during the legislative process. LBMC is continuing to monitor developments and watch as the legislation progresses so that we are in a position to advise and assist affected taxpayers. More details will follow as developments warrant.

In the meantime, if you have questions about the proposal or how it could impact your company, please contact your LBMC tax advisor or someone in the LBMC State and Local Tax Group.

Content provided by LBMC State and Local Tax professional, Jay Hancock.

Jay Hancock is the LBMC State and Local Tax Practice Leader. He can be reached at 615-690-1982 or jay.hancock@lbmc.com.

LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.

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