Tennessee Repeals Property Measure of Franchise Tax, Offers Refund Guidance

On May 10, 2024, Tennessee Governor Bill Lee signed into law Senate Bill No. 2103, significantly changing the Tennessee franchise tax computation. Specifically, SB 2103 eliminates the Tennessee property measure, Schedule G, of the franchise tax effective for tax years ending on or after January 1, 2024.

In addition, the legislation authorizes eligible taxpayers to seek a refund if the franchise tax paid under the property measure exceeded the net worth measure of the tax. Refund claims can be filed from May 15, 2024, through November 30, 2024.

How Should We Report Franchise Tax for the 2023 Calendar Year and 2024 Fiscal Year? 

Prepare your 2023 calendar year Tennessee return and 2024 fiscal year return similar to prior years. You will continue to complete both Schedule F, net worth, and Schedule G, property measure, on Form FAE170 and remit franchise tax based on the greater of the two alternative tax bases. 

However, if you pay franchise tax based on the property measure, you may then request a refund of the additional franchise tax.

Who is Eligible for a Tennessee Franchise Tax Refund? 

Eligible taxpayers — those who filed Form FAE170 and specifically paid franchise tax based on the Schedule G property — measure may request a refund for Tennessee franchise tax paid not only for tax year 2023, but also for Tennessee franchise returns filed on or after January 1, 2021, covering tax periods that ended on or after March 31, 2020. The tax refunded is based on tax paid on the property measure, Schedule G, exceeding the net worth tax measure. 

Eligible taxpayers must complete the refund claim process between May 15, 2024, through November 30, 2024. Note that Schedule F tax paid includes any credits applied on the return, which will be reinstated but not refunded. 

What to Know When Requesting a Tennessee Franchise Tax Refund

Eligible taxpayers also may want to consider the following prior to requesting a refund: 

1. The Tennessee Department of Revenue may audit the refund claim, adjust or deny the claim, or audit the originally filed amount of tax otherwise due. 
2. The Department will first apply a refund to offset any outstanding tax liabilities, if applicable. 
3. Interest will accrue at the federal short-term rate, plus 0.5%. Interest will begin accruing 90 days from the date the Department receives the refund claim and proper proof verifying the refund is due and payable.
4. The Department is required to publish on their website the name of each taxpayer issued a refund and a range of the amount received. They won’t publish specific amounts, and the ranges are quite large, such as $0.01 to $750, $750.01 to $10,000, etc. The Department will publish the information from May 31, 2025, through June 30, 2025. 
5. On the refund claim form, the taxpayer must waive all claims and rights of action in any court — state or federal — against the Tennessee Department of Revenue, Commissioner of Revenue, State of Tennessee or its employees based on any theory that the franchise tax is unconstitutional due to failing the internal consistency test.

How Should We Report Franchise Tax for the 2024 Calendar Year and 2025 Fiscal Year?

For tax years beginning on or after January 1, 2024, omit the property measure, Schedule G, from the return. The franchise tax will then be based solely on your net worth as reported on Schedule F.

Next Steps for Tennessee Franchise Taxpayers 

With the six-month window to file a refund claim in Tennessee beginning in May, be sure to do the following if you normally pay Tennessee franchise taxes:

1. Review your prior tax returns and records with your tax adviser to understand if you qualify for a franchise tax refund. 
2. If you previously anticipated paying 2024 franchise tax based on the property measure, evaluate adjusting your remaining 2024 estimated tax payments.

Contact Eric Burdette, Jayne Callahan or a member of your service team to discuss this topic further.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.