On what is expected to be the final day of session, the Tennessee Senate and House agreed to a compromise on Gov. Bill Lee’s significant franchise tax reform proposal, SB 2103/HB 1893. The Senate voted 25-6 in favor, and the House approved 69-23. The bill heads to Governor Lee’s desk for his signature. This legislation will impact businesses that have been using the property measure, also known as the alternative minimum measure, in recent years when calculating their franchise & excise (F&E) taxes. These taxpayers, 81% of which are based in Tennessee, not only will see a $400 million tax cut going forward but will also be able to apply for refunds for overcollections (3½-year lookback) of these payments. NFIB encourages our members who have used the property measure in calculating their F&E taxes to contact your tax professional as soon as possible to determine your status. If you’ve been using the net worth measure every year going back to tax year 2020 to calculate the F&E tax, your status will be unchanged. The period for refund applications is quite compressed, beginning May 15, 2024, and ending Nov. 30, 2024, making it important to act very soon.

What Does the Legislation Accomplish?

• Eliminates the alternative minimum measure on the F&E tax prospectively, which would be savings of $400 million annually for those taxpayers.
• Requires businesses to use the net worth calculation only going forward.
• Establishes a $1.5 billion refund program with a 3½-year lookback for taxpayers who have used the alternative minimum measure in those years.
• Addresses directly the constitutionally suspect nature of the tax while simplifying the tax code and providing more certainty for businesses when projecting their annual tax liabilities.

Why Is This Legislation Important to Small Business? This bill is a huge win for many Tennessee-based small businesses. It will provide significant tax relief and greater certainty to 100,000 impacted entities, 75,000 of which are in state and mostly small to mid-sized businesses. Importantly, 98% of potential refund recipients will be eligible for refunds of $50,000 or less, while 62% will be eligible for refunds of $5,000 or less. NFIB advocated this session in support of this complex bill, which had several provisions in the House version that our members opposed, including a disclosure report of confidential taxpayer information. In the compromise, only taxpayer names and ranges of refund amounts (instead of actual individual refund amounts) will be posted publicly from May 31, 2025-June 30, 2025, on the Department of Revenue’s website and then removed. Lawmakers pledged this disclosure is one-time only and going forward Tennessee will protect confidential taxpayer information.

Other Highlights

• Refund filers must sign a waiver agreeing not to sue the state.
• Taxpayers who file for and receive refunds will have their names posted publicly in one of the following ranges – $750 or less, $751-$10,000 and more than $10,000. A “pending” category was added for unresolved claims at the date of the posting.
• Lawmakers will return any unused monies allocated for refunds to state coffers in the summer of 2025.
• Businesses with tax credits from the state’s Economic & Community Development can continue using the alternative minimum measure under certain circumstances.

What’s Next Tennessee’s attorney general must review and approve the Department of Revenue’s refund claims process before it can be used. Expect guidance and FAQs from the department soon, which NFIB will share. NFIB’s Tax Advisory Committee will continue to work with state officials and stakeholders to ensure the refund claims process is workable and efficient. NFIB plans to invite state tax experts to provide our members with updates and important information via webinars and other communications, so stay tuned. Questions? Please email jim.brown@NFIB.org or call 615.874.5288.