Tennessee Changes the Calculation of Franchise Tax

At a glance

• The main takeaway: The Tennessee General Assembly passed new legislation that significantly changes the method of calculating the franchise tax base while also creating an opportunity for taxpayers to request refunds for prior returns.
• Impact on taxpayers: Taxpayers who paid Tennessee franchise tax on the now-repealed property base may request refunds for tax periods ending on or after March 31, 2020. This refund request must be filed by December 2, 2024.
• Next Steps: Taxpayers must adhere to special criteria when claiming these refunds and should contact their Aprio advisor with questions.

The full story:

After significant debate, the Tennessee General Assembly passed House Bill (HB) 1893/Senate Bill (SB) 2103 on April 25, 2024. This legislation amends the Tennessee Code to repeal the method of calculating the franchise tax base using the total value of real and tangible property within Tennessee. The legislation additionally provides an opportunity for taxpayers who paid Tennessee franchise tax on the property base to request refunds for tax periods ending on or after March 31, 2020. The Governor is expected to sign the legislation or allow it to become law without veto.

The state is anticipating significant refund requests from taxpayers due to this legislation. The Tennessee General Assembly Fiscal Review Committee estimates the total anticipated value of these refunds to be over $1.5 billion.

Understanding the changes

Prior to the passing of this legislation the Tennessee franchise tax was calculated based on the higher of two bases:

• A taxpayer’s net worth, apportioned to Tennessee, or
• The total value of a taxpayer’s real and tangible property that was owned or rented in Tennessee.

House Bill (HB) 1893/Senate Bill (SB) 2103 repeals the real and tangible property base and leaves only the net worth base to be used for calculating Tennessee franchise tax for tax years ending on or after January 1, 2024. The legislation also added a section to the Tennessee Code making the change retroactive to returns filed on or after January 1, 2021, for periods ending on or after March 31, 2020. This allows taxpayers to request a refund for the difference between the franchise tax that would have been paid had the franchise tax been calculated on apportioned net worth and the franchise tax that was paid on returns.

Opportunity for refunds

With this significant opportunity for refunds, taxpayers should be aware that these refunds are subject to special criteria separate from the provisions relating to refund claims currently enacted:

1. The tax subject to refund must have been reported to the department on a return filed on or after January 1, 2021, covering a tax period that ended on or after March 31, 2020.
2. The refund claim must be filed between May 15, 2024, and November 30, 2024.
3. The submitted refund claim must include a statement that the taxpayer knowingly waives any claim by the taxpayer or the right to file suit alleging that the prior method of calculating the franchise tax was unconstitutional.
4. Attorneys’ fees must not be added to the amount of refund due.
5. The DOR is required to publish on its website from May 31, 2025, through June 30, 2025, the names of taxpayers issued a refund and the range of the refund.

The bottom line

Tennessee taxpayers who have been calculating and paying franchise tax using their real and tangible property value as the base should review their prior returns and assess their eligibility to seek a refund from the state.

Aprio will continue to monitor communications by the state regarding the process and mechanics around obtaining these refunds. Please reach out to your Aprio advisors if you have any questions or require assistance.

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