On April 25, Tennessee approved S.B. 2103/H.B. 1893 (bill) which removes the property measure from the franchise tax portion of the state’s franchise and excise tax and allows for refunds on franchise tax paid under the measure. On May 3, the Tennessee Department of Revenue (Department) issued Notice #24-05 (Notice) containing details on the franchise tax property measure repeal and the specific procedures that taxpayers must follow to claim refunds under this provision for prior eligible tax years. 

Tennessee’s franchise tax

Tennessee’s franchise and excise tax includes two components – the franchise tax and the excise tax. The excise portion of the tax is based on apportioned net income.  Before the repeal,  the franchise portion of the tax was based on tax computed on the greater of one of the following two measures:

1. Tennessee real and tangible personal property (property measure) or
2. Apportioned net worth (net worth measure)

Changes to franchise tax

The bill removes the property measure of the franchise tax and requires that the Tennessee franchise tax solely be calculated at 0.25 percent of Tennessee apportioned net worth. The change takes effect on tax years ending on or after Jan. 1, 2024; however, the bill also allows for refunds if tax was previously paid according to the property measure. Tax returns filed after Jan. 1, 2021 that covered tax periods that ended on or after March 31, 2020 (2020, 2021, 2022, and 2023 for calendar year taxpayers) are eligible for refund. 

The Department of Revenue has stated that tax returns for the year ended Dec. 31, 2023 must still be filed according to the rules in effect as of Dec. 31, 2023 (tax calculated on greater of property measure or net worth measure). Many taxpayers have not yet filed their Tennessee franchise and excise tax return for the 2023 tax year since the extended due date has not passed, but tax must still be paid according to the property measure if it exceeds the net worth measure for 2023. An amended return and refund claim can be filed after the original return is filed. This is necessary so the Department can properly disclose refund recipients and associated amounts (See Disclosure information below). 

Below are some important items to consider before amending returns and filing refund claims with the Tennessee Department of Revenue. 

• How much is the refund and is it automatic? – Refunds issued will be equal to the amount of tax paid under the property measure less the amount of tax calculated according to the net worth measure. Refunds will not be automatic and both amended returns and refund claims must be filed to receive the refund. However, the Department does plan to notify taxpayers who qualify for a refund. 
• Who qualifies for a refund? – Taxpayers with a significant amount of property in Tennessee are expected to benefit most from this law change. However, taxpayers that paid the Tennessee franchise tax according to the property measure and whose apportioned net worth is less than their Tennessee property should expect to qualify for a refund by the amount of the franchise tax difference under those two measures. 
• Disclosure information – The Department will publish the names of taxpayers who receive refunds under this provision on their website. The exact amount of the refund will not be disclosed. Instead, taxpayers will be grouped into one of three ranges ($750 or less, $751 - $10,000, or more than $10,000), depending on the amount refunded. Taxpayers’ names will be posted on the Tennessee Department of Revenue’s website from May 31, 2025 through June 30, 2025. If the refund is not issued by May 31, 2025, it will show as “pending” on the website. Applied credits will be reinstated instead of refunded.
• Refund process – The Department will require that refund claims under this provision be submitted on a specific form prescribed by the Commissioner of Revenue. First, the taxpayer must submit the amended returns. Once the amended returns are processed, the refund claims can be submitted. The Notice recommends that both the amended returns and refund claims be submitted via TNTAP, the Department’s online filing portal, to help ensure efficient processing with such amended returns filed in chronological order. Within TNTAP, taxpayers should file the Franchise Tax Property Measure (Schedule G) Repeal refund claim form. Note that refunds will not be allowed via the Department’s standard refund claim form. 

It is important to confirm that net worth figures were reported accurately on the originally filed returns as amended returns filed under this provision cannot include any changes other than the change to update the tax measure from the property measure to the net worth measure. Refund claims for more than $200 must be accompanied by a Report of Debts. Although not required, it is also recommended that a balance sheet, schedule of assets/liabilities, pro forma, or federal return pages supporting the net worth calculation accompany the amended returns. If additional review of the refund is required, the Department of Revenue may request this information. 

• 2024 estimated tax payments – Since this law change is retroactive to Jan. 1, 2024, 2024 estimated tax calculations and payments should be adjusted if necessary (i.e., calculated franchise tax solely using the net worth measure). 
• When to file a refund claim – Taxpayers have from May 15, 2024 through Nov. 30, 2024 to file a claim for refund (amended returns and refund claims must be filed by this date). Any refund claims filed after Nov. 30, 2024 will be disallowed.
• Other taxpayer rights – Taxpayers who claim refunds under this provision will waive their right to further challenge the constitutionality of the tax. 

What does CohnReznick think?

Taxpayers who filed Tennessee franchise and excise tax returns in the past three years should review their originally filed tax returns to confirm if franchise tax was paid according to the property measure. If tax was paid according to this measure, the taxpayer should consider submitting both amended returns and refund claims via TNTAP. Note that the amended returns and refund claims are filed timely as the window for submission of both only runs from May 15, 2024 through Nov. 30, 2024. Additionally, estimated tax payments for the franchise tax component for the tax year 2024 should only be calculated according to the net worth measure. Taxpayers should also keep in mind that receiving a refund under this provision means that their name will be published on the Department’s website for a limited time and that they cannot further challenge the constitutionality of the Tennessee franchise tax.

For additional information on the changes to Tennessee’s franchise tax along with prior tax year amended return refund requirements, refer to Notice #24-05, Franchise Tax Property Measure Repeal. 

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}