New Tennessee Franchise Tax Law: Implications for Businesses and Potential Refunds

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New Tennessee Franchise Tax Law: Implications for Businesses and Potential Refunds
On May 10, 2024, Governor Bill Lee signed Public Chapter 950 (2024). This new law eliminates the property measure of the franchise tax historically calculated on Schedule G. This means that beginning in 2024, taxpayers only pay franchise tax based on their business’s net worth (Schedule F). This should simplify the tax filing process for many businesses and allow the Department of Revenue to issue refunds for the franchise tax to eligible taxpayers. This reform marks a shift in the state’s approach to franchise tax calculations, focusing solely on taxpayers’ net worth. Here’s a comprehensive guide on how these changes affect you and what steps you need to take for compliance and potential refunds.

Who Can Get a Refund?

Did you pay franchise tax based on property value for tax years ending on or after March 31, 2020? If you filed your returns after January 1, 2021, you might be eligible for a refund. Since the state is now basing the tax solely on net worth, you may have overpaid in the past if your property value was higher than your net worth.

Important note: The Department of Revenue will identify taxpayers who may be eligible for refunds and begin sending out notifications via mail. If you receive a notification from the Department, we highly encourage you to consult your tax professional to ensure you qualify. Note that all refund claims must be filed between May 15, 2024, and November 30, 2024.

Claiming Your Refund

  1. File Amended Returns: You must file amended versions for the years you paid based on property (2020-2023 tax years). This time, use only Schedule F (net worth) to calculate your franchise tax. Remember to file these amended returns chronologically, starting with the oldest tax year (e.g., 2020 before 2021).
  2. Verify and Claim Your Refund: Once you’ve filed the amended returns, check your Tennessee Department of Revenue (DOR) account (TNTAP) and see if your amended returns show an overpayment for those years.
  3. Request Your Money Back: Use the specific “Schedule G Repeal” refund claim form available in TNTAP to request your refund. The claim window is open between May 15 and November 30, 2024, so it is imperative not to miss it. While not mandatory, providing additional documentation like balance sheets or federal tax returns can help expedite the processing of your claim.

Important Reminders

  • Remember that your refund might first be used to settle any outstanding tax liabilities you may have with the state.
  • The DOR has the authority to review your claim and make adjustments if necessary. If your refund is delayed beyond 90 days, you’ll earn interest on the amount owed.
  • Transparency is key. Starting May 31, 2025, the DOR will publish a list of who received refunds and the amount ranges on its website for a year.

Legal Implications

It’s important to note that you’re giving up your right to sue the state over the previous franchise tax rules based on property value by accepting a refund. If you have any concerns about this, consult with a legal professional.

Taking Action

Eliminating the property measure simplifies calculating franchise tax, making it more aligned with a business’s overall financial health. This change reduces complexity and provides an opportunity for eligible businesses to reclaim overpaid taxes. Contact one of our state and local tax professionals for guidance. If you qualify for a refund, follow the steps outlined to file amended returns and claim forms by November 30, 2024.

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Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals across the country. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.