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TN Business Owner Franchise Tax Refunds

For Tennessee business owners, we are excited to inform you about a significant development that could have a substantial financial impact on your business. On May 10, 2024, Governor Bill Lee signed Public Chapter 950 (2024), introducing major changes to the Tennessee franchise tax calculations, and authorizing the Department of Revenue to issue franchise tax refunds to eligible taxpayers.

Historically, taxpayers have paid franchise tax on the greater of two bases:

1. The taxpayer’s net worth (assets minus liabilities), or
2. The net book value of property owned or used by the taxpayer in Tennessee (the “alternative base”).

The new legislation makes two crucial changes to this 87-year-old franchise tax calculations:

• Repeal of the alternative base: For tax years ending on or after January 1, 2024, franchise tax will be calculated solely based on the net worth measure.
• Refunds for previously paid franchise tax: Taxpayers who have paid franchise tax on the alternative base in prior years can now seek refunds from the Tennessee Department of Revenue.

Who is Eligible for a Refund?

Taxpayers who paid franchise tax on the property measure using Schedule G for tax years ending on or after March 31, 2020, and filed returns on or after January 1, 2021, are eligible for a refund.

How to Request a Refund

Eligible taxpayers must:

1. Amend their franchise and excise tax returns for all eligible tax periods.
2. File a Claim for Refund of Franchise Tax Paid on Property Measure (Schedule G) form.

Both the amended returns and the refund claim form must be submitted by November 30, 2024. Please note that to claim a refund, taxpayers must waive any claim that the franchise tax is unconstitutional under the “internal consistency test.”

Act Now

This is one of the most significant franchise tax law changes ever enacted and presents a significant opportunity for affected taxpayers to receive a cash refund. However, the process requires careful evaluation and timely action. The Tennessee Department of Revenue estimates total refunds of approximately $1.5 billion for around 100,000 taxpayers.