Due to a recent law change, taxpayers that file or have filed Tennessee franchise tax returns and that meet certain qualifications may be eligible to claim refunds for prior tax years if a claim is filed by November 30, 2024. Taxpayers that paid the franchise tax in prior years on the property measure base instead of the net worth base qualify for the refund claim, but claims will not be accepted if filed past the deadline.
This alert summarizes the legislation, outlines the refund claim procedures, and provides additional taxpayer considerations for businesses that wish to pursue this opportunity.
Tennessee SB 2103/HB 1893
On May 10, 2024, Tennessee Governor Bill Lee signed SB2103 and HB1893, which substantially changes the Tennessee franchise tax calculation for future tax years and provides for refunds of prior year franchise tax paid by certain qualifying taxpayers. Under prior law, the franchise tax was calculated based on the greater of a taxpayer’s net worth or the book value of its Tennessee property (“property measure”). The property measure of the tax recently came under legal challenge by taxpayers under the theory that it violates the internal consistency test of the dormant Commerce Clause of the United States Constitution. In response, legislation was enacted to modernize the franchise tax and provide refund claims for prior years for taxpayers who paid tax on the property measure.
Under the new law, effective for tax years ending on or after January 1, 2024, the property measure for calculating the franchise tax is repealed and the related form, Schedule G, is obsolete. The franchise tax calculation is now based solely on net worth reported on Schedule F.
In addition to the prospective change to the franchise tax calculation, the legislation authorizes refunds of previously paid franchise tax calculated under the property measure. The refund amount available for each applicable tax year is the difference between the franchise tax paid on the property measure and the tax that would have been owed based on the net worth measure. Calendar year taxpayers may file amended returns and submit refund claims for the tax years ended December 31, 2020 through December 31, 2023. Fiscal year filers may submit claims for tax years ended on or after March 31, 2020 for which a return was filed on or after January 1, 2021.
Claim your tax refund before November 30.
Refund Claim Procedures
Taxpayers should adhere to the following procedures to file a refund claim:
- File amended returns through their Tennessee Taxpayer Access Point (“TNTAP”) account for the applicable tax years to calculate the franchise tax based solely on net worth by November 30, 2024. Due to the deadline falling on a weekend, claims will be accepted through December 2, 2024.
- Taxpayers should submit their amended returns in chronological order by tax year.
- The tax returns should process overnight and taxpayers should verify that the returns have processed on their TNTAP account.
- Taxpayers should then file the refund claim form through TNTAP and confirm the address to which the refund check should be sent.
- Taxpayers should provide a completed “Report of Debts” form with the submission.
- Taxpayers must also affirmatively waive online any claim in any federal or state court against the State of Tennessee on any theory that the franchise tax as it existed under prior law is unconstitutional.
- Refund claims are typically processed within two weeks of submission and a check will be issued in the name of the filing entity and sent by mail.
Taxpayer Considerations
Taxpayers that wish to take advantage of this opportunity should be aware that the Tennessee Department of Revenue is required to publish the name of each taxpayer issued a refund and the applicable range corresponding to the total amount refunded. The names will be published on the Tennessee Department of Revenue website on May 31, 2025 through June 30, 2025. The applicable ranges are: (1) $750 or less; (2) between $751 and $10,000; and (3) more than $10,000. Additionally, calendar year taxpayers should file the 2023 return under the old law and then amend the return and follow the refund claim procedures outlined above.
In addition to the refund opportunity, taxpayers may also wish to review their sales factor sourcing positions, explore elective consolidated net worth filings for calculating the franchise tax, and ensure that they are in compliance with the Tennessee Business Tax.
Contacts
If you have any questions regarding the Tennessee franchise tax refund opportunity or other state and local tax matters, please contact any of the following professionals.
Brian Sengson
Partner
Bennett Thrasher, LLP
(770) 635-5041
[email protected]
Matthew Laney
Director
Bennett Thrasher, LLP
(678) 302-1412
[email protected]
Start your refund claim process today.
