Tennessee Removes Alternative Measure for Franchise Tax, Creates Automatic Refund Period

Gov. Bill Lee recently signed into law Public Chapter 950, which creates significant changes in how Tennessee's franchise tax is calculated.

Until now, the franchise tax has been calculated based on 1) a taxpayer's "apportioned net worth" or 2) the "actual value" of the taxpayer's real or tangible property owned or used in Tennessee (the Alternative Measure), whichever was greater. Public Chapter 950 changes this by:

• repealing the Alternative Measure for franchise tax going forward
• permitting taxpayers to elect to continue using the Alternative Measure if doing so results in a higher tax levied based on apportioned net worth and
• allowing taxpayers to claim an automatic refund of the additional tax previously paid as a result of the Alternative Measure, subject to certain conditions

Refunds Under Public Chapter 950

Taxpayers seeking refunds under Public Chapter 950 should be aware of the following considerations.

• Taxpayers must file a refund claim by Nov. 30, 2024, to obtain relief.
• Refund amounts are limited to the difference between 1) the amount of franchise tax actually paid under the Alternative Measure and 2) the amount that would otherwise have been due using apportioned net worth.
• Refunded tax must have been reported on a return filed on or after Jan. 1, 2021.
• The refund only applies for tax years ending on or after March 31, 2020.
• Taxpayers claiming refunds must submit 1) amended franchise tax returns for the applicable tax years, 2) a purpose-specific refund claim form and 3) a report of debts. See Tennessee Department of Revenue Notice No. 24-05 for additional information.
• To claim a refund, taxpayers must waive any claim that the franchise tax is unconstitutional under the "internal consistency test."
• The Tennessee Department of Revenue is required to publish on its website the names of all taxpayers claiming a refund under Public Chapter 950, along with information regarding the value of each refund (i.e., $750 or less, $751 to $10,000, or more than $10,000). This information will be available on the Department's website from May 31, 2025, through June 30, 2025.
• Refund claims addressing issues other than the Alternative Measure must be filed separately.

Key Takeaway

Taxpayers who previously paid Tennessee franchise tax based on the alternative minimum property measure will no longer be required to do so and should explore filing refund claims for past tax years well before the Nov. 30, 2024, deadline.

If you have any questions, please contact the authors.

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