On February 6 as part of his state of the state address, Governor Bill Lee previewed a tax bill intended to reinforce Tennessee’s reputation as a business- and investment-friendly state. The full text of the governor’s tax bill has been released; below is a brief rundown of what is included:
Corporate Franchise & Excise Tax
- Reform: Adopts single sales factor apportionment for Tennessee (with a two-year phase-in with 5x weighted sales for the first year, 11x weighted sales for the following year, and single sales factor for all years ending on or after December 31, 2025). Expected tax increase of $17M in the first year and nearly $100M after fully-phased in.
- Tax break: Makes 100% bonus depreciation for qualified property under the Tax Cuts & Jobs Act permanent for Tennessee excise tax.
- Tax break: Excludes up to $500,000 of real and tangible property from the alternative franchise tax on property (but not the franchise tax on net worth).
- Tax break: Excludes up to $50,000 of net earnings from excise tax.
- Tax increase: Taxpayers would no longer be allowed to use federal employer tax credits to offset more than half of their franchise and excise tax liability each year.
Sales & Use Tax
- Reform: Brings Tennessee into conformity with the sourcing rules and other provisions of the Streamlined Sales & Use Tax Agreement, a multistate initiative intended to make it easier for businesses to collect sales and use taxes across multiple states.
- Tax increase: Removes exemptions for qualifying printers and distributors of books, magazines, and direct-mail advertising.
- Tax increase: Imposes a new sales/use tax on sending tangible personal property outside the state for repair or cleaning.
- Tax holiday: Creates a tax holiday on food from August 1 to October 31, 2023.
Business License Tax
- Tax break: Exempts all manufacturers.
- Tax break: Exempts any business with less than $100,000 of sales in Tennessee.
- Tax break: Lowers tax rate on industrial loan and thrift companies from 0.003% to 0.001% of gross income.
- Reform: Gives more money to cities and counties to offset the potential impact on local budgets.
If you have questions about your Tennessee tax responsibilities, or any other Tennessee tax issue, please contact the authors.