We have been monitoring the legislative and legal developments regarding Tennessee’s Franchise Tax Property Factor since the beginning of the year, and are happy to share that on May 10th, Governor Bill Lee signed a new law into effect eliminating the Property measurement from the Franchise Tax Base. 

The Department of Revenue recommended this action to legislators in light of dozens of lawsuits (including a large one from Toyota) that have been filed questioning the legality of the mechanics of the effective assessments on Tennessee Taxpayers.
This new law repeals the Property measurement prospectively and allows for a refund process by statute for the 2020 through 2023 tax years. We have been data-mining our client information and are reaching out to share what this process will look like and help you determine your next steps as we process refunds for our client base.

Next Steps

We are starting to process these amended returns and the required claims for refunds that must follow for our clients.

Your CPA will be in touch with your tentative amount. If you want us to accelerate the process for you, please CLICK HERE, and we will have a team member reach out with a quick reply with more details and an analysis of your numbers.

We will be sending cover and engagement letters for you to authorize us to process any refunds on your behalf. We will then work the process from beginning to end in our Practitioner TNTAP login with the Department of Revenue and provide confirmation post completion for our clients. The complete refund process will require multiple touches from our team over several days with the Department of Revenue. We must also still file the 2023 Tennessee returns, as the law was written at the time prior to processing amended returns and requests for refunds. So, it may make sense to do the refund process twice if your 2023 Return is not complete in order to process 2020 through 2022 now. 

We are aiming to complete the majority of the claims prior to August 15. The Tennessee Department of Revenue will take some time to process all these for hundreds of thousands of taxpayers, and will start paying interest at a reduced rate after the refund has been outstanding for 90 days. So please do not expect a refund next week!

What This Means to You

This new law may allow you to claim a refund if your Property factor was higher than your Net Worth factor for previous year’s TN FAE 170 Tax filings. We are analyzing all our client’s data and calculating tentative refund amounts and will be reaching out individually to you with your respective number. 
As your CPA, we are ready to start filing these Amended Returns and Claims for Refunds to help you secure these potential dollars if you are benefiting from the law.

It is important to understand that as part of this legislation and taking advantage of the limited refund opportunity, you are waiving your rights to historical refunds for years prior to 2020, and forgoing other rights including potential interest or remedies.

For the majority of TN taxpayers, the economic reality of the costs and hazards of litigation in pursuing a higher benefit are too great, and as a result, most companies will be pursuing this limited refund opportunity (refund limited to the years 2020-2023) versus seeking further benefits through the legal system (seeking refunds for years prior to 2020 and/or interest). If we believe you should consider an alternative to Tennessee’s preferred approach of this limited refund (years 2020-2023), we will discuss this with you. In general, if you pay less than $25,000 a year in Franchise Tax based on the Property Factor and your entity Net Worth is a significantly lower factor, it will make sense to pursue the limited refund.

As part of participating in the limited refund opportunity, 1) your company name will appear on the TN Department of Revenue's website for a limited amount of time, and 2) you knowingly waive all claims and rights of action in any court, state or federal, against the Tennessee Department of Revenue, Commissioner of Revenue, State of Tennessee, or its employees based on any theory that the franchise tax is unconstitutional by failing the internal consistency test. We have not heard any clients express any grave concerns around the disclosure, as it simply discloses the company name and the range of the refund amount.

The claim for refund must be submitted between May 15, 2024, and November 30, 2024. After November 30, this program will close permanently and the opportunity will pass. 

If you are curious as you wait to hear from your CPA with your tentative refund amounts, you may look at Line 2 of your TN FAE170 (Tennessee Franchise & Excise Tax Return). If this line is greater than Line 1 and Line 3 is more than $100, you are eligible for a refund. The amount of the refund, in some cases, may be as much as the amount shown on Line 3 minus $100. However, if Line 1 is greater than $0, and Line 2 is greater than Line 1, you will still have a refund, but it will be the difference between the Franchise Tax on the old Property factor that has been repealed and the Franchise Tax on the sustained Net Worth factor. We are doing this for you right now.

Closing