On April 25, the Tennessee Legislature passed significant legislation that clears the path for businesses with operations in Tennessee to potentially claim a refund for a portion of previous franchise tax assessments. Specifically, companies that paid the state’s franchise tax based on the real and tangible property base may have the opportunity to file for refunds. Tennessee Gov. Bill Lee is expected to sign the bill quickly so the Tennessee Department of Revenue (TDOR) can prepare for the anticipated stream of refund claims from an estimated 100,000 taxpayers.

This legislation was introduced after the Tennessee Revenue Commissioner concluded that a part of the state’s franchise tax that is based on the value of property located in Tennessee (the real and tangible property base) is unconstitutional. The approved legislation repeals the real and tangible property tax base component of the franchise tax and provides taxpayers who paid the franchise tax based on the real and tangible property base with a refund opportunity. Note: the excise/income tax is not the subject of the potential refund claims.

Background: Tennessee Franchise Tax

Tennessee levies an annual franchise and excise tax on all business entities doing business in the state. The franchise tax has two bases: (a) the book net worth of an entity as apportioned to Tennessee (the net worth base); and (b) the book value and capitalized rental value of an entity’s physical property in Tennessee (the real and tangible property base). The higher of the two bases is subject to the franchise tax.

Because Tennessee’s franchise tax couples an apportioned net worth tax with the equivalent of a property tax (based on property located within the state), the interaction of the two tax bases can result in multiple taxation incidences. Recently, North Carolina abandoned a similar taxing system that was part of its franchise tax and replaced it with an apportioned net worth base for years beginning in 2022 and all subsequent years.

Key Points of Tennessee Refund Opportunities

• Tennessee franchise tax refunds are available for tax years 2020-2023
• The window for filing refund claims will open on May 15, 2024, and will close Nov. 30, 2024
• Taxpayers will be required to sign a statement to waive their rights to sue the state regarding the constitutionality of the previous franchise tax system
  • No attorney fees will be awarded to businesses suing the state for franchise tax refunds
• Taxpayers that claim refunds will have their names and the general size of the refund paid to them published on the TDOR website in June 2025; the legislation breaks this into three levels: 
  • Refunds of $750 or less
  • Refunds between $750 and $10,000
  • Refunds in excess of $10,000

Refund Process and Amount

All refunds must be claimed on a form that will be developed by the TDOR Commissioner. Refunds will be calculated based on the excess of the franchise tax under the real and tangible property base over the greater of the franchise tax under the apportioned net worth base or the state’s minimum tax. For instance, if the franchise tax using the “property” base was $100,000 and the tax calculated using the apportioned net worth base was $80,000, then the taxpayer will be eligible for a $20,000 refund.

Next Steps

Companies that may be eligible for a refund should compile previous Tennessee franchise tax returns for the 2020-2023 tax years so that they can be reviewed internally or by the company’s tax advisors.

CBIZ will keep you apprised of further information as it becomes available.

If you have any questions regarding refund opportunities, please contact Geoff Christian or Jimmy Helms in the CBIZ National SALT practice or your local CBIZ tax professional.

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