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State Income Tax Opportunities: Tennessee Spotlight

May 9, 2024

EisnerAmper’s State & Local Tax professionals discuss state income tax opportunities in Tennessee, specifically those affecting real estate professionals.

These opportunities can help real estate professionals reduce their Tennessee Franchise and Excise Tax liabilities, leading to tax refunds and potential cash tax savings.

EisnerAmper’s State & Local Tax professionals can assist in evaluating their Tennessee tax reporting obligations and securing refunds for overpaid taxes in prior years.


Nick Montorio:

Hi, I'm Nick Montorio, EisnerAmper State Tax Director for the New York office.

And I'm Josh Thomas, a manager in the state and local tax group in New York.

Today we're going to talk about state tax opportunities that are unique to Tennessee. All businesses with operations in Tennessee could benefit from these opportunities, but businesses in the real estate industry may see the largest benefits. These opportunities can help businesses reduce their Tennessee franchise and excise tax liabilities, leading to tax refunds for taxes paid in previous years and prospective cash tax savings in current and future tax years.

Firstly, upper tier entities should be aware that they're generally not required to file returns or compute any tax liability with Tennessee. If any owners of lower tier operating entities paid Tennessee franchise and excise tax based on income received from the lower tier, there could be significant refund opportunities.

Secondly, for businesses with material property in Tennessee, the state may retroactively revise its franchise tax to remove the tax base on such property. If the proposed law change is finalized, then the franchise tax will be based solely on the apportioned net worth base. Depending on the final version of the legislation, the refund period may be from one to three years with the state expecting refunds to a total of $400 million per year.

Tennessee lawmakers have proposed this legislation due to concerns regarding the Commerce Clause of the U.S. constitution. If the proposed change is signed into law, businesses that computed franchise tax based on the property measure would be able to claim a refund for the amount paid in excess of what would've been paid under the apportioned net worth factor.

EisnerAmper state and local tax professionals can assist your business in evaluating your Tennessee tax reporting obligations, both historically and prospectively. In addition, we can work to secure any refunds for the overpayment of taxes paid in prior years.

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