Legal worries have Tennessee considering changes to a long-running tax on businesses

Tennessee is remodeling it’s franchise tax, which businesses pay to operate in the state. Along with the reform, they are planning to set aside more than a billion dollars for companies who have raised concerns about the way the tax is calculated.

Tennessee Attorney General Jonathan Skrmetti and state tax attorneys say they’ve identified liabilities under the current format of the state’s franchise tax. The way it’s done now, companies can choose to either pay a corporate income tax or a property tax.

Skrmetti says the issues pointed out to him — if brought in a lawsuit — could lead to the state paying out hundreds of millions.

Most lawmakers agree on making a change. But exactly how isn’t clear — even to Sen. Bo Watson (R-Hixson), chairman of the Finance, Ways, and Means committee. 

“The Senate is doing its due diligence and reviewing the legislation, considering all the other options that have been considered by the administration,” said Watson. “Then when the Senate’s comfortable with the legislation, whether it needs to be amended or not, then the the leader will start to move the bill forward.”

House Speaker Cameron Sexton (R-Crossville) says his chamber is also still working on the details.

Lawmakers, meanwhile, appear unlikely to continue the state’s grocery tax holiday. In 2022, that tax was cut for one month, and it was extended to a three-month span in 2023.