The Tennessee General Assembly recently passed the Tennessee Works Tax Act (SB275/HB323), approving more than $400 million in tax cuts and marking one of the largest tax cuts in state history.
The legislation includes a three-month grocery tax holiday and an optional paid family leave tax credit for companies. It also provides tax relief for Tennessee businesses and makes several changes to state tax laws intended to increase Tennessee’s economic competitiveness.
Grocery Tax Holiday and Paid Family Leave Credit
From August through October 2023, Tennesseans will not pay tax on food and food ingredients sold in grocery stores. In a news release, the Tennessee Department of Revenue said that on average, each Tennessee family will save over $100 in taxes. Additionally, local governments will be reimbursed by the state for any tax revenues lost during the period.
The legislation also provides an optional state paid family leave tax credit for companies that mirrors a similar federal credit. A company offering paid family leave may be eligible for a maximum 50% franchise and excise tax credit.
$150 Million in Business Tax Cuts
The legislation provides roughly $150 million in tax cuts for Tennessee businesses through several changes to Tennessee’s franchise and excise tax and business tax. As a result of the legislation, more than 23,000 businesses in the state will have their excise tax liability reduced to zero, as the bill exempts a company’s first $50,000 in net earnings from the excise tax. The legislation also exempts up to $500,000 of business property from franchise tax liability.
Roughly 140,000 Tennessee businesses will no longer have to file business tax, as the legislation raises the threshold for filing to businesses with gross receipts of $100,000 or more per jurisdiction (up from $10,000). Local jurisdictions will be held harmless through an adjustment to the business tax state revenue share.
Other Business Tax Changes
In addition, the legislation makes other changes intended to promote economic growth in the state. The legislation aligns Tennessee with over 30 states by adopting “single sales factor” apportionment for franchise and excise tax. Single sales factor apportionment only takes a company’s sales into account. The legislation also conforms with the federal bonus depreciation provisions of the 2017 Tax Cuts & Jobs Act. Additionally, the legislation extends the carryforward period for franchise and excise tax credits to 25 years, an increase from the previous period of 15 years. Finally, it removes the business tax penalty on manufacturers for not having enough on-site storage and adopts changes to sales tax law to make it easier for sellers to do business in Tennessee.
The Tennessee Works Tax Act was carried by Senate Majority Leader Jack Johnson, R-Franklin; House Majority Leader William Lamberth, R-Portland; and House Assistant Majority Leader Mark Cochran, R-Englewood.
For more information, see the Department of Revenue’s Tennessee Works Tax Act webpage.