Tennessee lawmakers agree to a second billion-dollar tax break for businesses in as many years

Members of Tennessee House listening to a bill presentation during the 2024 legislative session. (Photo: John Partipilo)

Tennessee lawmakers have officially agreed to eliminate a portion of the state’s business tax one year after making several costly changes to the same tax.

Estimates from the general assembly’s fiscal review committee show that the two cuts and an additional refund approved this year will cost the state at least $7.4 billion in the future. 

Tennessee traditionally has had one of the most regressive tax systems because it generates more than 60% of its $25 billion in revenue from sales taxes. 

A report from the nonpartisan group ThinkTennessee, released before the latest tax break, found the state has one of the lowest tax burdens in the United States but that “low-income families face a higher effective tax rate than wealthier families and businesses.”

This year’s tax break eliminates the state’s property portion of the franchise tax, also known as Tennessee’s primary tax on businesses, which will cost an estimated $4 billion in revenue over the next 10 years. It also included a refund for those who paid this tax over the past three years, costing $1.55 billion. 

Last year, lawmakers changed the business deductions allowed for the same business tax, resulting in around $1.87 billion in lost revenue over the next decade, according to the general assembly’s fiscal review committee. 

A report from the nonpartisan organization ThinkTennessee, released before the latest tax break, found that “low-income families face a higher effective tax rate than wealthier families and businesses” in the state.

But unlike last year’s tax cut, which included a temporary three-month sales tax holiday on groceries, this year’s reduction does not.

Gov. Bill Lee, owner of an HVAC and plumbing company that reported $340 million in revenue in 2022 to the Nashville Business Journal, pushed for both tax cuts. Lee placed his company assets in a blind trust when he became governor, a move meant to shield him from knowledge of how his holdings are being managed.

Last year, officials touted the benefits of the state’s tax structure changes, especially for smaller businesses. But this year, the outlook was less sunny, as officials in the administration claimed the property portion of the franchise tax, which has existed for decades, needed to be eliminated because it faced a potential legal challenge. 

No company has sued the state, but more than 80 have requested refunds, according to the Department of Revenue, which has said it will not release the names of those seeking the money.  

The revenue department did release a document, first reported by The Tennessean, showing that 53% of the potential refunds would go to companies with out-of-state headquarters. 

County property records examined by the Lookout also showed that the biggest beneficiaries of the refunds would be companies such as Eastman Chemical, FedEx, HCA Healthcare, Jack Daniel’s, Nissan and Volkswagen, due to their substantial assets in the state.

Based on those records, a company such as Memphis-based FedEx could be in line for a refund of around $7 million. 

Transparency? ‘Not really’

Lawmakers waited until the end of the 2024 legislative session to pass the tax cut. 

Part of the reason was a split between House and Senate lawmakers over how many years of refunds to give and whether the state should release information about those refunds. 

Senate Republican leaders and Lee opposed transparency in the legislation and wanted to issue around three years of refunds. House Republicans took the opposite stand on transparency and advocated for only one year of refunds.

It's clear businesses wanted a secret payout. They tried to frame this as a refund, but if the state had been sued and agreed to pay out the refunds through a pre-litigation settlement, then the public would know how much companies would be getting.

– Deborah Fisher, Tennessee Coalition for Open Government

Ultimately, the House sided with its Senate colleagues on the amount of refunds in return for some transparency. The revenue department will release the names of those receiving money and ranges of refunds.

• $0 to $750

• $750 to $10,000

• $10,001 or more

Deborah Fisher, the executive director of the Tennessee Coalition for Open Government, said the final bill was “not really” transparent because companies will likely receive hundreds of thousands, if not millions, of dollars, meaning a $10,000 range doesn’t provide much information. 

“It’s clear businesses wanted a secret payout,” Fisher said. “They tried to frame this as a refund, but if the state had been sued and agreed to pay out the refunds through a pre-litigation settlement, then the public would know how much companies would be getting.”

Governor made a last-minute push against transparency

During a news conference earlier in the week, Lee made a rare public statement as lawmakers negotiated, stating he was adamantly against releasing the names and amounts of money companies received in refunds. 

“I just don’t think it should be in there,” Lee said. “I think we shouldn’t be taking private tax information that the government has and making it public. That’s something we haven’t done in the past. I don’t think we should be doing it in the future.

The Republican governor has declined to say whether his company, The Lee Company, would benefit from the refund or future elimination of the franchise tax’s property element. 

When the Senate voted on the tax cut, 13 Senators declared a conflict of interest, indicating they would benefit from the plan. 

Rep. Aftyn Behn, D-Nashville, sponsored measures to tax corporations at a higher rate, enabling the state to cut Tennessee’s grocery tax. (Photo: John Partipilo)

A business tax expert told the Lookout that if the state allowed a property tax deduction, it would satisfy the legal requirements and result in no lost revenue. 

Democratic Sen. Jeff Yarbro of Nashville referred to the disclosure portion of the bill as a “transparent attempt” by the Legislature to “shield itself from criticism.”

Democrats unanimously opposed the tax cuts, offering an amendment to the plan that would allow the property portion of the franchise tax to remain intact while resulting in no lost revenue. 

Rep. Afytn Behn and Sen. Charlane Oliver, both Democrats from Nashville, tried to pass several pieces of tax legislation that would increase taxes on businesses to pay for universal pre-K and allow the state to eliminate its sales tax on groceries. 

The combination of the two years of tax breaks hung over this year’s legislative session as the state faced a tighter budget than in previous years. 

Initial estimates showed the business portions of last year’s tax cut would result in $237.5 million in lost revenue for the state, but those estimates were off. Business tax collections, including the anticipated losses, have already decreased by $495.8 million, with several months left in the fiscal year.

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