Gov. Lee to propose simplifying TN's 1930s-era franchise tax; no cut set for grocery tax
Tennessee Gov. Bill Lee will propose changes to the state's franchise tax during the upcoming legislative session to offer tax relief to businesses operating in Tennessee and modernize the way that tax is calculated.
But Lee said Thursday he has no plans this year to propose a rate cut to Tennessee's 4% grocery tax ― one of the highest such tax rates in the nation.
Businesses currently calculate what they owe in state franchise tax in a dual-pronged model first established in the 1930s. Corporations, limited partnerships and LLCs registered in Tennessee or doing business here are taxed either based on 0.25% of the net worth of the corporation, or based on the tangible property in which they operate.
On the advice of tax analysts at the state Attorney General’s Office and Tennessee Department of Revenue, the governor said he will propose a policy to simplify how franchise taxes are calculated when the legislature returns next week, which will "in effect give tax relief to businesses that are invested in our state." Specific details of the proposal remain unknown.
“Most states across the country have a more simplified franchise tax calculation than we do," Lee told reporters Thursday.
While state revenue has leveled off in recent months as federal pandemic relief dries up, Lee noted that it remains about 40% higher than pre-pandemic levels, so the state can afford to offer some tax relief.
“We're in a very strong revenue position as a state,” Lee said. “It needs to be done, and now is the best time to do it."
While the governor would like to see tax relief for businesses by simplifying the franchise tax system, he does not have plans to propose a rate cut to the state's grocery tax.
“We have to always look at ways to provide tax relief, but we have to balance that with the need for revenue to fund the things that we think are important for Tennessee,” Lee said. “So we're always looking at opportunities for tax cuts. I don't have a particular proposal with regards sales tax."
Changes to the franchise tax will be one of the governor's priorities this year, alongside his proposal to establish a statewide system of school choice.
Vivian Jones covers state government and politics for The Tennessean. Reach her at vjones@tennessean.com.
This article originally appeared on Nashville Tennessean: Tennessee franchise tax: Gov. Lee to propose new calculation
