The refund window for Tennessee’s franchise tax property measure closed on November 30, 2024, and no new claims can be filed under the statutory program created by Public Chapter 950. If you submitted a claim before that date, it may still be processing, and any payment you receive carries federal income tax consequences and may be reduced by other debts you owe the state.
What the Refund Covered
Before the repeal, Tennessee’s franchise tax ran on two tracks. A business calculated the tax both on its net worth and on the value of real and tangible personal property it owned or used in Tennessee, then paid whichever figure was higher at a rate of 0.25 percent, with a $100 minimum.1Tennessee General Assembly. Fiscal Note HB 1893 – SB 2103 Capital-intensive businesses almost always paid under the property measure, often by a wide margin.
Public Chapter 950 eliminated the property measure for tax years ending on or after January 1, 2024, and created a backward-looking refund for taxpayers who had paid more under the property measure than they would have under net worth alone. To qualify, a taxpayer had to have used the property measure (Schedule G) to calculate franchise tax for a tax period ending on or after March 31, 2020, and the return had to have been filed with the Department of Revenue on or after January 1, 2021.2Tennessee Department of Revenue. Notice 24-05 – Franchise Tax Property Measure Repeal
The refund equaled only the excess: what you paid under the property measure minus what you would have owed on net worth. Years in which your net worth figure was already the higher of the two produced no refund, even if you filed amended returns for them.
The Deadline and Why It Is Firm
The Department of Revenue opened claims on May 15, 2024, and closed them on November 30, 2024.2Tennessee Department of Revenue. Notice 24-05 – Franchise Tax Property Measure Repeal That window was the entire statutory refund mechanism. A business that did not file an amended return and a Schedule G repeal refund claim form through TNTAP, or by mail to the Department at 500 Deaderick Street in Nashville, by November 30, 2024, cannot now recover property-measure overpayments through this program.
If You Filed in Time: Offsets and Interest
Tennessee law requires the Department to apply any franchise tax refund to outstanding state tax liabilities before paying a balance to the taxpayer.3Justia Law. Tennessee Code 67-4-2122 – Refund of Levied Taxes Claims of $200 or more required a Report of Debts form at filing, which the Department uses to identify and apply those offsets. The refund you ultimately receive may be smaller than the amount shown on your amended returns.
On the other side, the legislation added interest to refunds that take time to pay. Interest accrues at the federal short-term rate plus 0.5 percent, beginning 90 days after the Department receives both your refund claim and all supporting documentation. Given the volume of claims filed before the deadline, many approved refunds will include an interest component.
Claims are processed in the order received. If yours has not been paid, it may still be in the queue rather than denied.
Federal Income Tax on the Refund
A franchise tax refund is generally taxable on your federal return in the year you receive it. Under the tax benefit rule in Internal Revenue Code Section 111, a taxpayer that deducted state taxes on a prior federal return and later recovers some of them must include the recovered amount in gross income.4Internal Revenue Service. Revenue Ruling 2019-11 – Section 111 Recovery of Tax Benefit Items If deducting the franchise tax reduced your federal bill in the year you paid it, refunding it is income now.
For most businesses that deducted Tennessee franchise tax, the full refund will be taxable. The tax benefit rule caps the inclusion at the amount that actually reduced federal tax in the earlier year, so in the uncommon case where the deduction produced no benefit, less of the refund (or none of it) is taxable. For pass-through entities whose owners itemize, the SALT deduction cap, raised to $40,400 for 2026, can affect how much of the original deduction was useful and therefore how much of the refund must now be reported. Coordinate the reporting with a tax advisor before filing the federal return for the year the refund arrives.
How the Franchise Tax Works Now
Going forward, Tennessee calculates the franchise tax on net worth alone, defined by the Department as total assets minus total liabilities from the business’s books and records.5Tennessee Department of Revenue. Franchise and Excise Tax The rate is still 0.25 percent, and the minimum tax is still $100. Schedule G no longer figures into the computation, so the property your business owns or leases in Tennessee is no longer a franchise tax base. Returns for tax years ending on or after January 1, 2024, should already reflect this single-track calculation.