(The Center. Square) – Tennessee Gov. Bill Lee’s budget proposal includes a $410 million annual tax cut that includes $1.2 billion in one-time costs.
Overall, the budget proposal is for $52.6 billion with $25.4 billion from the state and $19.8 billion from federal funds. The proposal is a $9.9 billion decrease from the current budget with $6.6 billion less in state funding and $3.4 billion less in federal funding.
The franchise tax cut was something recommended by Beacon Center’s Entrepreneurship & Innovation Council last year.
The report said that Tennessee was one of 16 states with a franchise tax and had the fourth highest rate in the nation for a tax that is levied whether or not a company makes a profit.
Tennessee also does not cap its franchise tax and Beacon said the tax is figured by the “greater of the company’s net worth or the book value of real or tangible personal property owned or used in the state.”
“There has been a good bit of conversation about this change to our franchise tax law, because it is incredibly important,” Lee said in his State of the State. “We became aware of a need to change the law, which has been in place for almost 90 years. So, we crafted a solution that resolves the issue now so that we can move forward now. And this is the best strategy to ensure we do right by Tennessee taxpayers.”
Lee’s budget proposal adds another $20 million to the state’s rainy day fund while cutting down on one-time expenses.
The state’s tax collections have slowed, sitting $280 million below budgeted estimates through the first five months of this fiscal year.
The franchise tax change proposal, Senate Bill 2103, says that it will require “a refund equal to the amount of tax actually paid minus the amount of tax otherwise due.” The refund is required to be claimed within three years from Dec. 31 of the year in which was payment was made.
That refund accounts for the $1.2 billion in one-time costs in the proposal.
The National Federation for Independent Business says it is continuing to review the proposal to see the impact on its members.
“Our members are having a very favorable reaction to the governor’s franchise tax proposal,” NFIB Tennessee State Director Jim Brown said. “We also are gathering feedback from the tax practitioner community and sharing with state leaders to ensure the proposal’s implementation would go smoothly.”