Tennessee General Assembly Passes Tennessee Works Tax Act

Legislation Among Largest Tax Cuts in Tennessee History
Thursday, April 27, 2023 | 01:05pm

NASHVILLE, Tenn. – The Tennessee General Assembly has approved more than $400 million in tax cuts for Tennessee families and businesses through the Tennessee Works Tax Act, marking one of the largest tax cuts in Tennessee history and supporting future economic growth.

“Decades of smart fiscal stewardship have enabled Tennessee to maintain a balanced budget while cutting taxes for Tennessee families and businesses,” said Governor Bill Lee. “We are proud to continue that legacy this year by putting dollars back in the pockets of Tennesseans and supporting future economic growth across Tennessee, and I thank the General Assembly for its partnership to promote future growth and opportunity for our state.”

The legislation includes a three-month grocery tax holiday and an optional paid family leave tax credit for companies to support Tennessee families. It also provides tax relief for Tennessee businesses and increases the state’s economic competitiveness through several changes to Tennessee’s tax laws.

“We’re proud to be able to provide much needed tax relief for Tennessee businesses and families, while also laying a firm foundation for continued economic growth in Tennessee,” said Department of Revenue Commissioner David Gerregano.

Helping Families: Grocery Tax Holiday & Paid Family Leave Credit

From August through October 2023, Tennesseans will not pay tax on food and food ingredients sold in grocery stores. 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 support for families through 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.

Boosting Small Businesses: $150 Million in 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.

Supporting Future Economic Growth

The new legislation also provides a foundation for supporting Tennessee’s continued economic growth. For example, it will align 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, which reduces the tax burdens for businesses that have invested property and jobs in Tennessee.

The legislation also conforms with the federal bonus depreciation provisions of the 2017 Tax Cuts & Jobs Act, allowing businesses to recover capital costs more quickly and reinvest in the Tennessee economy. The legislation extends the carryforward period for franchise and excise tax credits to 25 years, an increase from 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 (SB275/HB323) 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).

“In Tennessee we are committed to low taxes,” said Senate Majority Leader Jack Johnson.  “We believe that Tennessee businesses and citizens are in the best position to decide how to spend their own money, and this tax-cut proposal demonstrates that we practice what we preach. This bold plan will provide more growth opportunities for businesses and financial relief for families on every-day expenses. We are proud to be one of the lowest taxed states in the nation, and these tax cuts reinforce our dedication to being a pro-business and pro-family state with low taxes.” 

“Helping Tennesseans keep more of their hard-earned dollars, supporting economic growth and creating new job opportunities in the Volunteer State is always at the heart of our work in the legislature,” said House Majority Leader William Lamberth. “I was proud to partner with Gov. Lee and Republicans in the General Assembly to provide direct relief for Tennessee families and businesses who have been burdened by soaring inflation created by the federal government. We will continue to deliver the smart fiscal governance that Tennesseans have come to expect.”

“Tennessee remains one of the lowest-taxed states in the nation thanks to our tradition of conservative fiscal management,” said House Assistant Majority Leader Mark Cochran. “These tax cuts will further strengthen economic competitiveness, promote entrepreneurship and provide meaningful relief to families across our state.”

The Department of Revenue is responsible for the administration of state tax laws and motor vehicle title and registration laws and the collection of taxes and fees associated with those laws. The department collects about 87 percent of total state revenue. During the 2022 fiscal year, it collected $20.9 billion in state taxes and fees and more than $4.3 billion in taxes and fees for local governments.  To learn more about the department, visit www.tn.gov/revenue.