On May 11, Tennessee Governor Bill Lee signed the Tennessee Works Tax Act of 2023 into law. The Act makes changes to franchise and excise taxes, sales and use taxes, and the business tax.
Below, we summarize the most significant provisions in the Act.
Franchise and Excise Taxes
The Act makes changes to franchise and excise taxes that are imposed on Tennessee’s corporations, including S corporations, limited partnerships, and limited liability companies taxed as partnerships for federal purposes. Among the notable changes are:
Most Tennessee taxpayers doing business inside or outside the state of Tennessee, with the exception of financial institutions, apportion net earnings or losses for excise tax purposes and net worth for franchise tax purposes using a ratio based on three factors: property, payroll, and sales, with a triple-weighted sales factor. The Act adopts SSF, will transition applicable taxpayers from the three-factor apportionment formula to a SSF apportionment formula over a three-year period as follows:
Manufacturers: The legislation repeals the 2017 elective SSF apportionment available to manufacturers and is mandatory effective for tax years ending on or after December 31, 2025. It provides an annual elective apportionment formula using three factors with triple-weighted sales for tax years ending on or after December 31, 2023. The election may be made only if the three-factor formula results in a higher apportionment ratio for the taxpayer and the taxpayer has net earnings rather than a net loss.
Sales and Use Taxes
The Act makes several changes to Tennessee’s sales and use tax laws for businesses. The following take effect July 1, 2024:
Smith + Howard’s sales and use tax professionals, powered by Synexus Tax Solutions, stays on top of sales and use tax filing requirements in every state. We would be happy to speak with you about how businesses are spending more time focusing on growth because we’re doing the work on their sales tax compliance.
The Act makes several changes to Tennessee’s business tax to benefit smaller businesses and some industries, including:
Smith + Howard: Experienced Tax Advisors
For business owners located in or doing business in Tennessee, a tax advisor with the knowledge, skills and experience to navigate these laws and build an effective tax strategy is crucial.
At Smith + Howard, we’re proud to serve as tax advisors to business owners across the nation. Our team of experienced tax professionals brings a sophisticated approach to tax planning that combines business and personal tax strategies to build an optimal path forward for businesses and their owners.
To learn more about Smith + Howard’s tax services, contact an advisor today.
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