Tennessee enacts changes to franchise and excise, business, and sales taxes

In brief

H.B. 323, the Tennessee Works Tax Act, enacted on May 11, makes several changes to the franchise and excise tax, including: 

• a single sales factor phase-in for the tax, with certain industry changes; 
• conformity to Section 168 depreciation for assets purchased on or after January 1, 2023; 
• extending the carryforward period for franchise and excise tax credits from 15 years to 25 years; and 
• exempting the first $50,000 of net earnings from the excise tax applicable for tax years ending on or after December 31, 2024. 

Changes to the business tax include: 

• an exemption for sales made from a manufacturing location or nearby storage or warehouse facilities; 
• a reduction in the rate for Class 5 taxpayers; and 
• an increase in the minimum level of taxable sales necessary to be subject to the tax. 

Sales tax changes include providing guidance regarding sales tax sourcing and extending the tax to certain services.  

The takeaway: Although the transition to single sales factor may attract most of the attention, with some taxpayers benefiting and some seeing an increased liability, taxpayers should analyze the numerous other provisions as substantially all are business-friendly. In particular, the exemption from the business tax for out-of-state manufacturers may be beneficial for many taxpayers. 

[Tennessee H.B. 323 (5/11/23)]