The Tennessee Senate passed a nearly $2 billion tax and refund package for businesses on Thursday, aiming to address potential legal threats regarding the state’s longstanding franchise tax. Critics cautioned that the rushed proposal lacked proper vetting and transparency.
Republican leaders initiated the response last fall after a law firm representing numerous businesses questioned the legality of Tennessee’s franchise tax, dating back 90 years, and demanded refunds.
Initially, Governor Bill Lee proposed $1.2 billion in refunds and $410 million in ongoing tax breaks. The Senate later adjusted the proposal to $1.56 billion in refunds and $393 million in tax breaks, totaling $1.95 billion.
Senator Ken Yager, a Republican, emphasized that the bill aims to resolve the issue responsibly and enhance the state’s competitiveness in attracting businesses.
The core concern revolves around potential violations of the U.S. Constitution’s Commerce Clause, which prohibits states from enacting laws that burden interstate commerce. Additionally, a 2015 U.S. Supreme Court case invalidated Maryland’s tax law for double-taxing income earned in other states.
Details about the businesses raising legal concerns have remained undisclosed, raising questions about transparency. While the original group numbered around 80, Senator Yager revealed that the law firm represented “hundreds” of individuals.
Critics noted the unusual haste in addressing the issue, particularly given the Republican-dominated legislature’s usual approach of advancing legislation despite potential litigation risks.
House Speaker Cameron Sexton indicated that the House version of the bill would differ, including a nearly $400 million tax cut. Further details will be disclosed once the House’s amendment is finalized.
The franchise tax debate coincides with Governor Lee’s proposal for a universal school voucher program, raising concerns about the state’s fiscal commitments amid stagnant revenues.
