In an effort to stimulate the economy and alleviate financial burdens on businesses, Tennessee has introduced an economic stimulus measure that could result in stimulus checks exceeding $5,000 for qualifying taxpayers. This initiative is relevant for both individuals and corporations with tax ties to the state, fondly known as the “Volunteer State.”
A recent legislative proposal, expected to be approved on May 13, 2024, could drastically change how this tax is calculated. The new law proposes eliminating the use of the tangible property value to determine the franchise tax base, moving to use only the net worth method starting from the fiscal year ending January 1, 2024, and onwards.
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Where do the stimulus checks come from?
Tennessee’s franchise tax is a state levy applied to legal entities operating within its borders. This tax is calculated in one of two ways, always choosing the higher amount to be paid:
- Net worth of the entity: This is calculated by subtracting the entity’s financial liabilities from its total assets within the fiscal period.
- Book value of tangible property used in Tennessee for business: This includes real and personal property used for commercial purposes within the state.
Entities required to comply with this tax include a variety of corporate structures such as Subchapter S corporations, limited liability companies (LLCs), limited partnerships, and others. The rate applied is 0.25%, with a minimum payment of $100, ensuring that all businesses contribute to the state’s economic development.
This modification would allow many businesses to significantly reduce their tax liabilities since the net worth tends to be lower than the total value of tangible property used in the business.
In response to this change, the state of Tennessee has proposed a reimbursement system, or “stimulus checks,” to compensate businesses for potential overpayments made in previous years under the old calculation system.
Eligibility and application process
To be eligible for this stimulus check, businesses must have anticipated these tax payments under the old system. Those who did not may need to adjust their tax calculations, updating the base used to reflect the new changes and thus minimize their tax burden.
The process to claim this refund involves submitting a specific form designed exclusively for this stimulus check request, excluding other claims or refund requests.
It is crucial that applicants strictly follow Tennessee’s tax regulations, particularly those outlined in Section 67-1-1802 of the Tennessee Annotated Code, which governs refund and claim procedures. Failure to comply with these rules may result in the rejection of the application.
Deadlines and final considerations
The period for claiming this refund is generous, allowing businesses to file up to three years after the initial payment, with a cutoff date of December 31, 2027. This offers businesses ample time to organize their documents and ensure they meet all necessary requirements to benefit from this stimulus.
This stimulus check represents a significant financial aid for affected businesses and reflects Tennessee’s effort to create a fairer and more equitable business environment.
By adjusting the way these taxes are calculated, Tennessee aims to promote greater tax fairness and support economic growth across the state.
The new Tennessee stimulus check is excellent news for businesses within the state, providing an opportunity to relieve tax burdens and strengthen financial foundations during uncertain economic times.
With significant changes in tax legislation, it is essential for interested entities to stay informed and prepared to adapt to the new regulations, thereby maximizing the benefits available under this new tax stimulus system.