Tennessee Works Tax Act Opens the Door to New Savings

One of the largest tax cuts in state’s history has just been approved by the Tennessee General Assembly. The Tennessee Works Tax Act (Senate Bill 275/House Bill 323) includes more than $400 million in tax cuts for Tennessee businesses and families. There were several updates and changes including a three-month grocery tax holiday, new paid family leave tax credit, and several business tax changes including the introduction of bonus depreciation. The changes were largely viewed as necessary to make the state a more attractive location to companies and a growing mobile workforce. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Grocery Tax Holiday

The first major change is a grocery tax holiday. Food and food ingredients sold in grocery stores from August 1 through October 31, 2023, will not be subject to sales tax. Foods and ingredients that qualify under this rule can be solid, liquid, frozen, concentrated, dried, or dehydrated substances that are chewed or ingested by humans for taste or nutritional value. Alcoholic beverages, candy, tobacco, and dietary supplements do not apply. Local governments that lose sales tax revenue will receive reimbursement from the state during this three-month period. It’s estimated that each Tennessee family will save on average $100 in taxes.

Paid Family Leave Credit

Companies that offer paid family leave may be able to get a tax credit against excise tax and franchise liability for the next two years. The credit will be based on the amount of wages that are reimbursed to employees for paid family leave.

Small Business Support

With the recent changes, companies will be able to deduct the first $50,000 of their net earnings from excise tax, meaning over 23,000 businesses will see their liability decrease to zero. Up to $500,000 of business property will also be exempt from franchise tax liability.

Many businesses, approximately 140,000, will also be exempt from filing business taxes, with a change that moves the gross receipts filing threshold from $10,000 to $100,000 or more per jurisdiction. However, any business that has $3,000 or more in gross receipts will still need to have a local business license.

The decrease in local business tax revenue can affect local jurisdictions; however, the act also indicates that they will be held harmless through adjustments of state business tax revenue being shared with local governments.

Business tax rates have also changed for Classification 5A taxpayers, from 0.3% to 0.1%. These include industrial loan and thrift companies.

Other Important Tax Changes

Tennessee will also join more than 30 other states in adopting a “single sales factor” apportionment for excise and franchise tax. This apportionment looks at only a company’s sales, not its investments in jobs and property in Tennessee, which can reduce the tax burden for many businesses. The shift will be made during a three-year transition period.

Other measures include:

• A carryforward period for franchise and excise tax credit increase from 15 years to 25 years.
• Business tax manufacturing exemption expansion that includes storage facilities in a 10-mile radius.
• Changes to state tax law that help taxpayers sell across state lines with clear guidelines about which state should be taxing the sale.
• A new allowance for bonus depreciation would be available for any assets purchased after January 1, 2023.

Contact Us

The tax updates and changes called for in the Tennessee Works Act create mostly favorably changes in the state’s excise, franchise, sales and use tax policies. If you have questions about the information outlined below or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.