Tennessee tax cuts include business credits, grocery tax holiday

Tax credits for business owners and a three-month grocery tax holiday for consumers are among almost $400 million in tax cuts included in the new Tennessee Works Tax Act.

The tax law changes included in SB275 and HB323 were approved by the Tennessee legislature and signed into law by Gov. Bill Lee, signaling one of the largest tax cuts in state history.

For businesses, some of the biggest changes will be in franchise and excise (F&E) taxes. More than 23,000 businesses in Tennessee are expected to see their F&E tax bill eliminated thanks to a new tax exemption of a company’s first $50,000 in net earnings. Up to $500,000 of business property will now be exempt from franchise tax.

Additionally, an employer that provides paid family leave may now be eligible for as much as a 50% F&E tax credit for the next two years as part of the new legislation. The law also enacts a single sales factor apportionment for F&E tax similar to more than 30 other states, and it extends the carryforward period for F&E tax credits to 25 years, up from the previous 15 years.

Other key changes for business owners:

• The legislation raises the threshold for filing business taxes to those with gross receipts of $100,000 or more per jurisdiction; that amount previously was $10,000.
• Federal bonus depreciation provisions of the 2017 Tax Cuts & Jobs Act will be adopted.
• Tax penalties are removed for manufacturers that do not have enough on-site storage, expanding the qualifying area to a 10 mile-radius.

For consumers, a three-month grocery tax holiday will stretch from August 1, 2023, to October 31, 2023. No sales tax will be collected on food and food ingredients during that time; not included on that list are alcoholic beverages, tobacco, candy, or dietary supplements.

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