Senate, House leaders struggle with tax break

Tennessee House and Senate leaders are battling over the details of a franchise tax break, with some predicting litigation is guaranteed if lawmakers approve the House’s shorter rebate time frame and transparency provision.

Negotiators agree the property value portion of the state’s franchise tax will be eliminated after Gov. Bill Lee’s administration predicted the state would face “significant legal risk” if it didn’t revamp the tax and offer rebates. Some 80 companies questioned the tax’s property value measure and said it could come under legal scrutiny based on a 2015 Supreme Court ruling out of Maryland.

Reaching an agreement, though, is proving difficult because House and Senate versions of the bill differ widely.

Tennessee Chamber of Commerce & Industry President and CEO Bradley Jackson said Wednesday a narrower disclosure rule could bring the two chambers closer together.

But, he added, a shorter refund period could lead to lawsuits against the state because under state law, a three-year “look-back” is set as part of the due process in business tax challenges.

“The legislature has long had standing where they do not apply legislation retroactively, and the courts have been pretty clear, ‘You can’t do that. That’s a due process issue,’” Jackson said.

In other words, the legislature can’t switch rules on franchise and excise taxes, which are based on a property value measure or a net worth measure over three years.

The Senate version contains a three-year rebate that could cost the state $1.6 billion, while the House version stretches back one year and could cost about $700 million. Either way, the state would lose nearly $400 million annually once the tax is cut.

In addition, the House measure contains a disclosure provision requiring companies that request rebates to be listed on the state’s website along with the amount sought.

Both are major sticking points as lawmakers work toward an agreement.

Each chamber has passed its version, but if either refuses to go along, the measure likely will be referred to a conference committee to hammer out an agreement.

Sen. Bo Watson, R-Hixson, chair of the Senate finance committee, anticipates neither side will bend and the matter will end up in a conference committee.

“I’m 100% confident that the tax is gonna be repealed. … The question is how do we deal with companies who have been paying this tax and do we look back three years, two years, one year, and do we, outside of our normal policy and process, name who those people are?” he said.

The time frame and transparency guidelines remain a “discussion point,” Watson said.