New House version of tax bill provides refund disclosure

A new House version of a costly plan to change the Tennessee's franchise tax system would require the state to publicly list the businesses receiving refunds, an effort to inject some transparency into a process muddied by state officials' refusal to release records justifying the overhaul.

House Majority Leader William Lamberth, R-portland, filed the amendment to HB 1893, which received first passage out of a House subcommittee on Wednesday. The House version contains significant differences from the Senate's $1.9 billion plan, which upper chamber Republicans passed last week.

The House version would cost around $800 million, which Lamberth called “significant savings” for the state, split between a $400 million cost in the upcoming fiscal year and around $400 million in subsequent years. Companies who take a rebate from the state would also have to waive their right to sue over the franchise tax in the future, as lawmakers have argued they're pushing this legislation under the spectre of a potential lawsuit.

The franchise tax effort would alter the calculation the state uses to determine business franchise tax, eliminating a property tax calculation, which will cost the state $400 million in revenue beginning this year. The Senate version allows businesses to claim up to three years of tax rebates for previous franchise tax bills, while the House version only covers one year.

Lamberth's version would also create a specific carve-out to existing tax privacy law, which requires confidentiality for state tax information, to allow the state to reveal who is receiving a refund and how much they're getting.

“If a company is asking for a rebate, and that's money they're getting from the General Fund, then taxpayers should know who and how much,” Lamberth said.

Senate Republicans last week batted down an amendment from Sen. Heidi Campbell, D-nashville, to disclose the businesses that benefit from a refund, arguing it would contradict state law requiring tax refund confidentiality. Campbell's amendment sought to make public any “record, document, or other information pertaining to a refund of franchise tax.”

Lamberth said publishing the name and dollar amount could satisfy transparency concerns while keeping broader tax records and documentation private.

The House amendment would also require a company to use any Tennessee economic and development credits to “offset and reduce” their franchise tax refund.

The franchise tax break sailed through the Senate last week, where 16 of the 25 Republican senators present declared a Rule 13 personal interest before voting in favor of the bill. One Democrat, who voted against the bill, also declared a personal interest.

Senate Finance Chair Bo Watson, Rhixson, said Thursday “nobody likes this solution,” a familiar refrain from Republicans who have backed the legislation and argued the tax refund, and its gigantic price tag, is the best path forward to avoid expensive litigation.

Yet, no lawsuit has been filed, and there is no court order demanding Tennessee make these changes. Instead, lawmakers have continually touted a letter from a national law firm as the basis for the legislation.

State officials have refused to disclose the law firm's communication with the state, despite public records requests from The Tennessean. Officials have cited attorney-client privilege and the state law that makes tax information confidential. The Department of Revenue declined to release a redacted version of the law firm's letter.

Lamberth on Wednesday expressed skepticism about the legal issues with the existing franchise tax framework, but said he recognized Tennessee is “out of step” with most other states regarding the franchise tax policy.”