The Tennessee legislature recently passed, and the Governor has signed, new taxpayer-friendly amendments to the Tennessee Franchise and Excise tax statutes. The changes are effective for tax years beginning on or after January 1, 2017.
New Way to Make Quarterly Estimates
For those taxpayers that must make quarterly Tennessee franchise/excise payments, there is a new method that the taxpayer may elect to calculate the amount of those payments. For excise tax estimates, the Taxpayer may elect to compute estimates in the same manner provided by Section 6655(e)(2) of the Internal Revenue Code (the “annualized income installment method”). This change provides a timing benefit to those taxpayers who receive more income at the end of the year and significantly less income at the beginning of the year. Such taxpayers will be able to make smaller estimated payments in the quarters when income and cash flow is smaller and larger payments in the last half of the year when income is larger.
IF the taxpayer elects the annualized income installment method for making quarterly excise tax payments, the amount of the quarterly estimate payment for franchise taxes will be the lesser of
(a) 25% of the prior year’s franchise tax; or
(b) 25% of 80% of the taxpayer’s franchise tax liability for the current tax year.
So, for franchise tax estimates, if the taxpayer pays in at least 100% of the prior year’s franchise tax liability or 80% of the current year’s estimated tax liability, in equal quarterly installments, then there will be no penalty imposed for failure to make adequate franchise tax estimates.
Under prior law, the taxpayer was required to make equal quarterly estimate payments of the combined franchise/excise tax liability equal to the lesser of (a) 25% of the prior year’s combined liability or (b) 25% of 100% of the taxpayer’s combined liability for the current tax year.
Deadline for Filing Exemption from Franchise/Excise Taxation
In the past, a taxpayer requesting an exemption from Tennessee franchise/excise taxation had to file an exemption application within sixty days of the beginning of the taxpayer’s first tax year for which the taxpayer wanted the exemption. So, for a calendar year taxpayer created on January 1, 2016, the law required the taxpayer to file an exemption application by no later than March 1, 2016.
Taxpayers now have a longer time to file the exemption application. Effective for tax years beginning on or after January 1, 2017, the taxpayer must file the exemption application form on or before the 15th day of the fourth month following the close of the first tax year for which the person claims the exemption. For a calendar year taxpayer claiming an exemption for tax year 2017, the taxpayer must file the application exemption form on or before April 15, 2018.
Reduction of Penalty for Late-Filed Exemption Form
Under prior law, if a taxpayer did not file the initial franchise/excise exemption form or the annual exemption renewal form by the required due date, the taxpayer was subject to a penalty of $1,000 per occurrence. Under the new law, the amount of the penalty is reduced to $200 per occurrence. As under prior law, the Commissioner has the authority to waive the penalty for good and reasonable cause.