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Department of Revenue requests $18.7M increase; reports nearly $1.3B refunded under 2024 franchise tax provision
Summary
Commissioner David Gergano outlined requested contract renewals and spending authority increases for the Department of Revenue and provided a status update on the large franchise tax refund provision: roughly $1.3 billion refunded to claimants so far, 67,000 claims received and several categories of remaining amounts under review.
The Tennessee Department of Revenue asked the Finance, Ways and Means Committee for budget adjustments totaling about $18.7 million and updated lawmakers on the implementation of a 2024 franchise tax refund provision that generated tens of thousands of claims.
Budget requests and major contract renewals
Commissioner David Gergano described budget items the department grouped into two categories: contract renewals/service delivery and requests to recognize and spend existing fee revenue. Major items included:
- Fast Enterprises maintenance contract (state tax system): $4,400,000 recurring to fund a five-year maintenance contract for the department's comprehensive tax processing system, which handles roughly 2 million electronic returns and nearly $27 billion in state and local tax collections, and is used by other state and local entities for information sharing and local tax administration.
- Tricor license-plate contract: $3,000,000 recurring to cover increased production costs for license plates (five-year contract renewal).
- Mailed correspondence and postage: $4,300,000 recurring to absorb increased printing and postage costs as the department's taxpayer and vehicle registration volumes have risen (department said it averages 30,000 new tax accounts per year and roughly 100,000 additional registered vehicles annually).
- Other items: $2.6 million to true up internal billing for servers/data/phone lines; recognition of fees for motor vehicle transactions that are pass-through to vendors; and a request to recognize modest recurring ($78,000) and nonrecurring (~$120,000) spending authority tied to the new 6 percent sales tax on hemp-derived cannabinoid products.
Franchise tax refund status
Commissioner Gergano provided an update on the franchise tax refund provision enacted last year. Key points:
- The department received approximately 67,000 refund claims tied to the measure.
- The department has refunded just under $1.3 billion to date.
- About $11 million of claims are being held for taxpayers and counties affected by Hurricane Helene (the department accommodated an extended filing window for those taxpayers).
- The department has notified fiscal staff (FNA) that $113 million can be included in this year's budget as used funds; a remaining $151 million in claims are still pending review. Officials said roughly half of the pending amount relates to the 2023 tax year and, depending on claim status, could be returned to the general fund as current collections.
- The department said the refunded population is concentrated in a relatively small number of taxpayers who paid large amounts of the franchise tax (the department described corporate/franchise tax obligations as top-heavy, with a relatively small portion of taxpayers responsible for a large share of receipts). The department also said it will continue to work through remaining, often more complex, claims.
Questions from lawmakers and context
- Chairman Williams and others asked why projected revenues differed from actual collections in recent cycles. The department explained the variance results from enrollment/local-revenue changes affecting pass-through funding (relevant to other agencies) and from under- or over-collections in current-services fees it administers for local governments. CFO Amanda McGraw said much of the department's FY24 reversion relates to current-services revenue that exceeded anticipated budgeted authority.
- Representative Hicks asked about a sales-tax disaster-relief reserve the department manages for post-disaster purchases (appliances, building supplies). The commissioner said the program exists but is historically underutilized; the department offered to provide counts and to work with legislators to increase outreach to eligible homeowners and nonprofits.
No votes took place during the hearing. The department said it would provide follow-up information on the remaining franchise refund claims and additional detail on current-services collections and reversion accounting.
